US employment report – 4/5
Last month’s payrolls numbers were a disappointment on the headline number, dropping sharply to 103k from the February surge to 313k. This type of swing in the monthly figures doesn’t offer any clues as to whether the labour market is starting to show signs of tightening up even if the unemployment rate did stay unchanged at 4.1%. Wages have been edging their way higher which is encouraging, currently at 2.7% but the pace of gains has been slower than expected. Despite this we are starting to see evidence that markets are starting to price in the prospect of higher inflation levels as bond yields edge up to multi year highs. Underemployment still remains fairly high at 8% and it is this that economists are now choosing to focus on as the jobs market starts to tighten up.
With oil prices exerting upward pressure on consumer spending we really need to start to see wage growth rise as well otherwise the inflation we get may well be the wrong sort. The type that sees consumers spend less on discretionary items because they have to spend more on everyday essentials. This will especially true for US consumers where a fuel price of $3 a gallon tends to put a brake on other spending. With US driving season looming this presents a problem and may help explain President Trump’s recent blast in OPEC’s direction.
Fed meeting – 2/5
The upcoming Fed meeting is likely to offer a decent opportunity for the US central bank to critique the health of the US economy ahead of next month’s largely expected rise in interest rates. There doesn’t appear to have been anything in the recent data to suggest that the central bank will row back from market expectations that rates will rise next month for the second time this year, and for the fifth time since the beginning of last year.
The recent rise in bond yields also suggests that markets are starting to price in the real prospect that rates could well rise four times by the end of 2018. With no press conference the tone of the statement is likely to be key, however it is by no means certain that US policymakers will want to boost expectations of four rate rises at this point in time.
BP Q1 – 1/5
When BP (LON:BP) posted its full year numbers earlier this year the company saw profits more than double, coming in at $6.2bn, helped in no small part due to the recent rise in oil prices. Both upstream and downstream business posted decent growth with output levels rising back to levels last seen back in 2010. The boost in the numbers was helped by the opening of seven new oil and gas fields during that time which helped boost its oil production levels by 12%. With another six new projects set to begin this year in the North Sea, as well as Egypt and Azerbaijan, this level of profitability looks set to improve further given expectations that the company has reduced its breakeven price down to $50 a barrel. It has also helped that the company appears to put the bulk of the costs of the Deepwater Horizon disaster behind it.
The decision investors have to make now is that, with the shares at 8 year peaks, how much higher can we go? The company’s exposure to Russia could be a problem and overall debt still remains on the high side at $37.3bn, and needs to come down.
Apple Q2 – 1/5
When Apple (NASDAQ:AAPL) announced the launch of the £1,000 iPhone X last year there was some scepticism about the sustainability of a pricing policy which while aimed at a loyal audience could prompt a significant slowdown in the longer term. When paying that sort of money for a device it is highly likely that the churn rate will slow. A lot of people wouldn’t pay that much for a computer let alone a phone. Despite a positive start at the end of last year the high price points do appear to be starting to have an effect on handset sales if recent warnings from Apple suppliers are any guide. At the company’s last quarterly numbers the company posted a record of $20.1bn in profit, and $88.3bn in revenue, but that did come about against a backdrop of falling handset sales. If this trend in falling sales continues then Apple will have to rely a lot more on other parts of its business to offset any possible fall in revenue. This quarter will be the first quarter where we’ll start to see how well the new HomePod intelligent speaker device has started to sell. It went on sale on 9th February in the UK and US.
Snap Q1 – 1/5
It’s been over a year since Snap (NYSE:SNAP) launched its IPO against a backdrop of enormous scepticism that it was worth the $25bn valuation for a company that wasn’t and still isn’t anywhere close to making a profit, against a user base that had been in decline and disappointing revenues at the end of last year. There was some excitement earlier this year when the company managed to post numbers that beat market expectations. A 5% rise in user growth and 8.9m new users surprised the market, as did a lower than expected loss of $350m. This is definitely a move in the right direction and there is a chance the company could well benefit from Facebook’s recent woes and its data privacy controversies. Snap does appear to be benefiting from a younger demographic and the recent negative PR around Facebook (NASDAQ:FB) could prompt a move away from Instagram and towards Snapchat.
Sainsbury (LON:SBRY) FY – 2/5
Given the tough retail environment so far this year it would be easy to be a little bit nervous about this week’s full year results from the UK’s second biggest food retailer. The shares have been on a tear in the past month rising sharply to 10 month highs, after its rival Tesco (LON:TSCO) posted record full year profits for its full year. The latest Kantar survey also showed that the recent bad weather had a limited impact, with Sainsbury increasing sales in the 12 weeks to the end of March, by 0.6%, as customers stockpiled as well as loading up for Easter. The big worry is the decline in market share to 15.8% as a result of the discounters Aldi and Lidl and it will be notable how management intend to deal with that. We also have to factor in the Argos factor and how that has performed in a general retail market that has been difficult so far this year.
International Consolidated Airlines (LON:ICAG) - Q1 4/5
It’s been an interesting quarter for the British Airways owner. Having come off the back of a decent 2017 and a rise in profits to €3bn in its full year results in February the company announced a share buyback of €500m. The results in the final quarter were a little disappointing probably as a result of higher fuel costs. The company has been cutting jobs which has seen one off costs rise with Iberia and British Airways bearing the brunt. Profits also improved at its other businesses including Spanish budget carrier Vueling, as well as Aer Lingus, though this could face pressure from higher fuel prices given recent moves higher in the price of oil.
We could also get further detail on management’s recent decision to take a 4.61% stake in Norwegian Air (LON:0FGH).
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