The recent rally in global equity markets appears to have run out of steam this week as investors start to take profits over concerns that the macro economic backdrop is much weaker than was thought to be the case, and that whatever the outcome of a US, China trade deal, it won’t be enough to mitigate a broader economic slowdown, with this week’s OECD GDP downgrades also sharpening investor concerns about the important areas of the global economy.
Today’s US February payrolls report, while disappointing on the headline number, wasn’t a bad report with wages growth posting a new 10 year high of 3.4%, while the unemployment rate dropped to 3.8% and the U6 unemployment rate dropping sharply also. This could well suggest that the US labour market is starting to tighten up, and in the longer term could well push further upward pressure on the US dollar index. This hasn’t stopped US markets posting their biggest weekly losses this year, as investors start to fret about future growth prospects.
It’s all set up to be a big week for sterling with little indication that Theresa May’s Brexit deal will get through Parliament next week. With a “no deal” scenario still the current default position MPs will find themselves under further pressure to try and prevent an outcome, however for all the hot air about “taking no deal off the table” they will need to actually do something, like passing legislation to make sure that a “no deal” Brexit doesn’t happen.
Given the current divisions in Parliament this still remains a high bar, and something that markets don’t currently appear to be pricing in.
UK Spring Statement and Meaningful Vote – 13/03
It's set to be another important week for the UK economy as the Chancellor unveils the Spring statement which is set to show an unexpected windfall for the UK economy.
The amount of tax paid in terms of tax receipts has proved to be surprisingly strong, despite the hysteria in some quarters that a vote to leave the EU would undermine the UK economy. It is true that some business investment has dried up as we head towards the exit date at the end of the month, but all the dark warnings that we heard in the run up to the June 2016 referendum have thus far failed to materialise.
Given the extra fiscal headroom now available to the Chancellor this week’s latest meaningful vote is likely to shape how events play out in the context of an extension of article 50 which now looks increasingly likely whether a deal is agreed this week or not.
US retail sales (Jan) – 11/03
After the horror show that was December’s US retail sales number, there is an expectation we might well see a sizeable adjustment, given that a lot of US retailers reported some decent numbers in December, with Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT) reporting decent activity.
The numbers for January may well have been impacted by the US government shutdown, which may see activity somewhat subdued, however it is expected that December might see an upward revision.
UK GDP, Industrial and Manufacturing Production (Jan) – 12/03
The UK economy has shown evidence of slowing in recent months, but it hasn’t been unique in that regard, with manufacturing globally showing a sharp slowdown in the last six months.
UK manufacturing PMI’s have proved to be slightly more resilient, though some have put that down to contingency stockpiling, ahead of the UK exit date from the EU at the end of this month.
In December we saw the manufacturing and industrial production undergo steep declines, with little sign of a significant pick up, in contrast to recent PMI’s which have been slightly more robust. Monthly GDP saw a December decline of -0.4%, with the hope that was simply a one off, and didn’t signal a broader slowdown as we head into 2019.
US CPI (Feb) – 12/03
US inflation has continued to remain fairly subdued in recent months, with core CPI steady at 2.2% for the last three months. The more fluid number which includes food and energy has dropped from 2.5% at the end of Q3 to 1.6% at the end of last year.
This sharp fall has probably played a part in the recent change of tack by the US Federal Reserve in pausing its rate hiking cycle as US policymakers adopt a wait and see approach in terms of what to do next. February CPI is likely to reinforce that caution.
China Retail Sales and Industrial Production (Feb) – 14/03
With most of China closed during February for Chinese New Year it will be difficult to draw too many conclusions from the latest set of data out of China, however in terms of services the economy does appear to be holding up fairly well, despite fears of a broader slowdown.
The February trade numbers painted a pretty awful picture of the Chinese economy, as both exports and imports slipped back sharply. This suggests that Industrial production is likely to be a poor number, due to Chinese factories closing, however retail sales might see a pick up as Chinese consumers splash out.
Domino’s Pizza (LON:DOM) FY18 – 12/03
The takeaway food business has been one of those markets that has seen a significant amount of digital disruption in the last few years, as companies like Deliveroo, Just Eat (LON:JE) and UberEats bring fast food to the masses.
In its first half update at the end of last summer Domino’s profits were hit by rising costs as it looked to expand in Norway and Sweden. Sales growth in the UK and Ireland saw a rise of 8.1%, with the World Cup helping boost sales.
The big question for investors will be as to whether the company is getting on top of the rising costs in its international market operations, which have helped drag the share price close to four year lows.
Cineworld (LON:CINE) FY18 – 14/03
When the UK cinema chain splashed out $3.6bn on US based Regal Entertainment over a year ago there was some speculation that they might be biting off more than they could chew at a time when streaming services are becoming ever more popular. When the company reported its first half numbers in August the numbers surprised to the upside helped by films like Black Panther and the latest Avengers film, which helped push profits up 164% to $160.2m and revenues to $1.86bn.
The company said it was optimistic about the second half with Mission Impossible Fallout, as well as Mary Poppins Returns expected to push up revenues. The company has also increased the number of screens by opening a host of new sites which should add to the overall experience.
Restaurant Group (LON:RTN) FY18 15/03
Management of Restaurant Group surprised a few people last year when they paid £550m for rival food restaurant Wagamama, at a time when the sector is undergoing significant cost pressures from rising wages and a more discerning consumer.
The owner of Frankie and Benny’s has found itself at the forefront of speculation that it may have bitten off more than it can chew as investors raised concerns about the sustainability of the dividend, which saw a cut in the wake of the purchase, while the sudden departure of CEO Andy McCue last month unnerved investors even further sending the shares back to levels last seen in 2010, as investors fretted about future management strategy.
Since October the shares have slid over 30% and it looks increasingly likely that 2019 could well be much more challenging than 2018. On the plus side Restaurant Group outlets tend to be in the same areas as the big cinema chains, so if cinemas do well, then they should feel some of that benefit.
The big question is whether any uptick from Wagamama sales is enough to justify the price tag, while investors will also be hoping for an update on the search for a new CEO.
Williams-Sonoma (NYSE:WSM) Q4 19 – 13/03
A decent bellwether of the US consumer this company which specialises in kitchenware and home furnishings has had a decent run since its one year lows at the end of last year. Its Q3 numbers saw same store sales rise 3.1%, while e-commerce revenues increased 8.2% to $747m.
A miss on Q3 revenues saw the company downgrade its outlook for Q4, and the poor US retail sales number in December, as well as the US government shutdown in January may well see revenues struggle in Q4.
Revenues are expected to come in at $1.8bn with EPS at $1.966c a share. A lot will depend on how well business at its Pottery Barn and West Elm subsidiaries performs in what traditionally is a decent period for high level retailers.
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