The week ahead: UK public finances; Aviva, Marks & Spencer, Snowflake Results

Read our pick of the top stories to look out for this week (24-28 May), and view our key company earnings schedule.

Join Michael as he looks at the week’s cryptocurrency-inspired market volatility, and all the other major events, including US inflation, US GDP and UK public finances. He also previews the latest numbers from Marks & Spencer, Aviva (LON:AV) and Ted Baker (LON:TED), and discusses the key levels on FTSE 100, S&P 500, GBP/USD and EUR/USD.

Germany Q1 GDP and IFO (May)

Tuesday: The German economy is expected to confirm a contraction of -1.7% in Q1, marking an annualised -3.3% contraction. While an improvement is expected in Q2, the stop-start nature of the country’s economic reopening is likely to mean that any rebound in the current quarter is likely to be subdued.

The recent decision to extend restrictions to the end of June has seen business confidence ebb, with the latest IFO business climate survey showing only a modest improvement in April after a big jump in March. IFO business expectations actually saw a decline in April in the wake of rising infection rates and some localised tightening of restrictions. Expect to see an improvement in May’s numbers, given that Germany’s vaccination programme has been going quite well. The latest business climate survey is expected to show an improvement too.

UK public finances (April)

Tuesday: Having seen the UK economy post its biggest annual post-war deficit of over £300bn in 2020, the new tax year is likely to start the same way it finished the last, with further big increases in public sector borrowing. Twelve months ago, a lot of estimates suggested that these numbers would be a lot higher than they subsequently turned out. Nonetheless there is some concern about the sustainability of the current levels of borrowing, especially since furlough has been extended into September.

On the plus side a lot of businesses have repaid their business rates support, which has helped keep the numbers down, and the UK economy started on its reopening process in April as well. A lot of businesses appear to have adapted quite well to a new way of operating, and while borrowing is expected to remain high for the next few months markets still remain fairly relaxed about it, despite gilt yields edging higher, towards 0.9% over the last few weeks, largely over concern about rising inflation risk. April public sector borrowing is expected to rise by £30bn.

British Land (LON:BLND) full-year results

Wednesday: As UK retailers have suffered as a result of the pandemic so have landlords, with British Land one of many commercial property owners having to grant rental holidays as their customers struggle to meet their rents due to the various lockdowns over the last 10 months. Last year the company, which owns shopping centres in Sheffield and Plymouth, wrote down the value of its property portfolio by £1bn.

While not paring back their exposure to retail, the company is reorientating towards out-of-town warehouse and logistics spaces, as more shopping moves online. In its most recent trading update British Land said 82% of total rent had been collected for FY21, with offices at 99% and retail at 70%. In an attempt to rebalance its portfolio, the company has sold-off older assets from its office portfolio while putting cash into the newer more modern ones. Disposals of £1.2bn in the last 12 months have been indicative of this new approach. In April the company signed-up JLL on a 15-year lease as a tenant for its new development at 1 Broadgate, putting it at around 30% pre-let.

Marks and Spencer (LON:MKS) full-year results

Wednesday: When Marks and Spencer reported its H1 numbers back in November last year, it was notable that it was the first time that this bellwether UK brand had posted a loss in its 94-year history, as the spill over effects of the various shutdowns in its retail operations hit trading, with its general merchandising division bearing the brunt. A H1 loss after tax of £71.6m, was notable for a 15.8% slide in sales to £4.1bn, although its food division came to the rescue in some respects due to the recent deal with Ocado (LON:OCDO), which saw a 47.9% rise in sales. In Q3 the picture wasn’t much better as far as general merchandising was concerned, with clothing and home sales down 24.1%, however this was better than most estimates of a -30% decline. The outperformance here was down to a 47.5% increase in online sales which helped boost sales while stores remained closed, while food sales rose 2.6%. Q3 revenue came in at £2.77bn, with management saying that near term trading was likely to remain challenging, given the likelihood of stores being closed for most of Q4, while its Ireland and Czech Republic operation was likely to see costs increase as a result of potential tariffs.

NVIDIA (NASDAQ:NVDA) Q1 results

Wednesday: As NVIDIA sets out on a new fiscal year, the company is mostly known for its graphics chips However it has also been moving into high-spec CPUs for data centres, and while its $40bn deal for ARM Holdings (LON:ARM) is currently under review, the shares are only marginally down from the record highs of April. The biggest earners still come from the gaming segment with a 41% rise in revenues accounting for $7.76bn of the total 53% rise seen in 2021.

Data centre revenue was the big gainer in 2021, rising 124% to $6.7bn. In the last quarter the company saw $5bn in quarterly sales for the first time, and before that it saw $4bn, a rise of 20%. With this sort of sales growth market expectations around future sales are already quite high, and with the UK government threatening to block the ARM acquisition there are downside risks in the short term, however even if the company fails in its bid to acquire ARM, the speed at which the company has moved into the data centre segment suggests a lot of additional potential on the revenue front given the explosion in web services over the last 12 months. Profits are expected to come in at $3.277 a share.

Snowflake Q1 results

Wednesday: When Snowflake reported in March, its revenues came in better than expected at $190.5m. However, losses rose to $0.70 a share, or $199m, largely as a consequence of higher stock compensation. Annual revenues rose by 120% to $553.8m, and while the company has seen decent growth in the aftermath of its IPO last year the share price has still halved from the record highs seen back in December last year. This is probably just as well given that even at current levels the valuation still looks generous for a business that has a turnover of less than a $1bn. That’s not to say it isn’t a good business given the calibre of some of its clients and its satisfaction ratings. The company now needs to look at turning a profit and get tighter control of its cost base. For the current quarter the company said it expects to see revenue of $200m, with full year revenues expected to rise to $1bn, which is in line with market expectations. This week’s update will give investors a decent idea of how far along they are in meeting those estimates, while losses are expected to come in at $0.155 a share.

Aviva Q1 results

Thursday: Aviva (LON:AV) has been on a bit of a disposal spree in the last few months, selling its Singapore business for £1.6bn to Singlife and a consortium of other buyers in September. The insurer also sold its stake in Italian business, Aviva Vita in November for €400m, and the Hong Kong and Vietnam businesses in December. In March it announced another disposal, selling Aviva Italy to Allianz (DE:ALVG) for €873m, while earlier this month the company completed the exit process for its Turkey business, receiving a £122m cash consideration in the process.

These sales are part of CEO Amanda Blanc’s desire to focus on the company’s core markets of UK, Ireland and Canada, and it appears to be paying off. In November we saw new business sales in UK and Ireland rise by 40%, and in the recent full-year numbers there has been continued growth in all areas of the business, from assets under management, which have rose to £81bn for bundled workplace pensions, to record net flows of £8.5bn for savings and retirement. Group operating profits also beat expectations, coming in at £3.2bn, well above consensus estimates of £2.73bn, and only 0.7% below last year’s number. The company also confirmed a final dividend per share of 14p.

Ted Baker full-year results

Thursday: It’s been a slow road back for Ted Baker (LON:TED), rocked by bad press over the behaviour and departure of its founder, and various stock accounting errors, new management have taken great steps to try and keep the business above water. In June last year, the company said it was looking to raises over £100m at a discounted price of 75p, as it sought to shore up its finances. During last year the company also sold and leased back its head office in London for the sum of £78.75m, with £72m of that cash used to pay down its debts. In February, the company said retail sales fell by nearly 50% between 1 November and last January, as various restrictions and the January lockdown hit footfall.

Management doesn’t expect to see a significant pickup in sales until the end of May, and forecasted an extra £5m of costs due to extra duty and import fees related to Brexit. On the plus side its Chinese business appears to have been performing well, and is likely to have continued to do so over the Chinese New Year period. The company also signed a new ecommerce deal in the Middle East with Al-Futtaim, to cover the likes of Qatar, UAE, Bahrain and Saudi Arabia.

Since its last update in February the Ted Baker share price has recovered quite well, rising over 80% on expectations that it will continue to improve its digital platform. Despite the recent losses, Ted Baker CEO Rachel Osborne has insisted that free cash flow will be positive this year in spite of all the restructuring efforts and Covid-19 headwinds. This week we’ll find out if that optimism is justified.

Salesforce.com (NYSE:CRM) Q1 results

Thursday: Salesforce is another company that has benefited from the shift to working from home, despite being mostly geared towards office working. Total revenues saw an increase of 24% to $21.25bn, with the company raising its revenue target for 2022, from $25.5bn to $25.7bn with the acquisition of Slack being included in the updated figures, assuming a closing date of Q2 2022, and a net contribution of $600m.

The company cited its new Work.com product which helps aid clients in the transition to remote working for the big jump in revenues, while its share price hit a record high in early September after Salesforce’s elevation to the Dow. Since last year’s record the shares have been on a downward slide, although they appear to have found some support at around $200. It remains to be seen whether the $27.7bn price tag for Slack will be money well spent, but for now investors appear content to offer the benefit of the doubt. The outlook for the next 12 months is rosy, given recent upgrades to its guidance. Profits are expected to come in at $0.88 a share.

US Q1 GDP

Thursday: This second iteration of Q1 GDP looks set to show the US economy got off to a decent start to the year. The first iteration saw the US economy expand by 6.4%, a modest improvement on the 4.1% gain seen at the end of last year. As the data becomes more complete and the more recent data gets parsed through, we could well see an upward revision.

Personal consumption in Q1 saw a strong rebound from 2.1% in Q4 to 10.7%, however this could be revised higher given the big jump seen in the recent March data which saw 770,000 new jobs added and retail sales rebound 10.7%. Irrespective of whether the number is at the lower or upper end of expectations, the US economy looks set to start 2021 very much on the front foot with expectations of an annualised expansion of 6.4%, with personal consumption expected to drive that with a 10.7% rise.

US personal spending & personal income (April)

Friday: If the retail sales numbers for April are any guide, then this week’s spending number is likely to be much weaker than the one we saw in March which was boosted by the stimulus payments which also helped boost consumer personal incomes. In March we saw personal income rise 21.1% after a 7.1% decline in February. The rise in personal income wasn’t matched by a similarly strong rebound in personal spending which only saw a rise of 4.2%, despite a strong rebound in retail sales. That would suggest that while US consumers have seen their disposable incomes rise, they aren’t spending it all quite yet.

This was borne out by a very flat April retail sales number, suggesting a fair amount of residual uncertainty despite a brightening economic outlook. Personal incomes for April are expected to see a decline of 15% after the March jump as the boost effects of the stimulus payments get washed through. Personal spending is likely to see a modest uptick to 0.5% in April, however there is a risk of a miss here given the weaker than expected retail sales number, as well as the recent poor jobs report.

US core PCE deflator (April)

Friday: Amid all of the recent concern about rising inflation, it’s important to remember that for all of the big increases seen in recent CPI and PPI data over the past month, with CPI hitting its highest levels since 2008, that the Fed doesn’t look at either when assessing the inflation outlook.

The US central bank’s twin mandate of unemployment and inflation uses the core PCE as its main inflation benchmark, which in March came in at 1.8%. This level of 1.8% was the highest level since February 2020, pre-pandemic, with the measure slipping to a low of 0.9% in June last year, before rebounding. April’s number is not expected to be immune to the recent sharp rise in inflationary pressure, and a sharp rise here could well reignite market concerns about a less than transitory inflation environment. Expectations are for a sharp rise to 2.7%, which if it happens would be the highest level since the early-1990s.

Index dividend schedule

Dividend payments from an index's constituent shares can affect your trading account. See this week's index dividend schedule.

Selected company results

Company announcements are subject to change. All the events listed above were correct at the time of writing.

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