US midterms 06/11, Fed meeting – 08/11
The results of the US midterm elections in the coming days are likely to be crucial in respect of how the Trump administration conducts fiscal policy over the next two years. Republican successes could well see further expansionary fiscal policy, while setbacks are likely to see policy making that much more difficult, and probably see the US dollar fall further.
With respect to the Fed, one of the reasons cited for last month’s stock market sell off has been the rising prospect that the Federal Reserve is set to continue its aggressive rate hiking sale into 2019. This week’s meeting is unlikely to temper that expectation, given the jump in wages to a nine year high in the October payrolls report, with a December rate rise still pretty much a done deal, with the Fed statement unlikely to be that much different to the September meeting.
UK Q3 GDP – 09/11
The recent performance of the UK economy appears to show an economy that while still feeling the pressure from concerns about Brexit, is still performing well. Borrowing is down, while GDP growth appears to have remained steady at or near to the levels seen in Q2. Expectations are for Q3 GDP to come in at around 0.4%, as incomes start to catch up with and overtake inflation.
The latest Bank of England inflation report saw the central bank straddle both sides of the Brexit coin. They downgraded their forecasts for Q4 GDP to 0.3%, however they remained confident that Q3 GDP would come in at around 0.6%, with Brexit uncertainty likely to prompt businesses to defer investment expenditure into year end.
RBA rate decision – 06/11
Last month the RBA left rates unchanged at 1.5% for the 26th month in a row, citing weak household consumption, despite further falls in the unemployment rate. Fears of a slowdown in China has weighed on some parts of the Australian economy, however we’ve also seen the Australian banks announce increases to their own variable mortgage rates, which appears to be weighing on consumer spending power. Could the RBA react to the higher funding costs being felt by Australian banks, or will they hold pat as they have done for over two years now. A slowing housing market might prompt the RBA to be more dovish than normal, however it is unlikely they’ll give any signs of a policy move in that direction.
Global services PMI’s (Oct) 06/11
It’s big week for services PMI’s in light of concerns about a slowdown in the global economy as we get the first glimpse of Q4 economic activity from across the globe. Recent data has shown that manufacturing activity has slowed considerably from the beginning of the year, however services has proved to be slightly more resilient. This needs to continue where in France and China we have seen some improvement, however trade concerns remain a worry. This week’s October readings from Japan, France, Germany, Italy, Spain and the UK could well reinforce these concerns, while the latest US data continues to get a lift from the tax cuts that came into effect at the beginning of the year.
China trade (Oct) - 08/11
The 10% tariff on $200bn of additional Chinese goods at the end of September could well have significant effects on the Chinese trade surplus in October. Judging by recent US data in the other direction the imposition of that extra 10% tariff doesn’t appear to have made that much difference, however these will be the first full month numbers that we’ll be able to gauge the full effect. Exports did rise to their highest levels since February in the September numbers rising 14.5%. Imports did slow slightly, rising 14.3%, while the slowdown in manufacturing could see these slow further in October.
Marks and Spencer (LON:MKS) (H1) – 07/11
For all of the problems in the retail sector this year, the fact that M&S shares are only down a modest 7% is a little surprising given that it saw profits fall by 62% when it reported full year results in May this year. The store closure program which started last year cost £321m in its last set of accounts and is likely to act as a continuing drag through to 2022 when the program to close 100 shops is expected to complete. Last week Next reported an 8% fall in in-store sales and given the problems at Debenhams and House of Fraser this could be indicative of a wider malaise in the high street. The M&S food offering still remains a bright spot, though even here it is getting squeezed as a result of the emergence of Aldi and Lidl, which has compressed margins in the food retail space. This is where we might see some good news as margins did show signs of improvement in last year’s full year numbers, as revenues rose to £10.7bn. This trend needs to continue in spite of all the other challenges the business is facing.
Sainsbury (LON:SBRY) (H1) – 08/11
The big 4 supermarkets have continued to see their share of the market come under pressure in the last few months, as Aldi and Lidl continue to chip away at their food retail monopoly. At the most recent Kantar survey Sainsbury saw its share fall back to 15.4% from 15.8%, reinforcing its argument that it needs the Asda deal to remain competitive. With the CMA probe already underway speculation is growing that the companies may be forced to offload over 400 stores to push the deal through. This week’s half year update should give us an insight into whether the loss of market share has adversely affected margins and overall sales.
Dropbox (NASDAQ:DBX)(Q3) – 08/11
When Dropbox IPO’d earlier this year there was some scepticism that it deserved its $17 a share $7bn valuation. In the aftermath of the launch the shares reached a peak of over $42.50 putting aside those concerns with interest, however the shares have since halved from those frothy peaks. Even allowing for the falls in the shares the company remains vulnerable to further losses in an extremely competitive cloud environment, where it has to compete with services like Apple’s iCloud, or Microsoft’s cloud services to name two. This means that in terms of pricing it is vulnerable to loss leader pricing by its bigger rivals who could choose to squeeze margins due to their bigger scale. To date the company has yet to make a profit, however expectations are for a modest profit this quarter of $0.06c a share.
Walt Disney (NYSE:DIS) (Q4) 08/11
Having lost out to Comcast (NASDAQ:CMCSA) on the SKY (LON:SKYB) assets and allowing Twenty-First Century Fox (NASDAQ:FOX) to sell its remaining 39% stake in Sky for $15bn it may on first look appear to suggest that Disney’s plans to expand its global outlook have taken a significant setback. The reaction in the share price would suggest that the market has a different view. The price paid by Comcast was way too high and Disney was wise to step back given that through its Fox acquisition it now has a 60% stake in Hulu which has 20m subscribers. The company also has other strings to its bow, including parks and resorts revenues, as well as Disney studios which has seen the release of Solo, A Star Wars story, which bombed, as well as Incredibles 2, and Christopher Robin.
DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.
No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. "