Week Ahead: Chinese Industrial Production; U.S. Retail Sales; Vodafone Earnings

  • Market Overview

1. EU Summit – 16/05

This week’s EU summit in Brussels is likely to be a low key affair ahead of European elections due a week later. It is also likely to be a Brexit free zone allowing EU leaders to focus on areas that have taken second place to the Brexit negotiations. The summit is likely to entail a statement which agrees to a range of goals that will likely struggle to actually amount to anything tangible given the widespread disagreements about what should be in the EU’s remit, and what shouldn’t.

2. UK wages / unemployment – 14/05

The recent Brexit extension appeared to give the UK economy an April lift in terms of consumer spending . That this was possible has been down to unemployment being at 40 year lows and wages outstripping inflation by more than 1%. We could see some evidence of an uptick in inflation in the April numbers, however we won’t get to see those numbers until next week.

This week’s wages numbers for March are expected to see wage growth come in at 3.4%, and unemployment remain steady at 3.9%.

3. China retail sales / industrial production (Apr) – 15/05

Last week’s China trade numbers for April appeared to underscore that the Chinese economy continues to face challenges with respect to weak domestic demand. With the US keeping up the pressure on the trade front, this week’s April retail sales and industrial production numbers need to be able to maintain the rebound we saw in March.

Industrial production in particular saw a strong rebound, from 5.3% in February to 8.5% in March, a four and a half year high, though this might have been a result of some catch up after the lunar new year holiday prompting some restocking. As a result we could see April activity slip back a touch while retail sales could also see their improvement tempered after rebounding to a six month high in March.

4. US retail sales (Apr) – 15/05

US consumer spending has been patchy for some time now popping one month and then slowing the next. Q1 activity was by and large positive largely due to a strong performance in March of 1.6%. Whether this spills over into April remains an open question, however the labour market continues to look robust while wages are still growing at a healthy clip above inflation suggesting limited scope for disappointments in Q2.

5. Vodafone (LON: VOD ) FY19 – 14/05

Vodafone shares have been having a tough time of it of late, struggling with lower margins, as well as falling revenues across its geographical divisions, the shares hit a their lowest levels since May 2010 earlier this year.

In the last 12 months the shares have seen some big falls driven by concerns about the size of its debt as well as future costs with 5G licences coming up for bidding, while the company has found competition fierce in most of its markets in particular Italy and Spain. Its takeover of large parts of Liberty Global (NASDAQ: LBTYA ) has also come under scrutiny. This has prompted the company to open up its network to its competitors to alleviate competition concerns, the latest being a cable agreement to allow Telefonica (MC: TEF ) Deutschland to offer high speed broadband services on their network in Germany.

On the other side of the world the company suffered a setback after the Australian regulator blocked its merger with TPG Telecom.

6. Burberry Group (LON: BRBY ) FY19 – 16/05

Burberry has had its fair share of ups and downs in the past few years, however new CEO Marco Gobbetti appears to be on the right track if the second half of this year is anywhere near as positive as the company’s first half update.

Back in November the company saw net profits rise 42% on the back of lower costs, as well as optimism that new chief creative officer Riccardo Tisci’s debut at London Fashion Week would result in the company meeting its earnings targets for the full year. Its main competitors like LVMH (PA: LVMH ) and Hermes (LON: 0HV2 ) have shown the way in the last six months leaving the British fashion house lagging behind in their slipstreams, with their shares hitting record highs. Burberry has some catching up to do.

7. Thomas Cook (LON: TCG ) H1 2019 – 16/05

The holiday retail sector has struggled in the first half of this year, though it hasn’t been helped by the uncertainty over Brexit which prompted most consumers to delay many overseas holiday commitments. It’s also been a tough year for Thomas Cook, its shares down over 80% in the last 12 months after two profit warnings, and concerns that the business may have to raise more money from shareholders. Last summer’s hot weather as well as England’s World Cup outperformance hammered the package holiday sector. The shares have recovered a little in the past few days on reports that Lufthansa might bid for its German airline Condor, while they may well have benefited from an April lift in the wake of the October Brexit extension which saw UK consumers rush to make some late summer bookings.

8. British Land (LON: BLND ) FY19 – 15/05

It’s been a tough environment for the retail sector across the UK, and nowhere has that been more keenly felt in commercial retail estate which has seen its margins battered as retailers struggle to maintain profitability against a backdrop of discerning consumers and the growth in on-line retail. Earlier this month Intu Properties (LON: INTUP ) warned that rental income is likely to fall between 4 and 6%,

As the woes of Debenhams and House of Fraser can testify the option of closing stores or looking to negotiate lower rents to offset lower footfall is a fine one, and something that Intu appears to have woken up to. British Land has already sold off its stake in 12 Sainsbury (LON: SBRY ) superstores for £429m as it looks to mitigate the fall in revenues and profits we saw in the first half of this year.

9. Pinterest (NYSE: PINS ) Q1 19 – 16/05

Having seen its IPO surge out of the blocks this week we’ll get to see how well management are doing with respect to its ambitions to make the business profitable on a sustainable basis.

Currently valued at over $15bn and trading at a premium to its IPO price, like most unicorns it has still to make a profit, but its losses are reducing, coming down from $182m in 2016 to $63m last year, on revenues of $750m. The biggest concern remains about its ability to expand its user base beyond their core audience, which is 80% women. This would entail the business looking to extend their appeal to a much broader demographic without alienating their existing core user base.

This week’s Q1 update will be impacted by post IPO costs, but it will be progress on reducing overall losses and expanding revenues which will be of particular interest.

10) Walmart (NYSE: WMT ) Q1 20 - 16/05

One of the few US retailers that has been able to take the fight to Amazon (NASDAQ: AMZN ), recent sales figures have shown that the company has continued to outperform its peers, while it also has taken steps to expand into new markets.

The acquisition of India’s biggest online store Flipkart a year ago, for $16bn has seen it take on Amazon, and while there have been some teething problems the long term potential remains enormous. Despite this there is a sense that Walmart’s share price may be getting slightly ahead of itself.

Expectations are for profits of $1.02c a share, a decline from $1.41c that we saw at the end of Q4, but Q4 tends to be a strong quarter, due to Thanksgiving and Christmas, with food sales helping to boost revenues. Guidance for 2020 was kept unchanged for in the company’s last update with e-commerce sales growth of 35% over the year. Operating income is expected to decline by around 10% in Q1, and continue to do so in Q2 and Q3 before recovering in Q4.

11. NVIDIA (NASDAQ: NVDA ) Q1 20 – 16/05

Chip makers have had a difficult last few months, with NVidia shares plunging sharply from the record peaks seen in October last year. Battered on one side over concerns about tariffs,

NVidia has also been hurt by the slide in cryptocurrencies. And while the company was able to meet expectations for its Q4 numbers management were keen to warn that continued weak China demand, and a weak macro outlook would likely act as a drag through the new fiscal year. With bellwether chip maker Intel (NASDAQ: INTC ) guiding lower in recent weeks this week’s NVidia update could offer the potential for a surprise given the low bar being set. Profits are expected to come in at $0.80c a share.

12) Avantor IPO – 17/05

A chemical company that was acquired by private equity company New Mountain Capital in 2010 from Covidien. It is looking to raise over $2bn, though that will depend on the IPO price it gets. The company provides services and products in education, healthcare and biopharma and while it appears to have seen decent revenue growth, $5.8bn in 2018, largely due to acquisitions, it hasn’t made a profit in the last three years.

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