Some of the biggest banks are set to report earnings this week, with JPMorgan, Wells Fargo and Goldman Sachs all due on Wednesday. On a macro level, Tuesday’s UK GDP figures and inflation data from the US are undoubtedly going to be important. Meanwhile, the largest US cryptocurrency exchange, Coinbase, goes public.
City A.M. looks at some of the events that will shape this week’s markets.
- Chinese trade figures
- UK GDP, construction output and industrial production
- US CPI
- Results: JD Sports
- Eurozone industrial production
- Fed: Chair Powell
- Results: Tesco, JPMorgan, Goldman Sachs, Wells Fargo
- Coinbase IPO
- US retail sales, unemployment claims, industrial production
- Earnings: Bank of America, Citigroup and PepsiCo
- Chinese GDP, industrial production and retail sales,
- US building permits
- Results: Morgan Stanley
“After what has been a low key and holiday-shortened week for the markets, things should pick up in the weeks ahead,” commented Fawad Razaqzada, market analyst at ThinkMarkets in London.
“As well as a busier economic calendar, US corporate reporting season will kick into a higher gear with the release of big bank earnings,” he said, adding that he expects to see “some volatility” after the S&P 500 hit repeated new all-time highs on falling volumes.
“The key question going into the earnings season is this: Will company CEOs mirror investors’ optimism on economic outlook, or will they provide more subdued forecasts? And what about the US dollar?”
After ending the first quarter on the front-foot, the start of Q2 has seen the dollar weaken against most other major currencies, he stressed.
“The underlying bullish trend could resume for the buck, especially against currencies where the central bank is comparatively more dovish than the Federal Reserve, or regions where the vaccinations have been slower than in the US.”
Michael Hewson, chief market analyst at CMC Markets UK, zoomed in on Tesco, reporting its full-year results this Wednesday.
“Supermarkets have by and large had a good pandemic, even if they were criticised for taking government help in the aftermath of the initial lockdown. While a lot of this criticism was unjustified given the challenges facing the sector as supply chains creaked under the strain, the sector has by and large stepped up to keep the country fed, and ticking over,” Hewson said.
There have been weak spots notably around the Booker operation which caters to the hospitality sector, which has been ground zero of the pandemic fallout, however in other areas of the business the sector has seen fairly decent growth even as costs have risen, he added.
“When Tesco reported in Q3 Christmas trading saw like for like sales over the period increase by 8.1 per cent, driven by a 14 per cent rise in sales of “finest” branded products, while over the quarter, like for like sales rose 5.7 per cent.”
This outperformance was fuelled largely by an 80 per cent rise in online orders over the 19-week period, with 7m orders delivered over the Christmas period, as Tesco continued to take the fight to Aldi with its “Price Match” pledge on a range of everyday products.
The performance over the quarter didn’t come without an increase in costs, which rose £85m to £810m.
“Another drag came from Tesco Bank which saw total sales decline 28.5 per cent, a not altogether surprising outcome given the challenges being faced by its customers over the pandemic,” Hewson noted.
Losses in the bank are expected to come in between £175m and £200m. In terms of expectations for full year profits, management said that these should be in the same level as a year ago, even with the associated extra costs of taking on new staff, as well as implementing various Covid-19 mitigation measures to protect its staff.
“This doesn’t include the repayment of the business rates relief that was announced last month, while all front-line staff received a 10 per cent Christmas bonus,” he pointed out. “As a reminder operating profit, a year ago was £2.5bn, however after various costs, this came down to a more modest £973m.”
Having seen a 2.9 per cent contraction in January, a number which was better than expected there is a hope that the slowdown in Q1 is likely to be much less than the -4 per cent than was being pencilled in by the Bank of England at the beginning of the year.
“Since then, the bank has revised its expectations higher and with the recent strong gains seen in recent PMI data there isa rising expectation thatwhile we will see a contraction in Q1, the rebound in Q2 is also likely to be slightly less robust as a result. Nonetheless on a rolling three-month basis the UK economy is expected to improve modestly from the -1.7 per cent decline seen in the three months to January,” Hewson said.
Another retailerthat has managed to ride out the worst the pandemic can throw at it, JD Sports has seen its share price recover most of its losses in 2020. When the company reported its H1 numbers back in September, the impact on revenues was fairly modest despite sharp drop in profits to £41.5m, from £130m.
In January the company said they expected that group headline profit before tax would be significantly ahead of market expectations of £295m, at around £400m, on the back of a much better demand over the second half of the year.
“It has been notable that the company has also been on acquisition spree as well, bolstering its operations in the US, a move which was helped by a share placement that raised an extra £464.2m,” Hewson remarked.
In February JD Sports spent the money acquiring US based DTLR Villa for $495m, on top of two other acquisitions in January, and followed it up in March by acquiring about 60 per cent of MIG in Poland, which operates around 410 retail stores across the country, he recalled.
With the growing popularity of crypto currencies and particularly Bitcoin, attention has inevitably shifted towards the exchanges that they trade on, and the upcoming direct listing of Coinbase is something that investors have been looking forward to for a while, Hewson pointed out.
In its most recent quarterly update, Coinbase announced that it expects to make between $730m to $800m in Q1. The company has 56m verified users and its latest results showed the company turned over $1.8bn in the first three months of its fiscal year.
Hewson stressed “this is more than the company generated over the whole of 2020,” when it generated revenue of $1.3bn.
In terms of trading volumes, the last quarter saw turnover of $335bn, with assets on its platform rising to $223bn, with $122bn from what they called “institutional” users.
“Perhaps surprisingly Coinbase didn’t provide any guidance citing the ‘inherent unpredictability’ of its business,” he said.
“The company did outline three separate scenarios for the year, with the most optimistic predicting around 7m monthly users, which is slightly higher from its current 6.1m monthly transacting users. As a result of the direct listing the company expects to incur expenses of $35m in Q2,” Hewson added.