“The hope going into earnings season was that companies were going to settle the nerves,” said one analyst
There are plenty of corporate updates in the coming week that should demand investor attention, from Diageo and Dr Martens in London to Apple, Microsoft and Tesla in the US.
Casting a shadow on all stock markets, however, will be the US Federal Reserve update on Wednesday, with interest rate angst already leading to a correction for many stocks on both sides of the Atlantic.
Investors are starting to realise that after many years of near-zero interest rates and quantitative easing, it’s time to go back to normal, with the Bank of England following the week after, among five central bank meetings in the coming fortnight.
The big question for the market is how far and how fast they’re likely to hike rates – and whether a strong earnings reporting season can allay these fears.
MONDAY 24 JAN
Just another macro Monday
As for UK economic data, next week’s numbers will be a window on how omicron has affected the country.
January’s flash services and manufacturing PMIs measure economic activity and forecasts for both are still reasonably optimistic.
Around 53.7 is the consensus for the IHS Markit/CIPS UK Services PMI compared to the recently upward revised 53.6 in December.
Manufacturing PMI is expected to weaken slightly to 57.8 and taken together that gives a composite total for both of around 55, up slightly month-on-month.
“The UK’s services purchasing managers index already staged a fairly sharp fall in December on the arrival of Omicron. And since then, other data suggests the economic impact probably hasn’t been huge, and may have begun to improve in January,” said economist at ING.
“Worker illness will have held back production for many industries, particularly consumer services where other surveys have shown absence rates to be highest. But consumer spending, at least at social venues, appears to have begun to rebound now that individuals are less cautious about self-isolating (which was the case ahead of Christmas).”
TUESDAY 25 JAN
Can Microsoft reboot big tech hopes?
Following on from Netflix’s weak numbers last week, Microsoft Corporation (NASDAQ:MSFT) continues the big tech earnings circus on Tuesday, which should be of interest to the many UK private investors who have started to get into UK investing in the past few years.
With the market already taking the foot off the tech pedal as monetary policy tightening begins, and Netflix’s disappointing earnings given the bazooka treatment by investors, there are some potentially fragile hopes riding on this US earnings season (see who’s reporting when below).
READ: Attention turns to other FAANG companies as Netflix shares plummet
“The hope going into earnings season was that companies were going to settle the nerves,” said market analyst Craig Erlam at Oanda. “That we were about to get a reminder of the strength of the economy and the resilience we’ve seen over the last couple of years. Instead, the results have been rather disappointing.
“The banks didn’t give us much to cheer about and if the Netflix results are anything to go by, big tech may also underwhelm.”
After market close in New York, second-quarter results from the Redmond, California-based colossus will come fairly hot on the heels of its US$69bn deal to buy video games maker Activision Blizzard.
“This acquisition will accelerate the growth in Microsoft’s gaming business across mobile, PC, console and cloud and will provide building blocks for the metaverse,” the group said in a statement.
Back at the time of its Q1 results, Microsoft’s cloud services were the main attraction, growing 50% compared to 16% for its gaming arm.
The company said it hoped to benefit from rising inflation, suggesting that as businesses looked to eke out more efficiencies they would flock to its cloud products.
Analyst Sophie Lund-Yates at Hargreaves Lansdown said: “The market’s hopes will be high, as it’s become accustomed to Microsoft’s stellar results.”
Over at broker Wedbush, analyst Dan Ives remained optimistic, said he believes Microsoft’s cloud momentum is “still in its early days”, with the transition for both consumers and businesses “providing growth tailwinds over the next few years”.
Insights from the (electric) vehicle market
TI Fluid Systems PLC (LSE:TIFS) is one of the few FTSE-listed companies providing access to the electric vehicle (EV) market and on Tuesday it is planning to open the bonnet on a year-end trading update.
While the car parts suplier’s trading performance has been pretty consistent and the company has large potential opportunities in the electric vehicles market, it is perhaps best known to investors for planning a £27mln dividend in 2020, despite furloughing staff and agreeing pay cuts.
The dividend was never paid out, but this was mainly because 54% shareholder Bain Capital eventually nixed the plans, with Oxford-based TI later saying it would first repay the furlough money its employees received from British taxpayers before starting to pay dividends.
Then in December, Bain sold a £100mln stake at 250p per share, with its shareholding now reported to stand around 36.7%.
If that is ignored, the investment case was put forward by the company at a capital markets day last year, where it said its ‘content per vehicle’ (CPV) for an petrol-powered car was up to €200, while for a hybrid EV is €700 and a battery EV is €400.
But for now, expect to hear news of auto supply chain and semiconductor issues.
Chancellor’s purse strings
Tuesday’s public sector net borrowing numbers, meanwhile, give an insight into how much leeway chancellor Rishi Sunak has to fund increasingly critical new subsidies such as household energy bill relief.
The UK borrowed £17.4bn in November 2021, down £22.2bn a year earlier and forecasts for December are for a rise closer to £19bn.
Public sector net borrowing this fiscal year so far shrank to £136bn in November, which was £115.8bn below the same period in 2020 but still nearly three times the same period in 2019.
WEDNESDAY 26 JAN
A US interest rate and bond-buying update from the Federal Reserve is the standout macroeconomic event in the week.
Equity markets have already taken a bashing on growing anticipation that the world’s most influential central bank will accelerate its monetary tightening programme.
With the previously dominant central banker stance that inflation was “transitory” evaporating with each new month’s data, policy expectations rose sharply over the latest week and bond yields moved higher around the world and put pressure on riskier assets including many stocks and cryptocurrencies.
Confirmation will come late on Wednesday with the conclusion of the latest rate-setting meeting of the Federal Open Market Committee (FOMC).
The FOMC has already indicated it will end its bond-buying programme in March, paving the way for three interest rate hikes by the end of 2022.
More recent minutes from the committee, however, suggested the mood is hardening and that was before US inflation climbed to 7% in December, the fastest rate of price rises in 40 years.
“I don’t think anyone seriously expects the Fed to change rates at Wednesday’s meeting. Right now, that’s assumed to start in March,” said market analyst Marshall Gittler at BDSwiss.
“Investors then expect four or possibly five (or more!) hikes total during the year, in contrast to the three that the Committee members predicted just last month.”
Whether or not faster rate rises are seen as warranted by the Fed, expect another big reaction from equity markets either for a further downward adjustment or a relief rally on Thursday.
Have some Tesla with your Fed
Tesla Inc (NASDAQ:TSLA) last numbers saw its post another record sales and profit in the third quarter, with earnings per share of US$1.86 beating expectations on revenues that were a bit short as automotive margins improved.
Elon Musk’s electric car maker increased deliveries to just over 241k cars in that quarter, and earlier this month revealed annual vehicle deliveries surged 87% to more than 936,000 in 2021, up from nearly half a million the previous year.
Tesla’s valuation pushed through the US$1trn level in early November, helped by the announcement of a US$4.2bn order from Hertz, although it has since transpired the deal hasn’t yet been signed.
The shares are down over 20% since then, not helped by Musk selling 10% of his stake in the business in order to pay a large tax bill.
Investors will be keen to hear about the planned new plants in Austin Texas and Germany, as well as confirmation that Cybertruck production has been pushed back into 2023.
A new delivery target for 2022 well above the million mark will also be expected from Musk, who confirmed last year he was still aiming to maintain annual growth rate above 50%.
The Street forecast is for EPS for Q4 to come in at US$2.24 a share.
Forget EVs what about cats, dogs and guinea pigs?
Before the EVs, there will be smaller, furrier news in London, as Pets at Home Group PLC (LSE:PETS), one of the stars of the lockdown scene, is scheduled to publish its third-quarter trading statement.
The FTSE 250-listed chain, which sells food, toys and bedding, and offers grooming and veterinary services, last reported in November when it revealed like-for-like sales growth of 22.2% for the 28-week period to 7 October, with two-year growth of 28.6%.
Helped by strong growth in pet ownership continues, Pets said growth was “stronger than expected” and that it expects full-year profits will be at the top end of the range of City expectations.
While it was not immune to the supply chain problems, the company noted that the vast majority of its product range is sourced domestically on lead times, with boss Peter Pritchard declaring “our business has never been more robust”.
CMC break-up in focus
Some expected CMC Markets PLC (LSE:CMCX) to release an update last week but it has been confirmed as coming this coming Wednesday.
After the easing of the lockdown boom that lifted all boats, things proved a bit stickier for trading-based businesses, with CMC reporting a 45% fall in revenue in its latest half year as active customer numbers dropped 9% – though this is still well up on the pre-pandemic total.
The spread-better has also started an exploratory review into breaking-up into two separate businesses to unlock shareholder value, with its contracts-for-difference (CFD) operations, labelled as the ‘leveraged’ business, potentially being split from its investment platform and business-to-business operations.
The group pledged to start the review before the end of 2021 and complete it before the end of June so this update for its fiscal third quarter may not contain any news on the progress of the review.
In its interim results in November CMC reiterated full-year guidance and said its core underlying business is trending well above pre-pandemic levels.
Wizz wobble expected to be temporary
Wizz Air Holdings PLC (AIM:WIZZ) had been seeing a recovery in demand building last summer which was postponed by sharply rising Covid cases and restrictions introduced in Central & Eastern Europe, even ahead of the rise of Omicron, which then impacted in December and into January.
Broker Peel Hunt expects consensus forecast losses for the full 2022 fiscal year will become €50-100mln larger, “but this should not surprise the market given Ryanair’s warning in December”.
For the third quarter, passenger numbers of 7.8mln out of 10.1mln capacity have already been reported, with the analysts looking for revenue of €675mln, an operating loss of €203mln and a loss before tax of €226mln.
“The tensions in the Ukraine, where the group operates from six airports, do not appear to have impacted demand, and the company plans to double capacity there to 11 aircraft for S22, following the Ukraine signing the Open Skies Agreement in October 2021.”
THURSDAY 27 JAN
Plan A and Plan B: drink!
Spirits consumption has been picking up again post-lockdown as venues have reopened, something that has been reflected in the share price of Diageo PLC (LSE:DGE).
Shares in the maker of Johnnie Walker, Smirnoff, Guinness and Captain Morgan have risen by around a third over the past twelve months, even with a wobble recently.
The company itself has already flagged up interim organic net sales growth of 16%, with a November investor day setting out medium-term guidance for organic net sales of 5%-7% and organic operating profit growth of 6%-9% for the 2023 to 2025 financial years.
Consensus for the half year numbers reflects that bullishness with a rise in underlying profits (EBIT) of more than 20% likely according to most estimates.
“Earnings have already moved materially over the past 12 months, but we do not believe the upgrade cycle is fully over,” said broker Jefferies.
IG looks Stateside
Interim results from IG Group Holdings Plc (LSE:IGG) mark the anniversary of the spread betting firm’s acquisition of Tastytrade.
In its fiscal first-quarter update back in September the firm revealed that adjusted net trading revenue for the quarter was down 4% year-on-year reflecting a moderation in trading activity.
Tastytrade, meanwhile, delivered another consecutive record quarter of revenue so while the City was sceptical of the acquisition – the US$1bn price tag was deemed to be on the pricey side – it is fulfilling the role of providing growth in periods when the core business is going through a dull period.
Barclays believes that Tastytrade could benefit from a rise in the US interest rates and a 1% rise could add up to 43% to Tastytrade’s profit, so obviously some in the City are coming around to the merits of the acquisition.
You will see the Dr now
Dr Martens PLC (LSE:DOCS) is set to release a trading statement on Thursday, where supply chain issues are likely to be the sole issue.
The maker of the iconic Dr Martens shoe reported a surge in pre-tax profits in its half year results released in December but dug in its heels and refused to increase full year guidance.
Partly this reflected a temporary closure of its Vietnam factory due to coronavirus (COVID-19) and uncertainty surrounding shipping times at ports, which majorly impacted the USA market, meant the FTSE 250 company erred on the side of caution.
The shares have stumbled 11% since they were floated at 370p last January by private equity owner Permira, which earlier this month sold a 6.5% stake at a price of 395p for total proceeds of around £257mln, keeping a 36.4% holding.
Barclays said last month that the ‘de-rating’ in the shares has been ‘overdone’, and that was with them 20% higher than they ended this week.
The analysts believe Dr Martens is an “attractive brand” and “still has the ability to grow via significant headroom in many geographies, conversion of markets, rationalising wholesale, and improving the [direct-to-consumer] mix”.
This is usually a strong Apple quarter
After hours on Thursday it will be Apple Inc (NASDAQ:AAPL) dropping a first-quarter update just weeks after it became the first company to reach a US$3tln valuation.
The iPhone maker was cautious in setting expectations at the time of its previous results.
First quarter trading has historically been strong for the tech giant, often boosted by sales in the festive period of Thanksgiving and Christmas, which would have been further helped by the new Apple iPhone13 and new Apple Mac products.
Supply chain issues and chip shortages are potential bumps in the road, having cost Apple around US$6bn in the prior quarter, but even taking this into account, analysts are predicting sales to rise by 6% like-for-like to US$118bn, with EPS expected to come in at US$1.89 a share.
FRIDAY 28 JAN
ITM Power PLC (AIM:ITM), the manufacturer of integrated hydrogen energy systems, is one of those intriguing “jam tomorrow” companies.
Valued at £1.9bn it has never made a profit and its turnover is minuscule – akin to many tech unicorns with similarly large valuations.
As such, the actual numbers in Friday’s interims are likely to be of little concern to investors although for the record revenue is likely to around £4.1mln and the underlying loss around £13mln.
Cash burn, said to be £12mln in the six months to the end of October, is less of a concern since the company raised £232mln in November.
Focus will be on full-year guidance of power generation, which currently stands at 33-50 megawatts (MW) and the growth in its tendering pipeline.
Significant announcement expected from 24-28 January
Monday 24 January:
Trading updates: Computacenter PLC (LSE:CCC)
Economic data: Manufacturing and Services PMIs (UK and US)
Tuesday 25 January:
Trading updates: Capricorn Energy PLC, TI Fluid Systems PLC (LSE:TIFS)
AGMs: Greencore Group PLC (LSE:GNC)
Economic data: Public Sector Net Borrowing (UK)
Wednesday 26 January:
Trading updates: Brewin Dolphin Holdings Plc (LSE:BRW), CMC Markets PLC (LSE:CMCX), Fresnillo PLC (LSE:FRES), Pets at Home Group PLC (LSE:PETS), Quilter PLC (LSE:QLT), The Sage Group PLC (LSE:SGE), Wizz Air Holdings PLC (AIM:WIZZ)
Economic data: Federal Reserve’s Monetary Policy Decision (US)
Thursday 27 January:
Interims: Diageo PLC (LSE:DGE), IG Group Holdings Plc (LSE:IGG), NCC Group PLC (LSE:NCC), Rank Group (LSE:RNK) PLC,
Trading updates: Euromoney Institutional Investor (LSE:ERM) PLC, 3i Group plc (LSE:III), Britvic PLC (LSE:BVIC), Dr Martens PLC (LSE:DOCS), Mitie Group PLC (LSE:MTO)
AGMs: Home Reit PLC
Economic data: UK Nationwide house price survey (UK), Gross Domestic Product Annualised (US), Non-defence Capital Goods Order Excluding Aircraft (US), Durable Goods Order (US)
Friday 28 January:
Interims: ITM Power PLC (AIM:ITM)
Economic data: CFTC GBP NC Net Positions (UK), Personal Consumption Expenditures (US)
US company earnings
Monday: IBM and Halliburton
Tuesday: American Express, General Electric (NYSE:GE), Lockheed Martin (NYSE:LMT), Microsoft Corp and Verizon Corp Inc
Wednesday: AT&T, Boeing, Intel, Tesla Inc (NASDAQ:TSLA), United Rentals (NYSE:URI) and Xilinx
Thursday: Apple Inc (NASDAQ:AAPL), Altria, Ford Motor Co, McDonalds Corp, Mastercard (NYSE:MA), Mondelez (NASDAQ:MDLZ), Southwest Airlines (NYSE:LUV), Robinhood Markets Inc (NASDAQ:HOOD), Starbucks and Visa (NYSE:V)
Friday: Chevron, Caterpillar and ConocoPhillips (NYSE:COP)