CMC Markets | Apr 19, 2019 08:41
It's set to be a big week for European banks in the wake of last week’s US bank numbers which showed that investment bank and trading revenue was falling short of expectations in Q1. If US banks are struggling in this fashion then one can only imagine the problems facing their UK and European peers.
This week we’ll get good insight into how Brexit, and negative European interest rates have hurt revenues at the UK’s biggest banks, as well as Germany’s biggest bank, Deutsche Bank (DE:DBKGn).
With Barclays, a continued underperformance in its investment banking division is likely to crystallise divisions with Edward Bramson, one its major shareholders who wants management to spin off this area of the business.
Royal Bank of Scotland (LON:RBS) has seen its fortunes improve in recent updates, as it pulls clear of its various legacy issues. The slowdown in the UK economy in Q1 may well have affected loan demand across its various businesses. Also worth keeping an eye on will be any provisions for PPI and other non-performing items.
Deutsche Bank has spent the last few weeks consistently in the headlines for all the wrong reasons, with its US business remaining in the eye of the storm over money laundering claims, along with speculation about a possible shotgun marriage with Commerzbank (DE:CBKG), an outcome that continues to look highly contentious as well as increasingly unlikely.
Given the weakness seen in US banks trading revenues it is highly questionable that Deutsche can fare any better, which means management may well have further job cuts forced on them as the operating environment deteriorates further. With ECB officials already questioning the logic of any Commerzbank tie-up it is becoming more likely that confidence in senior management will decline further in the event we see another poor set of numbers.
We could also see further speculation about further interest from Unicredit (MI:CRDI) which was doing the rounds a few weeks ago.
The Canadian economy appears to have stalled in the last few months, thus prompting the Bank of Canada to adopt a much more dovish tone at its most recent rate meeting.
Canadian policymakers also removed a reference that rates might need to rise further over time, and this month’s meeting is likely to remain dovish. The inflation outlook has continued to show no signs of picking up, currently at 1.5%, while consumer spending has remained muted with retail sales declining three months in a row. As such rates are likely to stay where they are, particularly since Governor Poloz suggested in recent comments that interest rates warrant a level below neutral.
Like other central banks around the world any prospect of a tightening of monetary policy has gone out of the window in recent months. The Bank of Japan is no different with weak economic data, particularly manufacturing, which has weighed on its economy. No changes are expected here
The US economy weakened a little towards the back end of last year, however it still remains well ahead of its peers, if recent data has been any guide. This is despite the US government shutdown that we saw in January and February. Nonetheless we can still expect to see Q1 to come in slightly below the levels we saw in Q4 for the US economy. This in itself shouldn’t be a worry given that Q1 tends to be a slow starter for the US economy in any case, due to seasonal effects.
It’s been a turbulent few months for on-line retailer Boohoo.com, but the outlook has improved over the last year or so. Last year profits rose more than 40% to £43.3m, while revenues also improved, as sales improved across its brands with Pretty Little Thing sales leading the way.
In January the company said it expected revenue growth of 43-45%, up from its previous estimate of 38-43%, while also narrowing its margin estimates to between 9.25% and 9.75%. This year the shares have steadily risen as the company looks at expanding its US presence, while in March former Primark COO John Lyttle joined the company, as new CEO, to help in the oversight of this business expansion.
It’s not been a good few months for UK retailers with March, with stories of job losses and restructurings a weekly occurrence. The ABF share price has been a contrast to this narrative helped by the performance of Primark.
In February the company warned on a slowdown in sales in November, despite an improvement in profits. Management still insisted that the half year profits would be ahead of expectations as it expanded in Italy and Spain, while adding stores in the US. Some of this optimism may well have to be tempered given that March may well have seen a similar slowdown to the one we saw in November as consumers held back ahead of the 29th March Brexit deadline.
This week’s Q1 update will be instructive from Boeing in the context of how much financial damage the 737 MAX 8 problems have had on the company’s revenues, and forecasts.
The company has already slowed down production of the aircraft and may well have to set aside large sums in respect of grounded aircraft, as well as compensation in respect of litigation over the coming months. The likelihood of the plane getting back in the air anytime soon has diminished in recent weeks, due to the enormous brand damage recent events have done.
Last year Boeing’s commercial aeroplane business delivered a record 806 aircraft last year with an expectation that 2019 would be even better, with up to 900 aircraft expected to be delivered, with China expected to be a key market. That target looks increasingly unlikely now and given that the plane makes up to 30% of the company’s profits, the ongoing lack of confidence in the aircraft, is likely to see that percentage significantly reduced.
Investors now slowly appear to be waking up to this which means a downgrade to the company forecasts could well see the shares decline sharply.
Earlier this month Tesla admitted it would miss its delivery target for cars in Q1. This week’s Q1 update is expected to confirm by how much, with 63k, even though it produced 77,100 cars during the period. Despite the fall in deliveries Tesla insisted that it will still meet its annual target of between 360k and 400k cars for 2019, which is still a significant improvement on 2018.
It’s still a big ask to hit that target as Tesla would have to deliver at least 100k cars each quarter, for the next three quarters. This would be a record, and well above the previous record of over 90k cars in Q4 last year. Expectations aren’t being helped by CEO Elon Musk’s continued Twitter interventions that 500k cars is possible for 2019.
This week we’ll find out how Tesla intends to work through its delivery backlog as well as fulfilling its annual target, whether it be Musk’s 500k target, or managements more conservative 400k one.
Now that Apple (NASDAQ:AAPL) and Disney (NYSE:DIS) have decided to take on the on-line streaming market Amazon Prime will have more than just Netflix (NASDAQ:NFLX) to worry about, which means that Amazon’s other businesses will need to continue to deliver on its retail business, as well as cloud services.
At the end of last year the company posted record profits of $3bn on $72.4bn of revenue for Q4, with web services posting the biggest component in terms of its growth. Despite posting record profits, for 2018 Amazon guided down expectations for Q1, largely down to expectations of higher costs in the form of higher wages, and moves into physical stores.
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