What a week that was with some big falls for equity markets on both sides of the Atlantic, as we head into year end. Talk of a Santa rally at this point almost seems wishful thinking, given concerns about trade, yields and disappointing economic data.
It's set to be another big week for Brexit with the European Court of Justice expected to rule on the opinion of the Advocate General that the UK can unilaterally withdraw its article 50 notification on Monday. If the ECJ does confirm this opinion then Brexiteers will be faced with the prospect of either voting for Theresa May’s toxic deal on Tuesday, to at least get some form of Brexit, or run the risk of seeing their hopes of the type of Brexit they want, recede further into the distance.
ECB rate meeting – 13/12
ECB President Mario Draghi has continued to insist that the ECB will be ending its asset purchase program at the end of this year, despite concerns that the European economy is showing increasing signs of distress.
Weak manufacturing data from Europe’s three largest economies are the least of his problems given that monetary policy still remains extremely accommodative, with negative rates and reinvestments likely to continue. With markets increasingly fixated on when the ECB is likely to start looking at raising rates it is looking increasingly unlikely that the guidance that rates may have to rise in Q4 next year is in any way credible given the slowdowns being seen across Europe as well as the civil unrest in France, which appears to show that consumers are struggling.
We could well see the ECB’s guidance about the path of rate adjusted to reflect the change in the economic outlook across Europe as well as the rest of the world.
UK vote on Brexit deal – 11/12
It's set to be another pivotal week for the pound as MPs gear up to potentially vote down Prime Minister Theresa May’s Brexit deal with the EU, in the process potentially triggering a constitutional crisis and throwing into turmoil the government’s plans for next steps in the Brexit debate.
There still doesn’t seem to be a consensus view as to what might happen in the event of a rejection of the PM’s deal, but what can’t change at this point is the UK’s exit date, which remains a hard date. It is often claimed that there is a majority in parliament for a “no deal” Brexit and that may be true, but there isn’t a majority for any other type of deal and that is the main problem. MPs are clear what they don’t like, they are far from clear about what they want instead, with some looking at a variation on EFTA/EEA.
UK wages, unemployment – 11/12
With November set to see lower pricing pressure from the recent fall in oil prices, this week’s wages data for the three months to October is expected to continue the recent trend of rising pay growth. In last month’s numbers average wages rose by 3.2% for the three months to September, the best level since the financial crisis, and this trend is expected to continue as we head into year end, with expectations that we will sustain this level, with another strong showing of 3.2%.
China industrial production/retail sales – 14/12
The past few months has seen rising evidence of a slowdown in the Chinese economy with manufacturing showing signs of stagnation. Away from that retail sales have been somewhat sluggish as well, though we could see a pickup in November after a record spend on “Singles Day” reported by a number of Chinese retailers including Alibaba (NYSE:BABA). A pickup in retail sales here would show that for all the pessimism things may not be as bad as reported, however it still won’t completely remove the doubts, especially if Chinese authorities further ease monetary policy to cope with stresses elsewhere in the Chinese economy.
US retail sales (Nov) – 14/12
This week’s retail sales data for November should give us an early insight into US consumers spending patterns over the Thanksgiving holiday in the lead-up to Black Friday.
In terms of overall spend the omens look positive, wage growth is at a multiyear high while the slide in oil prices since October should have put more money in consumers’ pockets. It would therefore be surprising if we didn’t see a decent performance which would suggest that the headline estimate of 0.2% is slightly on the low side.
Superdry H1 - 12/12
The retail sector has had a tough year and Superdry (LON:SDRY) hasn’t been an exception to this, its shares have had an awful year, with the shares down 60% year to date to three year lows. The move lower was accelerated in October after the company announced a profits warning due to the unseasonably warm summer weather. This apparently prompted a slowdown in sales of its autumn and winter collections, causing the company to downgrade its profit expectations by £10m.
The company also cited currency effects due to hedging effects which weren’t able to offset exchange rate fluctuations. For all of the negativity revenues remain on course to rise from the previous year, however profits look set to be lower.
TUI Travel FY - 13/12
If Thomas Cook's (LON:TCG) recent profit warnings any sort of guide we should be concerned about the latest full year numbers from its sector peer Tui (LON:TUIT) which is set to report its full year numbers later this week.
In August it also reported that profits would likely be lower due to consumers choosing to stay at home as a result of the hot weather instead of choosing to endure the chaos unfolding as a result of industrial unrest across Europe, as well as record high temperatures, a weak pound, and the football World Cup. Management did maintain their forecast for profits for the current fiscal year, but it is clear that investors remain sceptical, with the shares at 17 month lows.
Costco Q1 19 - 13/12
A number of US retailers have had a slightly better year than their UK counterparts, nonetheless the challenges facing them are no different to those facing UK retailers.
The difference is that they appear to have been more successful in dealing with the myriad of problems facing the sector from disruptors like Amazon (NASDAQ:AMZN). Costco shares (NASDAQ:COST) are not far from multi year highs and as such has proved itself to be one of those able to adapt a changing retail environment, with net and same store sales both rising when they reported their full year results in October.
Expectations for the beginning of the new financial year are for Q1 profits to come in at $1.617c a share, a significant decline from the $2.36c seen at the end of Q4.
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