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1) UK/France/Germany flash PMIs (Jun) – 23/06 – optimism over a rebound in economic activity gained traction in May when there was a decent rebound from the record lows seen in April when economic activity collapsed sharply, in the wake of the lockdown measures. Record lows of 10.2 and 16.2 in services activity in April for France and Germany respectively, provided a decent rebound in May to 29.4 and 31.4. Tuesday’s June numbers are expected to improve upon that; with expectations of improvements into the mid 40’s, of 45.5 and 41.6. This might be a touch on the optimistic side given that a lot of businesses have struggled to reopen, most notably retail as well as travel and leisure, while in the UK we could well see economic activity lag behind, due to non-essential shops only reopening on the 15th June. As a result, UK services activity may only improve to 37.5 from 29, due to being slightly behind the rest. Manufacturing has been a lot more resilient albeit with readings in the mid to high 30’s, and here we could also see a move into the mid 40’s.
2) Germany IFO (Jun) – 24/06 – as the German economy re-opens, from its March, April shutdown, we’ve seen business optimism improve in line with that. After a record low of 74.2 in April, we saw a modest rebound in May to 79.5, and this should improve further in June, as economic activity continues to pick up. Bars, restaurants, sports clubs and public transport services have largely re-opened, subject to mask requirements, while the German government has announced it will be implementing a range of fiscal stimulus measures including tax cuts. This slow resumption to normal life should be reflected in another improvement in business confidence.
3) US Q1 GDP (Final)/US Continuing jobless claims – 25/06 – there aren’t expected to be too many surprises from this week’s final Q1 GDP numbers for the US economy, which are expected to confirm a -5% contraction in the first quarter. This is slightly worse than the initial -4.8% reading of a few weeks ago, but also understates where the US economy is right now. In the last few weeks, we’ve seen weekly jobless claims slowly come in lower than the previous week but always at levels in excess of 1m jobs per week. Continuing claims have started to become the data point to watch in the hope that these will start to come down below the 20m level, after peaking at just over 25m at the beginning of May.
4) US Bank Stress tests – 25/06 – the last time these stress tests were conducted the worst-case scenario was a US unemployment rate of 10%, and a US economic contraction of a similar amount. We are way beyond that now and while US banks have suspended dividends and buybacks, they also increased their provisions in respect of non-performing loans in their most recent trading updates, to the collective tune of nearly $25bn. These loans are likely to be across a range of their businesses from under pressure shale producers to hard pressed consumers who may well have to seek forbearance on mortgage as well as other credit losses, as the unemployment rate sky rockets to levels last seen in the 1930’s. The Federal Reserve has backstopped the financial system in this regard by providing additional funds, however this is unlikely to prevent widespread defaults, particularly in the travel and leisure sector.
5) US Personal Spending (May) – 26/06 – in March US personal spending slumped sharply to a low of -7.5%, as headlines started to reach US shores about the rising global death toll of Covid-19. and that was even before the US economy went into full lockdown. This number got worse in April with a new record low of -13.6 % with the US economy shutdown for the entire month. In the wake of the economic re-opening in May, and the surprise rebounds in the May jobs and retail sales numbers, we could well see a decent recovery in spending with a 5.1% rise expected, though we could well come in higher than that. The rebound in the US jobs numbers is also likely to see the big rise in personal income data, which we’ve seen in the last two months, start to reverse as these lower paid jobs get counted back into the numbers.
6) Tesco PLC Q1 21 – 26/06 – when Tesco reported its full year numbers back in April, there was some criticism that it was paying a dividend to shareholders at a time when it was benefitting from a business rates tax cut, along with a host of other measures designed to help the hard pressed retail sector ride out the lockdown in the UK economy as part of the coronavirus pandemic. This may well be a valid criticism, however Tesco, along with the rest of the supermarket sector has faced challenges of its own as a result of the crisis, albeit ones of a different degree. A sharp rise in costs, of between £650m and £1bn, along with the risks to its staff of staying open to feed the nation has presented its own challenges not only to its supply chain, but also to its ability to meet and boost its on-line, as well as physical delivery targets, in response to huge jumps in demand. Last week’s news that the company sold its Polish business for £181m has seen it shed one of the key drags on profitability. One advantage Tesco does have is the size of its stores, which makes social distancing a little bit easier, and helped boost its sales by 11.7% in the latest Nielsen data for supermarket stores, outpacing Aldi in the process.
7) Royal Mail FY20 – 25/06 – Royal Mail has been one of the few organisations that has continued working throughout the Covid-19 crisis, albeit on the back of some modified working practices to ensure employee safety. If its parcels division doesn’t come out ahead of expectations, given the higher volume of on line business that has been done since the lockdown in March, it will be a disappointment, despite lowered expectations. Last May Royal Mail cut its dividend in order to free up £1.8bn over 5 years as management look to take steps to lower its costs. This could be problematic due to relations with the unions who are likely to push back on automation. The departure of Rico Back as CEO might be a turning point in this regard. Management need to reconnect with the workforce and a new management team might be able to push through some of the necessary changes that need to be made for the business to stay viable. In November the company had a target of £300m to £340m. This could be optimistic particularly given how its letters division has underperformed as a result of the lockdown. Parcels, on the hand has the potential to help offset this
8) Darden Restaurants Q4 20 – 25/06 – the Olive Garden is a perennial favourite of US diners, and while it, along with the rest of the restaurant trade has suffered in the wake of the coronavirus shutdowns, its share price has seen a decent recovery of the March lows of $26.20. In its most recent update in mid-May Darden said that comparable store sales had recovered to -49% from the same period a year before. With more than 65% of its store real estate open by the end of May, but with a much lower capacity in order to comply with social distancing rules, the shutdown is expected to see a 45% decline in revenue to $1.25bn and a loss of $1.64c a share. Investors will be particularly interested in how management see the outlook going forward, though to some extent that will be out of the company’s hands, and rely on the US economy enjoying a decent post Covid-19 rebound and avoiding a second wave.
9) Nike Q4 20 – 25/06 – when Nike reported its Q3 numbers in March it was notable that while on-line sales were resilient its China operations were a significant drag due to the February shutdown of the Chinese economy. Even though the Greater China stores managed to reopen in March, the company was then faced with the shutdowns in the US and Europe which are likely to hit its numbers in Q4. Against this backdrop management unsurprisingly declined to offer any guidance for this quarter, which means it’s anyone’s guess as to the impact that the various shutdowns have had on its revenues and profits. The only positive could be that sector peer Adidas reported a return to growth in its China markets at the beginning of the month, while Nike also has a strong online digital presence. In terms of Q4 expectations, revenues are expected to fall by just over $2bn from the same period last year, to $8bn, and profits of $0.17c a share. For the full year consensus is for $39bn and profits of $2.18c a share.
10) Stagecoach FY20 – 24/06 – three months ago as the UK went into lockdown, Stagecoach issued a warning on profits, as well as cutting its dividend as it became apparent that the coronavirus pandemic was about to take a chain saw to its revenues. In April the company furloughed more than half of its staff and engineers once it became apparent that the costs of running a full service with no passengers was likely to bankrupt it. At around the same time the UK government announced a bailout package which would allow Stagecoach and other operators to continue to run any remaining services, without losing income. On top of this there is also a bus restart program which will help in phasing back bus services outside of London. Against this backdrop of government aid, its quite likely to be difficult to separate government help from actual income as the UK economy tries to get back on its feet, as the economy reopens. This week’s final numbers could well see a number of impairments as a result of Covid-19 which shouldn’t come to more than £25m. There could also be a £14m charged to expenses in respect of hedged cash flows for fuel consumption which now won’t occur. This is likely to take a bite out of the company’s full year revenues and profits, which had already seen a sizeable decline in the first half of the year. Adjusted revenues for the first half were down 20% to £800m, and are only expected to increase by another £537m in the second half to £1.37m. This would be a 27% decline from the previous year.
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