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1) China Retail Sales (Oct) – 15/11 – The most recent China trade numbers showed that while exports remained strong, imports were still very much on the soft side, as weak demand continued to weigh on the domestic part of the Chinese economy. Retail sales in Q3 were in stark contrast to the resilience in Q2, where the lowest number was a 12.1% expansion in June, although some of that rebound may well have had some base effects in the number. Since then, we’ve seen a sharp slowdown with August seeing a modest 2.5% rise and while September showed a modest improvement to 4.4% the outlook continues to remain tepid as Chinese authorities persevere with their zero covid strategies, as well as having to contend with surging energy prices, which has made it difficult for China’s industrial sector to keep going. Recent manufacturing PMI numbers have also remained weak, slipping to their lowest level since February 2020 last month. The rise in energy prices saw industrial production slow sharply in September to 3.1% from 5.3% in August, and this trend isn’t expected to improve in October with a similarly subdued number of 3% expected. Retail sales aren’t expected to improve either with a slowdown to 3.6% from 4.4% in September.
2) UK Unemployment (Sep) – 16/11 – When the Bank of England decided not to push the base rate up to 0.25% earlier this month, they cited concern about the effects that the end of furlough might have on the labor market for their reticence to do so, despite previous heavily hinting that the base rate might have to rise to curb rising inflation expectations. While no one is questioning the wisdom of them holding fire the central bank has been heavily criticized for its guidance leading up to that decision which suggested they would act in the absence of that data. It is difficult to underplay the huge damage the central bank has done to its credibility over the lead-up to the November decision. This week’s ILO unemployment numbers aren’t likely to shed a lot of light on this either given that they are for the three months to September, with any redundancies only likely to show up in the October numbers. The ILO rate has already come down from 5% at the start of this year to 4.5%, while the claimant count rate has fallen even faster from 7.2% in January to 5.2% in September. With over 1m vacancies already in the UK economy, this could well see both headline numbers fall back further, although the end of furlough could see the ILO measure come in unchanged at 4.5%, while the claimant count for October could go either way, from its current 5.1%.
3) US Retail Sales (Oct) – 16/11 – US retail sales for September came in better than expected, rising 0.7%, against a forecast of -0.2%, while the August numbers were revised up to 0.9%. These better-than-forecasted numbers, along with the continued improvement in the US labor market helped convince the Federal Reserve that the economy was strong enough for it to proceed with its plans to start tapering its monthly asset purchase program starting this month. In contrast to the UK, the US consumer has been much more resilient despite consumer confidence numbers that have been a little on the weak side. The last two months have seen a rise of 0.9% and 0.7%, both months’ confounding expectations of a decline. This week the forecast appears to be for a rise of 0.5%, which probably means we’ll see a decline.
4) UK CPI (Oct) – 17/11 – With UK CPI jumping from 2% in July to 3.2% in August there had been concern that we were about to see the beginning of a surge to 4% in fairly short order when the September numbers came out a few weeks ago. This wasn’t and isn’t an unreasonable expectation given that various emergency government support measures have now come to an end, which along with rising food and energy prices means we can probably expect to see further upward pressure in prices in the months ahead. This still looks the most likely outcome, even though prices stabilized in September, dropping back to 3.1%. Earlier this month the Bank of England signaled that CPI could head even higher towards 5%, and in a huge own goal moment passed up the opportunity to signal action to curb rising inflationary expectations, having previously suggested that they might do so. Core prices also softened in September falling back to 2.9% from 3.1%, however, this is likely to be only a temporary respite, with prices expected to push back above 3% with headline CPI expected to rise to 3.9%, and core prices to 3.7%, although it’s not inconceivable we could see a move on the headline number to 4%. A big rise in this week’s October numbers will merely serve to shift the focus back on the Bank of England, and the potential for a possible rate move in December, though whether markets start to price such an outcome remains open to question after the shambles we saw at the beginning of the month. Forward guidance is a huge part of how central banks guide market expectations over monetary policy and can be a useful tool in shaping policy. This month’s missteps by the central bank have made that task a lot harder than it needed to be.
5) UK Retail Sales (Oct) – 19/11 – The UK consumer appears to have gone into full reverse over the last few months. Since the 9.2% rise in April, we’ve seen declines of -1.3% in May, -2.8% in July, -0.6% in August, and -0.2% in September, with only a pitiful gain of 0.2% in June. The lack of gain in September was even more surprising given that UK petrol station forecourts were sucked dry as a result of the fuel supply panic at the end of that month. We’ve also seen strong credit card spending on items like cinema tickets, outdoor events, and restaurants, during the summer months as UK consumers stay at home due to the various overseas travel restrictions. Anecdotally, domestic leisure businesses, particularly in seaside resort areas have had their best season in years. While the fuel crisis did provide an uplift to fuel sales in September, it also meant that discretionary spending fell elsewhere, with home goods seeing a decline. I guess you can’t buy a table or chairs if you’re stuck in a petrol queue! There is of course the possibility that retail sales volumes could start to pick up from here on in as we head towards Black Friday and the pre-Christmas rush. With the various supply chain disruptions, consumers are already being encouraged to start Christmas shopping early to avoid disappointment, which could prompt a pull-forward effect as we head into year-end, with expectations of a rise of 0.5%.
6) Vodafone H1 22 – 16/11 – When Vodafone reported back in July, reported Q1 revenues came in well ahead of expectations, at €11.1bn, however, the shares have struggled to hit an 11-month low earlier this month. Organic service revenue saw an increase of 3.3% in Q1, well above expectations of 1.91%, with a strong performance in Germany, helping drive the improvement. The lack of cross-border travel has meant that roaming revenues were still on the low side, but that is expected to improve over time, and it is not a problem unique to Vodafone. With the economy in Europe starting to slow and in Germany especially, where it derives almost 40% of its revenue, there is a risk of some underperformance. Investment in 5G to support future growth is expected to continue. The company said it was on track to meet its full-year EBITDA target of between €15bn and €15.4bn, with €7.48bn of that expected in the first half. Total revenues for H1 are expected to come in at €22.1bn
7) Royal Mail H1 22 – 18/11 – Royal Mail shares have struggled since their Q1 update back in July saw group revenue rise by 12.5% compared to last year, and by 20.5% compared to 2019. While on the face of it these numbers were solid the parcels division saw a 13% slowdown in volumes as shops started to reopen, although the numbers also need to be set in the context of last year’s lockdown when comparatives were much tougher due to everyone being at home. Revenue on the other hand was higher, with the company reiterating its full-year guidance. In September the company said revenues for the group were 8.2% higher year on year, and up 17.7% from 2019, a marked slowdown from the numbers in Q1, with domestic parcel volume declining 5% year on year. Costs also increased slightly, not surprising given the similar problems being faced by the likes of FedEx who have had to increase wages for new hires. Group adjusted operating profit for H1 is expected to come in between £395m to £400m, with H2 expected to deliver better performance on profits and margins.
8) Home Depot Q3 22 – 16/11 – Another US company that has seen its share price go vertical in the last two years. In Q1 the US retailer picked up where it left off last year, with another big beat for profits and revenues as the trickle-down effect of US stimulus payments saw an increase in consumer spending. Profits and revenues both came in above the Q4 numbers coming in at $37.5bn, well above the $32.26bn seen in the previous quarter. Profits also smashed expectations of $3 a share, coming in at $3.86c. Customer transactions also saw a big increase, rising over 19% to 447.2m. With such a high bar it perhaps wasn’t surprising that management chose not to offer guidance in Q2, however, they needn’t have worried as Q2 profits came in at $4.53c a share, while revenues rose to $41.12bn, both beating expectations. Same-store sales did fall a touch, although the total basket size was bigger. With the shares close to record highs could Home Depot post another quarterly increase in revenues. It seems a tall order given some of the slowdowns in existing and new home sales in the past few months, along with higher raw materials and other related costs. Profits are expected to come in at $3.33c a share
9) Walmart Q3 22 – 16/11 – When Walmart reported back in August its shares were within touching distance of its record highs, from a year ago, however, the shares have spent the last quarter, round-tripping from four-month lows back in October. In Q2 Walmart beat on the top line with profits of $1.78c a share, while revenues came in at $141.05bn, well above expectations. Same-store sales also rose more than expected, up 5.2%, prompting the company to raise its full-year profit forecast to between $6.20c and $6.35c share, however, the shares rolled over, with the split between e-commerce sales and store sales starting to move back in favor of stores as the economy reopened in the summer. In Q1, total revenue came in at $138.1bn, helped to a large extent by the March stimulus payments. Walmart has been leveraging up the increasing popularity of its online services over the last 12 months, announcing the launch of Walmart+ in Q3 last year, a new membership service in order to better compete with the likes of Amazon and its Prime service. As with other retailer’s business costs have eaten into the top line as the extra staff was hired to help clean stores, stack shelves, and get online orders out of the door. In total the company hired in excess of an extra 500k people last year alone. Tougher comparatives from this time last year could also test shareholder confidence, however, Q3 could also be the calm before the storm and the challenges of Q4 when retailer supply chains are likely to feel the strain the most ahead of Thanksgiving and Christmas. How many more staff will Walmart have to recruit to meet demand and more to the point how resilient are their supply chains to pre-Thanksgiving and Christmas demand. Walmart is also looking to diversify away from retail and into health care, acquiring MeMD earlier this year as it looks to widen its scope into health care beyond basic in-store pharmacy services. Profits are expected to come in at $1.39c a share.
10) Target Q3 22 – 17/11 – Target shares have been another outperformer this year, although we did see a bit of a selloff in the aftermath of their Q2 numbers and are now back close to their record highs from August. They are still up over 40% year to date, with the business adapting to the challenges posed by the pandemic, building on the big gains seen through 2020 as well. Like Walmart, the company has had to adapt to rising costs and with its position in the middle of the US retail pack, it has gained lots of new customers at the lower and upper end of the income stream in the US, as consumers spend their stimulus benefits. In Q1 Target was able to post a rise in Q1 sales of 22.9% well above expectations of 10.1%, while revenues came in at $24.2bn. Net income rose to $2.1bn, up from $284m in the same quarter last year, as shoppers spent more money on the likes of homeware as well as clothing, with average basket sizes rising 5%. The company also saw store and website traffic rise by 17%. In Q2 net sales came in at an impressive $25.16bn, with same-store sales rising 8.7%, both above expectations, but well down from the 22.9% rise seen in Q1. Profits came in better at $3.64c a share, beating forecasts of $3.40c. The company also announced a new $15bn share buyback program. The reality is that while sales growth has slowed it was never going to be sustained at the levels of 20%+ seen in previous quarters, and it could well be the same in this quarter. As we look ahead to Q4 and what traditionally is retailers’ best quarter, with Thanksgiving and Christmas approaching it will be interesting to see what sort of guidance Target offers in the context of the various problems it is likely to face, and how much higher its costs will be as it hires extra seasonal workers to cope with the extra demand on its logistics over the Black Friday, Cyber Monday, and pre-Christmas holiday period. Target has said it intends to invest up to $4bn over the next few years in new stores, as well as improve its e-commerce offering further. Profits are expected to come in at $2.80c a share.
11) Nvidia Q3 22 – 17/11 – Having seen Q1 revenues rise by 84% to $5.66bn, Nvidia almost repeated the trick in Q2 with a 68% rise to $6.51bn, with almost half driven by gaming, which saw over $3bn. This was followed by data center revenue which came in at $2.37bn. Profits came in at $1.04c a share, with the company saying it expects to see Q3 revenue rise to $6.8bn, despite concerns over chip supply. Management made little comment on the ARM deal apart from saying that it was taking longer than expected to complete. With sector peer Qualcomm recently raising its own guidance on its chip production revenues, Nvidia shares have gone from strength to strength since August surging to record highs last week after it launched a new suite of chip products called the Omniverse to specifically target the metaverse. The shares are currently up over 100% year to date. Profits are expected to come in at $1.10c a share.
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