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There’s plenty happening this week on all fronts. The big banks kick off second-quarter earnings season in the US and some of the world’s biggest miners will also be in the spotlight. France hosts G7 finance leaders and it’s a busy week for economic data, including China’s gross domestic product.
Amazon Prime Day
Amazon’s annual Prime Day sale kicks off on Monday. The online retailer’s revenue growth has been slowing — hitting a four-year low of 16.9 per cent in the first quarter — so Prime is seen as an important factor in improving the company’s margins and building new businesses, including advertising, that will power future growth.
Background reading
● Why Prime Day is vital to Amazon
Zuma graft inquiry
Former South African president Jacob Zuma will on Monday appear for the first time before a judicial inquiry into claims that he helped private interests to loot the state.
Mr Zuma will be questioned on previous testimony to the inquiry by current and former state officials, who alleged that he helped the Guptas, a business family who gained his friendship, to influence policies and ministerial appointments to their advantage. His appearance promises to be a watershed moment for the biggest corruption scandal in South Africa’s post-apartheid history.
Background reading
● Jacob Zuma set to face grilling at South Africa graft inquiry
European Parliament vote
On Tuesday the European Parliament will vote on whether Ursula von der Leyen will be the next European Commission president. The German defence minister has pledged to give MEPs the right to propose EU laws, power they have long coveted.
However, her candidacy suffered a significant blow last week when the parliament’s Greens announced that they would not back her, potentially costing her as many as 74 votes.
Ms von der Leyen needs backing from an absolute majority of the parliament’s 751 members to be elected commission president.
Background reading
G7 finance meeting
Finance ministers and central bankers of the G7 meet in Chantilly, outside Paris, on Wednesday. The US-China trade war and global economic slowdown are likely to top the agenda, but the host nation wants the theme of this gathering to be making capitalism fairer.
France is proposing more financing for Africa and has urged the G7 to accelerate its transition to low-carbon economies in order to combat climate change. More contentiously, for big companies, Paris is demanding a global minimum corporation tax, a crackdown on tax havens, and stricter regulation of international IT groups such as Facebook and Google.
Turkey coup trial
The trial of 16 civil society activists accused of seeking to overthrow the Turkish government continues on Thursday, following last month’s two-day initial hearing.
Turkish businessman and philanthropist Osman Kavala and 15 others stand accused of seeking to topple President Recep Tayyip Erdogan’s government in 2013.
Rights campaigners see Mr Kavala as a symbol of the erosion of the rule of law in Turkey under Mr Erdogan’s increasingly authoritarian leadership while the country’s prosecutors have called for them to face life in prison without parole.
Background reading
● Opinion: Turkish democracy will struggle to survive one-man rule
Japan upper house vote
Japan holds an election for the upper house this coming Sunday. Prime minister Shinzo Abe’s Liberal Democratic party and his Komeito allies hold 148 out of the 242 seats in the upper chamber. Opinion polls suggest they will comfortably retain a majority. But they may struggle to win the two-thirds supermajority, in conjunction with various minor parties, needed to change Japan’s pacifist constitution — a long-held goal for Mr Abe.
Central banks
The Federal Reserve’s Beige Book — a snapshot of economic performance across the US — is due on Wednesday.
On Thursday attention will shift to South Africa, where the reserve bank is widely expected to announce a 25 basis-point cut to the repo rate, putting it at 6.5 per cent.
Ukraine’s central bank meets the same day, when economists forecast a cut to its 17.5 per cent benchmark is possible.
Chile’s central bank is expected to keep its key interest rate at 2.5 per cent when it meets, again on Thursday after an unexpected 50bp cut at its last meeting.
Earnings
Second-quarter earning season kicks off in the US this week. Equity investors are bracing for a second successive drop in quarterly profits, led by the technology and materials sectors, that could undermine a record-breaking run in the stock market.
Blue-chip companies across America are expected to reveal a 2.8 per cent drop in earnings per share for April to June, after a first-quarter contraction of 0.3 per cent, according to FactSet data. If this happens, the two back-to-back quarters of shrinking earnings would constitute an “earnings recession” — a phenomenon equity investors have not witnessed since mid-2016. The Financial Times has more on this here: Tech crunch could herald US ‘earnings recession’.
Citigroup is the first of the US banks to report on Monday. JPMorgan Chase, Goldman Sachs and Wells Fargo follow suit on Tuesday.
The bank results come after a buoyant first quarter that saw the sector as a whole record more than $60bn in profits. Performance among the biggest US banks was mixed, however. Goldman Sachs and Citigroup figures were underwhelming, in contrast to upbeat earnings from JPMorgan.
Investors will be watching the bank results for signs the prospect of rate cuts by the Fed could squeeze profit margins.
Background reading
● Nervous investors to check for rates squeeze on US bank earnings
In all, nearly 60 companies in the S&P 500 are expected to report results including Netflix, Microsoft, Schlumberger and Johnson & Johnson.
Three of the world’s largest mining companies also update on trading this week — Rio Tinto on Tuesday, BHP on Wednesday and Anglo American on Thursday. Investors will be paying close attention to the outlook for iron ore — a key source of profits for the miners. The iron ore market rose to a fresh five-year high earlier this month, driven by stronger Chinese steel demand and lower supply from the largest producers, Brazil and Australia.
Other names to watch in the UK this week include Burberry, which reports on Tuesday, with the performance of new creative director Riccardo Tisci’s collections under scrutiny.
Royal Mail is expected to point to a continued decline in letter volumes as it implements a turnround plan when it updates on trading on Thursday.
On the same day analysts expect easyJet to warn on profits when it reports third-quarter results, thanks to the familiar story of airlines being forced to keep prices low due to heavy competition while rising costs strain margins.
Also reporting in the UK this week are TalkTalk, SSE, Hays, Experian, Sports Direct and Severn Trent.
Economic data
China will report its second-quarter gross domestic product level on Monday — and the economy’s year-on-year growth rate could easily slow to the weakest pace since Beijing began publishing quarterly readings in 1992.
Analysts have pencilled in a drop to 6.2 per cent, on an annualised basis, for the three months to the end of June, down from 6.4 per cent in the first quarter.
Markets Questions has more on this and the FT also has Five things to watch when China announces quarterly GDP data.
In the US shoppers are expected to have tightened their purse strings a little last month with headline retail sales expected to rise 0.2 per cent month on month, after a stronger 0.5 per cent increase in May.
Control sales, which strip out volatile items such as food, energy and building materials are expected to rise 0.3 per cent. Investors will also tune into consumer sentiment data later in the week.
Updates on the industrial sector come via regional manufacturing surveys as well as industrial production data, which is expected to show factory output cooled. The economic calendar also includes updates on the housing market.
UK data on jobs, inflation and retail sales are due this week.
Employment data for the three months to May will be released on Tuesday. In the three months to April, UK jobs growth eased amid the uncertainty over Brexit.
Lower airfares and car prices drove down UK inflation in May to the Bank of England’s 2 per cent target, reversing three months of increases and the rate for June, due on Wednesday, is forecast to stay at this level.
The data also will be key to foreign exchange markets as investors attempt to get more clarity around what the Bank of England might do at its August meeting and beyond.
Analysts expect retail sales for June to improve after May’s fall when the data is released on Thursday, but only slightly.
Economic data for the second quarter so far points to softer activity. Some of that might be down to using up goods stockpiled before the original March Brexit date, but underlying weakness is also a possibility.
According to the monthly retail sales monitor from the British Retail Consortium, the industry lobby group, UK retail sales suffered their “worst June on record”.
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