After a long weekend in Britain, the trading week and the new month of May start on Tuesday. There are some major central bank policy announcements and a raft of economic data.
Among the UK’s companies are Shell and BP, British Airways owner IAG, Holiday Inn owner IHG and retailers Next and Boohoo. There are also many AGMs.
Earnings season in the US is still rumbling. Names that will be on the radar include Berkshire Hathaway and Pfizer, Moderna, AMD and Airbnb (NASDAQ: ABNB), Starbucks, Yum Brands and Uber, DoorDash, Ford and Yum Brands.
TUESDAY, 3 MAY
On Tuesday, BP PLC (LSE: BP.) will kick off the proceedings in London. Investors are likely to be interested to hear about how the company managed its exit from Russia and what the impact is on future performance.
Higher oil and gas prices could cause a decrease in profits. This could be offset by a write-down of 20% of Rosneft’s stake (LSE: ROSN), which could result in a large paper loss, but still, generate a lot of cash.
BP and its peers have been amongst the top share price performers for the year. They bounced back from the lows of 25 years ago in 2020 when it suffered a loss of US$20.3bn.
CMC Markets’ Michael Hewson stated that 2020 was a terrible year for the oil and natural gas industry. Demand collapsed and oil companies reduced production because storage capacity ran out.
The group is part of Bernard Looney’s 10-year strategy. It aims to reduce oil production by 40% and increase spending on low-carbon energy to US$5bn per year.
Hewson stated that there was a case to argue that oil companies should spend more money on fossil fuel transitions, despite continued calls for a windfall income tax from politicians.
Despite the Russian sanctions, Looney stated that more natural gas is needed in the short-term, and not less, as BP reported at the end of last year.
Earnings season in the US is still underway. Pfizer Inc (NYSE: PFE) has been a beneficiary of the pandemic and has teamed up with BioNTech to create one of the most effective Covid vaccines.
The company had a record 2021 year with revenues of US$81.3bn, compared to US$41.9bn for 2020. However, revenues for the entire current year are expected to reach a new high of US$102bn.
This is due to the company raising its prices. More than half of this increase can be attributed to the new Covid pill or the vaccine.
WEDNESDAY, 4 MAY
The market is pricing in a Federal Reserve interest rate hike of 50 basis points Wednesday. This has been telegraphed and confirmed by Jerome Powell, the chair.
Powell said that he thought it was appropriate to “move a bit faster” on interest rates than what the Fed did during the 2004-2006 cycles when the Fed increased by 25 bps at every other meeting.
UBS noted that markets are being driven by fears of Fed policy overreactions and will continue to see volatility rise.
Markets around the globe will “laser-focus” on what the Federal Open Market Committee does (FOMC), according to Deutsche Bank analysts. Consumer price inflation is at 8.5%, which is the highest it has been in 40 years, and unemployment rates are at 3.6%.
Markets will look for Powell to explain when the FOMC plans on launching ‘quantitative tightening (QT). This is essentially rolling back a large portion of its US$9 trillion balance sheets through the support of markets. It allows bonds that are held to mature to be rolled over and the committee’s position on the terminal’s interest rates.
Deutsche’s economists anticipate a 50bps increase at each of the three meetings, and a terminal rate of 3.6%. QT will start in May and total $1.6tn of runoff through 2023.
UK company news: Flutter Entertainment PLC (LSE: FLTR), is reporting its first-quarter results. Its shares are down more than 30% this year.
Two months ago, full-year results were disappointing. The owner of Betfair and Paddy Power said that the UK and Ireland’s final quarter in 2021 was difficult. However, there were a lot more sporting results in favour of the punter.
Additionally, the company took a non-cash charge of £543mln to amortize acquired intangibles. This resulted in a reported loss for the year of £288mln.
Although reported revenue increased 37% year-on–year due to the acquisition of Stars Group in May 2020, underlying earnings (EBITDA), were 6% lower due to higher US investments and regulatory impacts on its international business.
The consensus expectation for 2022 is that revenues will rise 10% to £6.6bn. EBITDA will jump more than a third, to just above £1bn. According to UBS, its US business will experience an EBITDA loss in the range of £251mln.
Boohoo Group PLC, the former ‘king’ of AIM, will release its final results. This is despite its shares have plummeted this year, falling 30% to 81.8p, 80% below its peak, and, like its online rival Asos., lower than their pre-pandemic levels.
Management assured in March that profits would be within the guidance level for the year ending February 2022. Adjusted profits are expected at £125mln. This is 61% more than the two previous years and 14% higher than the previous year.
According to the online retailer, supply issues continue to affect international performance. Customers are receiving longer delivery times.
John Lyttle, chief executive of the group, stated that the group had experienced strong growth in the past two years which translated into substantial market share gains.
Analysts at Barclays also noted that online businesses like Boohoo face “a laundry list” of headwinds, which include supply chain issues and growing competition.
Peel Hunt said that they were interested in understanding how to boohoo plans to address current distribution challenges. US customers have been left with a standard delivery time of c.10 days and a longer delivery time for EU customers.
THURSDAY, 5 MAY
It will be a busy week for the Bank of England with a monetary committee (MPC), meeting one day before its 25-year anniversary of independence.
The MPC will likely raise interest rates on the day of local elections in the UK. Markets are pricing in a 25-basis-point increase to 1.1%. However, some policymakers may vote to increase it to 50 bps.
The dilemma for the members of the committee is to combat soaring inflation or nudge the economy (further), towards a recession. With stagflation warnings growing louder,
“We shouldn’t be too surprised if the storm clouds gathering over global economy should cause them to light a fire,” stated Laith Khalaf, AJ Bell.
“Constantly high energy prices and disruption in supply chains resulting from COVID lockdowns in China have impacted the macro-economic outlook. The central bank might feel that putting the brakes on hard may not be the best thing in the current environment.
Andrew Bailey, Bank of England governor, acknowledged last week that the MPC was “walking very tight” when it comes to rates and inflation.
Marshall Gittler, BDSwiss, reports that year-end rate expectations have been significantly downgraded over the past week. There are almost 50 bps of tightening in the future, which has been priced out.
Gittler says, “Watch what they have to say about the risk – that will prove key, I think.”
A quarterly update of the Bank’s economic projections will accompany the policy decision, which includes labour market projections.
Shell PLC (LSE:SHEL, NYSE:SHEL), will release a quarterly trading update. It is highly probable that it will confirm the positive effects of high oil and natural gas prices driven by macroeconomic and geopolitical conditions. This will boost Shell’s Integrated Gas and Oil Products arms.
Analysts at UBS believe that the primary focus will be on cash flow generation and potential higher shareholder returns.
The other side of the coin is that the company flagged a “very significant” cash flow of US$7bn in February and stated that exiting three joint ventures and Gazprom following Russia’s invasion of Ukraine and other Russian activities will result in US$4bn to US$5bn of charges.
UBS observed that management stated that the target range of 20%-30% cashflows returned by shareholders could be increased in the event of a more favourable environment.
Next PLC (LSE: NXT), will also release its first-quarter results. Investors are eager to see if the retailer can manage a difficult year in which shares have plummeted nearly 25%.
Due to rising inflation and higher living costs, the clothing retailer has lowered its earnings guidance to £10mln.
The company is known for over-promising and under-delivering under Simon Wolfson. Therefore, its first quarter results will provide a first indication of whether this tactic has been repeated.
Barratt Developments PLC, (LSE: BDEV), follows FTSE 100 competitors Persimmon & Taylor Wimpey by providing an update on its business and the UK’s housing market.
This message will likely be similar, with buoyant prices outweighing cost inflation.
Analysts at UBS anticipate that selling prices will rise by approximately 4.5% for the entire year (juice 2022).
According to the broker, the trading update should show that sales rates are stable at 0.85 per site per week. This would be lower than January, but still in line with 0.83 for the previous year.
UBS expects 17.250-17.500 housing completions, an average £302,000 selling price, and pre-exceptional profits in excess of PS1.06bn.
Cladding issues are another moving target. Peel Hunt, a broker, stated that Barratt’s 34% share-price fall in the past year reflects its greater exposure than competitors.
After Q1 results from larger competitors in recent weeks, challenger banks Virgin Money UK PLC (LSE: VMUK), and OSB Group are nearly inseparable in terms of size and report numbers for the week.
Investors will be most focused on Virgin Money’s loan growth rate and net interest margins.
To navigate a market in which base rates are rising while mortgage spreads are compressing, the lender plans to fundamentally change its lending mix for 2022.
UBS says it’s a difficult path. This is why UBS shares trade between 5-10% and NatWest around a forward earnings metric.
Consensus projections predict loan growth of 3.4% by 2022, and NIM will rise to 1.77%. But what it says about competition as well as mortgage demand and competition will be fascinating.
FRIDAY, 6 MAY
The first-quarter results of British Airways owner International Consolidated Airlines Group (LSE: IAG) SA will be compared against very soft comparatives starting in 2021 when the airline sector was complaining about global lockdown restrictions.
Although the industry isn’t yet in the clear, there are clear signs that some demand is still present, as Louis Gallego, chief executive of IAG, stated at February’s full-year results that the company is confident of a “strong recovery”.
According to reports, bookings were strong for Easter 2022 and summer 2022. They have increased in the New Year.
Gallego stated that he expected a strong summer, with IAG returning at around 85% of its 2019 capacity.
However, in the first quarter of this year, the airline group would expect to experience a seasonal loss, even in the worst of times.
In February, the company stated that IAG should be profitable at the operational level by quarter two. This would allow both operating profit as well as net cash flow from operating activities to be significantly higher for the year.
InterContinental Hotels Group PLC, a company that specializes in travel and tourism, should tell a story about continued recovery in its first-quarter trading update, especially in the US.
Holiday Inns’ owner noted a “significant acceleration” in sign-ups in the fourth quarter of 2021. Shareholders will be hopeful that this momentum will continue.
However, the resurgence in China of Covid is likely to be a concern. The company built a net of 12,863 rooms across Greater China in 2021.
The market will be monitoring the US non-farm payrolls, which will indicate what this will mean about future interest rate increases.
The market expects another strong increase of 390,000. Although it would be slightly lower than the previous month, it is still significant.
The unemployment rate will remain at 3.6% for the month, which is just slightly above the 3.5% level that was set before the pandemic. However, the participation rate will likely rise one point.
Analyst Marshall Gittler from BDSwiss said that this will only confirm Fed Chair Powell’s assertion that the job market has been ‘extremely tight’ and heinous hot. This means that they can raise rates without worrying about causing unemployment to soar up to 10.8% under [1979-87 Fed boss Paul] Volcker.”
Gittler cited Sly Stone, a well-known economist who said that such evidence of a “extremely, historically, tight” job market would make rates “higher”.
“The dollar will likely dance to the music and follow rates upward,” says Kelly.
Important announcements are expected to be made in the next week
Monday, 2 May
Bank Holiday UK
AGMs: Legal and General Group PLC
Economic data: Construction Spending (US), ISM Manufacturing, ISM Prices Paid US
Tuesday, 3 May
Finals: Card Factory (LSE:CARD) PLC, Intelligent Ultrasound Group PLC (AIM:MED)
Trading announcements by BP PLC
AGMs: AVI Opportunity Trust PLC and CPP Group (LSE :CPP) PLCs, F&C Investment Trust(LSE :FCIT) PLCs, IOG PLCs (AIM:IOG), Plus500 Ltd. (LSE :PLUS).
Economic data: Factory Orders (US).
Wednesday 4 May
Finals: Dianomi PLC(AIM:DNM), e-Therapeutics PLC; Inspiration Healthcare Group PLC [AIM:IHC], Boohoo Group PLC
Interims: Aston Martin Lagonda Global Holdings PLC (LSE:AML)
Trading announcements: Direct Line Insurance Group PLC(LSE:DLG), Flutter Entertainment PLC and OSB PLC
AGMs: GlaxoSmithKline PLC(LSE :GSK), GlaxoSmithKline PLC(LSE :BARC), Barclays PLC [LSE :BARC], GlaxoSmithKline PLC (“LSE :GSK”), Just Eat Takeaway.com NV” (LSE :JET), NASDAQ :GRUB), Mpac Group PLC (“LSE :MPAC”), Standard Chartered PLC (“LSE OCDO”), Ten Entertainment Group, Tritax Big BoxREIT PLC (“LSE ULVR”), Unilever PLC (“LSE ULVR”), Unilever PLC “LSE”
Data on economics: US Federal Reserve (US), MBA Mortgage Application, ISM Prices Paid ISM Services (US), Crude Oil Inventories US), BRC Shop Price Index UK (UK), Consumer Credit UK (UK), M4 Money Supply UK), Mortgage Approvals UK (UK).
Thursday, 5 May
Finals: Trainline PLC, LSE:TRN
Interims: Helios Towers PLC (LSE:HTWS), Shell PLC, Virgin Money UK, Endeavour Mining PLC (LSE:EDV, TSX:EDV, OTCQX:EDVMF)
Trading announcements: Derwent London (AIM:DLN) PLC, Mondi PLC (LSE:MNDI), Next PLC, Barrat Developments PLC, Derwent London PLC, Reach PLC (LSE:RCH), BAE Systems PLC (LSE:BA. ),
AGMs: Abrdn Smaller Companies Income Trust PLC. Alpha FX Group PLC. (LSE :AIBG), Alpha FX Group PLC. (AIM :AFX), Apax Global Alpha Limited. Ceres Power Holdings PLC. (LSE :CWR. OTC :CPWHF), ConvaTec Group PLC. (LSE :CTEC), ConvaTec Group PLC. (LSE :CTEC), Costain Group PLC.), Pershing Square Holdings PLC.
Ex-divs will reduce FTSE 100 points to 1.24 points: Croda International PLC, LSE:CRDA, Admiral Group
Economic data: Initial Jobless Claims (US), Continuing Claims, US), BoE Interest Rate Decisions (UK).
Friday, 7 May
Finals: CMO Group PLC, (AIM:CMO).
Interims: Numis Corporation (AIM:NUM) PLC
Trading announcements: Ted Baker PLC (LSE :TED), Ted Baker PLC (Beazley PLC), InterContinental Hotels PLC and international Consolidated Airways PLC
AGMs: BlackRock World Mining Trust PLC; CVC Credit Partners European Opportunities Ltd, InterContinental Hotels Group PLC. Man Group (LSE :EMG) PLC. Rightmove PLC. Spirent Communications PLC.
Economic data: US Non-Farm Payrolls, Unemployment Rate (US), Consumer Credit US, Halifax House Price Index UK
Season of earnings in the USA
Monday: Berkshire Hathaway. NXP Semiconductor. The Mosaic Company. ON Semiconductor. Clorox
Tuesday: Pfizer, AMD, Airbnb, Estee Lauder, Starbucks, Skyworks, Yum China, Lyft
Wednesday: Uber, Ford, Moderna, Barrick Gold, Yum Brands, Wolfspeed
Thursday: ConocoPhillips, Zoetis and Shopify (TSX.SH., NYSE.SHOP), DoorDash (Kelog, Royal Caribbean Crusies),
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