Share Talk Expected Market Updates For The Week Ahead – 25th October 2021

Next week promises to be busy on the reporting front and with the UK Budget.

This week will be jam-packed with company updates during the busiest part of results season in Europe, the US and Europe. Rishi Sunak’s Budget, various central bank decisions, and ending with the Cop26 climate summit and G20 talks, are also included.

HSBC and Lloyds are among the nearly-50% of US and 35% of European companies that will report next week.

Although financial markets are focused on the Bank of England’s potential interest rate rise, many economists believe that fiscal policy changes are more important than monetary policy developments for the UK economy.

Deutsche Bank (NYSE.DB) stated that the government’s support was the most important tool in sustaining the economy during the pandemic. However, the bank noted that the potential steeper fiscal drag will have a greater impact.

Rishi Sunak, the Chancellor of Exchequer, is heading into the autumn Budget with a lot more fiscal flexibility than expected. New figures show that government borrowing is £44bn lower than the £152bn forecast by the Office for Budget Responsibility (March).

Sunak’s spending commitments to the NHS, schools, and defence will take a lot of the wiggle space. He may need to make cuts elsewhere to achieve his goal of balancing the budget before the end of the parliament in the next three years.

Although he has not yet decided to reduce taxes, Sanjay Raja, Deutsche, predicts that the spending review and revised economic assumptions surrounding pandemic scarring will lead to a faster fall in borrowing. This “should also permit the Chancellor to meet his proposed fiscal rules by parliament’s end, opening the doors to increased spending before the next general elections”.

It is a week of UK bank updates, and the Budget will be featured. All eyes will be on a rate increase.

Barclays has set a high standard, but brokers believe its peers will maintain, if not exceed that bullish tone and record numbers.

HSBC PLC (LSE HSBA) will open proceedings Monday. Analysts at UBS expect that the Asia-focused bank will announce a US$2.5bn share purchase-back as part a steady increase in shareholder distributions over the coming years.

“We expect US$11bn of buybacks in 20221/2, and a 10% yield in 2025.”

UBS analysts said that they would be happy to provide assurances that the bank is protected against any potential fallout from Evergrande’s Asian property empire.

On Thursday, Lloyds Banking Group PLC (LSE:LLOY) seemed to have the most potential for disappointment. It lacks the investment bank operation that drove Barclays and other US banks forward in the third quarter.

Share price has been hit by concerns about rising living costs, bad debts and interest rates. However net income is expected to rise due to growth in mortgage and other unsecured loans.

This is Charlie Nunn, the new chief executive of Lloyds. Brokers expect a conservative view about dividends. The strategy for the future will be laid out with the full-year results.

On Friday, NatWest Group PLC will be raising interest rates.

UBS stated that the key to understanding these benefits will be how they are augmented by a larger rate hedge, and offset by the substantial decline in flow mortgage spreads.

We are in the midst of the busiest week of US earnings season, and things have been going smoothly so far.

JPMorgan noted that while only 17% of US companies and 16% in Europe reported, the initial results indicate better earnings growth than expected in both America and Europe. 86% of S&P 500 companies beat EPS estimates, and 68% in Europe.

Kimberly-Clark and Facebook get us started on Monday. Tuesday’s names include Alphabet (NYSE;V), Texas Instruments (NYSE;GE), Twitter (NASDAQ:HAS), 3M, 3M, and Lockheed Martin(NYSE:LMT); Wednesday’s names include Microsoft, Coca-Cola (NYSE;V), Texas Instruments (NYSE;HAS), Twitter (NASDAQ:HAS), 3M, and Lockheed Martin; Thursday will see Apple join Comcast (NASDAQ;CMCSA), Shopify, NYSE;SH., Newmont Corp), Caterpillar, Newmont Corp and Yum! Brands (NYSE.YUM); on Friday, we have Berkshire Hathaway. (NYSE.BRK), ExxonMobil. Chevron. And finally, Colgate-Palmolive.

Apple Inc (NASDAQ,AAPL), the US$2.5trn giant, reports its fourth-quarter numbers on Thursday. This is following its highest-ever third-quarter when iPhone and services sales surged.

Analysts have projected revenues of US$84.8bn for the fourth quarter and earnings per share of US$1.23.

Wedbush broker said that despite the noise about chip shortages, Apple will provide clear upside to Street numbers all across the board because iPhone 13 demand was strong globally with China at the forefront.

“The elephant in Apple’s room (and all other tech and auto players) heading into the conference calls is the chip shortage crunch. What impact will this global logistics Rubik’s Cube have on iPhone builds, shipments, and holiday season?

Wedbush analysts believe Apple will have to reduce iPhone units by 5-10mln because of the chip shortage. Wall Street expects December guidance to be “a bit mixed”.

Microsoft Corporation (NASDAQ;MSFT) is now a smaller company (at US$2.3trn). The software and hardware giant has updated its financial information last month with an 11% increase in the September quarter’s dividend and launched a US$60bn share purchase back.

Wedbush expects “incremental strength once more” as Microsoft’s Azure cloud reaches its next stage of growth.

“We are continuing to see deal sizes increase as enterprise-wide digitization shifts accelerate with CIOs all focusing on preparing their respective enterprises to a cloud-driven architecture with MSFT poised for beating Azure whisper growth numbers at 45% this quarter.”

Wall Street believes cloud growth will slow as the homework cycle ends. However, Wedbush stated that Microsoft’s field experiences paint a very different picture.

“We believe that the Office 365 price hike for 2022 was a smart poker move that could provide Redmond with an additional $5bn+ tailwind in 2022. This gives us more confidence that numbers will continue to rise.”

Facebook Inc (NASDAQ:FB) reports Monday amid allegations that it covered up research suggesting that its products were bad for users’ mental well-being, while its WhatsApp arm was penalized for improperly using customer data.

Analyst Nicholas Hyett from Hargreaves Lansdown said, “All in all it’s a pretty terrible set of headlines.”

“This week, the question will be whether the bad news had an impact on users.

“The group isn’t afraid of bad press and that hasn’t stopped daily users rising 79% in two years. Advertising seems to be open to overlooking negative press in order to reach Facebook’s audience. In fact, the average revenue per user has increased by 43.5% in a single year. Management hopes this latest round negative headlines will not be different.”

If Unilever results are any indication, Tuesday’s trading update from Reckitt Benckiser Group PLC, (LSE:RKT) on Tuesday could prove to be a winner.

Unilever saw sales growth that was higher than analysts expected for the third quarter but also experienced unprecedented cost inflation.

Reckitt’s 23 September trading update showed that trading has been consistent with expectations since 27 July.

According to UBS, Shingrix will be the focus of GlaxoSmithKline PLC‘s third-quarter results (LSE:GSK), according to UBS.

Shingrix sales in the first quarter were lower than expected by 50% year-over-year but were flat in the second quarter.

UBS forecasts quarterly sales of £414mln for the drug. This represents an 18% year-on-year recovery.

GSK’s core earnings will likely be affected by the contribution of ‘covid solutions’, which affect both revenues and costs. These contributions are not included in FY21 guidance.

Analysts expect third-quarter revenue of PS8,759bn, core earnings without interest and tax at £2,350bn, and core earnings per share at 0.29p.

Royal Dutch Shell PLC (LSE :RDSB), shares have risen by about 80% over the past year. This is not due to the company’s ESG or ‘net zero’ strategy. It is due to rising oil and gas prices.

The third-quarter results will be among many that are presented on Thursday. They will likely include commentary and quotes about energy transition, especially with the COP26 summit just around the corner.

Investors will focus on cash flow, profits, and dividends – although many of these details were provided in an earlier update.

The integrated gas business is expected to have better trading results than the second quarter.

Shell stated that it expects that cash flow from operations will be “significantly affected by large variation margins on the back of the prevailing gas price environment”. This is a complicated way to say Shell is making a lot by selling its product for a higher price.

UBS echoed these sentiments: “Integrated Gas should profit from better trading and optimisation earnings than 2Q (we view this as the absence of a negative rather than an obvious upside benefit from current LNG market given various production shortages).

Analysts at the Swiss bank added that “upstream earnings are held back due to the impact of Hurricane Ida on GoM production with Mars complex shut down through Sept (production impact 90,000. boed, adjusted earnings hit by US$200-$300mln).

Significant announcement expected in the week ahead:

Monday 25 October:
Trading update: HSBC Holdings PLC

Interims: DP Poland PLC (AIM:DPP)

Finals: Croma Security Solutions Group PLC (AIM:CSSG)

AGMs: Bezant Resources PLC (AIM:BZT), Challenger Energy Group PLC (AIM:CEG), Galileo Resources PLC (AIM:GLR), Xtract Resources PLC (LSE:XTR)

Economic data: Chicago Fed National Activity Index (US)

Tuesday 26 October:
Trading updates: Reckitt Benckiser Group PLC (LSE:RKT, ETR:3RB), RWS Holdings (AIM:RWS) PLC

Interims: e-Therapeutics PLC

Economic data: New home sales (US), Case-Shiller home prices (US), Consumer confidence (US)

Wednesday 27 October:
Trading updates: GlaxoSmithKline PLC (LSE:GSK), ContourGlobal PLC (LSE:GLO)

Interims: Bloomsbury Publishing PLC (LSE:BMY)

AGMs: Cap-xx, Frontier Developments PLC (AIM:FDEV), Hargreaves Services Plc (AIM:HSP, OTC:HGRVF), Ideagen PLC (AIM:IDEA), Invinity Energy PLC (AIM:IES), JPMorgan Global Growth & Income (LSE:JGGI), Mirada PLC (AIM:MIRA), Pantheon International PLC (LSE:PIN), Springfield Properties PLC (AIM:SPR)

Economic data: BRC shop price index (UK), Durable goods orders (US)

Thursday 28 October:
Trading updates: Lloyds Banking Group PLC (LSE:LLOY), Royal Dutch Shell PLC (LSE:RDSB), Helios Towers PLC (LSE:HTWS), Hunting PLC (LSE:HTG), Inchcape PLC (LSE:INCH), Indivior PLC (LSE:INDV), Mail.ru Group, PPHE Hotel Group Ltd, Totally PLC (AIM:TLY)

Interims: Airtel Africa PLC (LSE:AAF), C&C Group PLC (LSE:CCR), HarbourVest (LSE:HVPE) Private Equity

FTSE 100 ex-dividends to knock 0.987 points off the index: Ferguson PLC (LSE:FERG)

AGMs/GMs: Brooks Macdonald Group plc (LSE:BRK), Filtronic PLC (LSE:FTC), Highbridge Tactical Credit Fund PLC, Rosslyn Data Technologies PLC (AIM:RDT), South32 Ltd (LSE:S32, ASX:S32, OTC:SHTLF, JSE:S32), Tirupati Graphite PLC (LSE:TGR)

Economic data: Nationwide house prices (UK), ECB interest rate decision (EU), Initial jobless claims (US), GDP (US), PCE prices (US)

Friday 29 October:
Trading updates: NatWest Group PLC (LSE:NWG), Evraz PLC (LSE:EVR)

Finals: Grit Real Estate Income Group (LSE:GR1T), Scancell Holdings PLC (AIM:SCLP, OTC:SCNLF), Time Out Group PLC (AIM:TMO)

AGMs: ADM Energy, ITM Power, Mattioli Woods, Maxcyte, OPG Power Systems, Sensyne Health

Economic data: Bank of England lending figures (UK)


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