The Week Ahead - Bank of Canada, RBA rate decision, China trade, BAT, Apple WWDC
|- Bank of Canada rate decision – 07/06 – concerns over stickier than expected core inflation has dominated the market discourse in recent weeks, over worries that we could see further rate hikes from central banks in the coming days. In April, the Bank of Canada stayed on hold, keeping rates at 4.5% as policymakers looked to assess the impact recent rate hikes have had on the Canadian economy. Looking at the underlying numbers, the Canadian economy appears to be holding up well, although inflation does appear to be edging up again. April CPI saw headline CPI nudge up to 4.4% year on year, while core prices were also firmer. Combined with a solid labour market after a jobs report in April which was quite strong with 41.4k jobs added, over double market expectations and also higher than the 34.7k seen in March, while the unemployment rate fell to 5%. With wage growth also firm at 5.2% there is a chance that we might see another 25bps this week, which could also be a leading indicator for the Federal Reserve a week later.
- Services PMIs (May) – 05/06 – the recent flash PMI numbers for services have shown that economic activity in May has remained resilient, particularly in Italy and Spain where activity is closer to the 60 level than 50, although the recent wet weather in Southern Europe may prompt a bit of a slowdown in the coming weeks. In France and Germany, we have seen a modest slowdown in economic activity, but it is still robust, as is the UK, despite 3 bank holidays during the month of May. US services activity has also picked up of late after a bit of a dip in the wake of the regional banking crisis in March.
- China trade (May) – 07/06 – the rebound in the Chinese economy appears to be running into a bit of trouble after the pickup seen in the aftermath of Chinese New Year. China trade in March saw the elements of a pickup in economic activity, with a strong surge in exports of 14.8%, while imports improved as well. This rebound in economic activity appears to be slowing already if recent inflation and consumption data is any guide. Factory gate prices have been deflating for the last 6 months and are getting worse. While in April imports also fell sharply declining -7.9%, although some of that may be down to lower prices in some areas, rather than lower volumes. Export growth also slowed in April to 8.5%, while recent manufacturing and services PMI numbers have also pointed to an economy that is seeing evidence of a slowdown in economic activity. With concerns about a slowdown in the Chinese economy growing, this week’s trade numbers are unlikely to assuage these fears. Expectations for China trade are for imports to decline by -8% and for exports to slip back into negative territory by -2.1%.
- RBA rate decision – 06/06 – last month the RBA caught markets off-guard when they unexpectedly raised rates by 25bps to 3.85%. For quite some time now the Australian central bank has leaned more towards the dovish side, it was the first central bank to signal a pause back in November, however it has come under fierce criticism in recent weeks for being too slow in spotting the inflation surge seen at the end of 2021, and through 2022. This appears to have stung, and the sudden hawkish turn appears to suggest that the criticism has hit home, however in being so hawkish there is a risk of a policy mistake if they tighten too hard and unsettle the housing market. The tone of the statement last month was also more hawkish saying that more tightening could be required if inflation continues to remain above target, with the central bank saying that services inflation was worryingly sticky. This stickiness is already manifesting itself in higher inflation expectations for Australian consumers which rose to 5.2% in May.
- EU Q1 GDP – 08/06 – with the German economy slipping into recession in Q1 with a contraction of -0.3% the odds of an EU contraction in Q1 of this year have increased, although better performances from the likes of France, Italy and Spain may well offset some of the worst effects. Having seen the Q1 numbers from the latter 3 last week, this week’s EU Q1 GDP numbers could see the 0.1% from Q4 to slow to 0%, which in turn will make things much more difficult for the ECB when it comes to considering further rate hikes.
- British American Tobacco Q2 23 – 06/06 – it’s not been a good start to the year for BAT on the share price front. Since the company released its Q1 numbers the shares have continued to drift lower. The shares have already slipped to their lowest levels since December 2021, despite reporting a 2.3% increase in full year adjusted revenues to £27.655bn, back in February. Revenue from its NGP products has continued to see strong gains, although it remains a very small percentage relative to its legacy revenue. New Category revenues increased over 40% to £2.89bn. BAT reiterated its confidence that NGP revenues would reach £5bn by 2025 and expressed optimism that it could meet its 3% to 5% currency growth targets as it looks to offload its Russian and Belarus businesses. The lack of a commitment to further buybacks may also be weighing on recent share price performance.
- FirstGroup PLC FY 23 – 08/06 – the last few years have been challenging for FirstGroup with the various lockdowns due to the pandemic causing a sharp drop in revenues as well as profits. The company is slowly clawing its way back with passenger volumes back at 83% of the levels in 2020. Its rail operations have seen revenues recover well, and is expected to come in at £3.8bn, while bus passenger volumes have also seen a sizeable improvement in the second half of the year. The company has been in the news recently after the government removed the contract to run the Trans Pennine Express from it, however that isn’t expected to be reflected in this week’s full year numbers. Full year revenues are expected to rise to £4.77bn, and pre-tax profits are expected to rise to £65m.
- DocuSign Q1 24 – 08/06 – when DocuSign reported its full year numbers back in March the shares fell sharply and have struggled to recover those losses. In Q4 the company reported revenue of $659.6 million, an increase of 14% year-over-year, and profits of $0.65c a share, compared to a profit of $0.48 per share in the same period last year. DocuSign was also able to report an improvement in annual profits from $1.98c in 2022, to $2.03c a share in 2023, on revenues of $2.51 billion, an increase of 20% year-over-year, however there was disappointment at the weak guidance for Q1 which saw the company forecast Q1 revenues of between $639m and $643m. On a full year basis, the company still expects to grow its revenues to between $2.69bn and $2.7bn, despite the challenges being posed by slowing revenue growth, and competition from the likes of Microsoft. Profits are expected to come in at $0.55c a share.
- FuelCell Energy Q2 23 – 08/06 - is a fuel cell technology company that designs, manufactures, sells, installs, operates, and maintains fuel cell systems. The company's products are used for a variety of applications, including power generation, transportation, and industrial use. With renewable energy becoming more mainstream and money flowing into the sector on the back of the various tax-breaks being offered by the US government companies like FuelCell Energy ought to be doing much better. In Q1 their revenue was $37m and saw the company post a loss of $0.05c a share, with a third of their revenue coming from service and licensing revenue. For Q2 expectations are for revenue to come in at $25m, with a sharp drop this service revenue contributing to the sharp slowdown. Losses are expected to come in at $0.07c a share. This would explain why the share price has been declining for months, as it looks to fend off intense competition in what is an increasingly competitive market. Annual revenues are still expected to rise to $135m. The company does have a strong customer base with over 1,000 customers in over 50 countries.
- Brown-Forman Q4 23 – 07/06 – Brown-Forman shares have struggled over the last quarter, the Jack Daniels maker had a disappointing Q3, after seeing profits fall back quite sharply. Q3 revenues came in at $1.08bn, however, profits came in at $0.21c a share, below expectations of $0.54c a share. Operating margins more than halved from 33.5% to 15.9%, while the company took a $27m charge on pensions. For the full year it said it still expects to see high single-digit organic operating income growth.
- Apple WWDC – 5th – 9th June – the Worldwide Developers Conference is an annual event that sees Apple showcase its latest product enhancements for its suite of products and services. On the hardware front expectations are high that we could see the launch of some new MacBook’s including a new Air, which might include the M2 chip, with M3 chip powered models coming later. The company is also expected to launch a new mixed reality headset called Apple Reality Pro, which is likely to have a hefty price tag. We’re also likely to get a variety of software enhancements including announcements of what might be coming in the new iOS17. We also might get some insight into how Apple might look to take advantage into the realms of AI given that it is the topic du jour now.
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