Week ahead: China Q1 GDP, US Retail Sales and Coinbase IPO

1) China Trade (Mar) – 13/04 – the Chinese economy finished 2020 on a strong note, its surplus hitting a record high in December. The strength was primarily as a result of the continued lockdowns in the rest of the world saw the export of PPE and other medical related products do well. As vaccines continue to get rolled out across the world this trend could well slow in the coming months. In the most recent China trade data for February, we saw a big rebound in exports as global demand continued to show resilience. Exports rose 18.1% and while you can argue that the number was flattered due to the China lockdown at the beginning of last year, which shut factories down, the direction of travel still looks impressive. Imports also beat expectations, rising 6.5% in a sign that domestic demand is also recovering which managed to bode well for the retail sales numbers that came later. Expectations around this week’s numbers are likely to be similarly bullish, as global demand continues to pick up.

2) China Q1 GDP – 16/04 – there was some consternation earlier this year when Chinese authorities set out their 2021 GDP target at around 6%, with some arguing that it was a little too optimistic. If anything given the challenges faced by the global economy over the last 12 months, one could argue it’s a little on the conservative side. Expectations around a strong rebound in the US economy are likely to see a significant spill over into the rest of the world, and despite US, China tensions over trade the Chinese economy is likely to benefit from a recovery in global trade, particularly we head into the summer months and the economic reopening that we are likely to see throughout the summer months.

3) China Retail Sales (Mar) – 16/04 – the Chinese economy appears to have got off to a strong start in the first two months of this year, which saw a 33.8% rise in retail sales compared to a year ago. This does need to be set in the context of last year when China went into lockdown for all of February, and therefore consumer spending fell back sharply. Nonetheless the January and February numbers did point to a slow and steady recovery in sentiment in what has been a cautious recovery for Chinese consumers. Since retail sales moved back into positive territory in August last year, the month-on-month numbers have struggled to get back to the levels we saw at the end of 2019 and could well continue to do so. Nonetheless with no signs of a second wave and improving data on the trade front the Chinese consumer looks set to continue to remain resilient as we head into the summer months.

4) US Retail Sales (Mar) – 15/04 – the recovery in US consumer spending over the last 12 months has been predominantly driven by the US government and the issuance of stimulus payments. The initial rebound in the aftermath of the first lockdown was the first instance, before a slowdown into year-end caused by the expiry of certain unemployment benefits, as well as uncertainty over the US election, along with the imposition of tighter coronavirus restrictions started to weigh on consumer confidence. These concerns saw retail sales in November and December slide back quite sharply, by -1.4% and -1% respectively. Since then, the economic data has picked up markedly, helped in some part by the new $900bn stimulus plan that was agreed at the end of last year, thus prompting a big rebound in January retail sales of 5.3%, to a seven-month high, and while the February numbers saw a fall of 3%, the new stimulus payments that were signed off in March are likely to have a similar effect to the ones we saw in January. The US labour market has certainly seen the positive trend continue which suggests that sentiment ought to remain positive, which combined with an accelerated vaccine rollout should see a big jump in March and April’s consumer spending. March retail sales are expected to see a rise of 5%.

5) UK Monthly GDP (Feb) – 12/04 – having seen a 2.9% contraction in January, a number which was better than expected there is a hope that the slowdown in Q1 is likely to be much less than the -4% than was being pencilled in by the Bank of England at the beginning of the year. Since then, the bank has revised its expectations higher and with the recent strong gains seen in recent PMI data there is a rising expectation that while we will see a contraction in Q1, the rebound in Q2 is also likely to be slightly less robust as a result. Nonetheless on a rolling three-month basis the UK economy is expected to improve modestly from the -1.7% decline seen in the three months to January.

6) Coinbase IPO – 14/04 – with the growing popularity of crypto currencies attention has inevitably shifted towards the exchanges that they trade on, and the upcoming direct listing of Coinbase is something that investors have been looking forward to for a while. In its most recent quarterly update Coinbase announced that it expects to make between $730m to $800m in Q1. The company has 56m verified users and its latest results showed the company turned over $1.8bn in the first three months of its fiscal year. This is more than the company generated over the whole of 2020, when it generated revenue of $1.3bn. In terms of trading volumes, the last quarter saw turnover of $335bn, with assets on its platform rising to $223bn, with $122bn from what they called “institutional” users. Perhaps surprisingly Coinbase didn’t provide any guidance citing the “inherent unpredictability” of its business. The company did outline three separate scenarios for the year, with the most optimistic predicting around 7m monthly users, which is slightly higher from its current 6.1m monthly transacting users. As a result of the direct listing the company expects to incur expenses of $35m in Q2.

7) THG FY20 – 15/04 – when Hut Group was IPO’d back in September last year there was some uncertainty as to whether it would perform well given that its major backers KKR were selling their entire stake and exiting the business entirely. With the money being used to pay down its debts as opposed to investing into the business only added to the doubts. Fortunately, one area of the business that has proved to be strong has been its technology and operating platform called THG Ingenuity which is used by big blue chip corporate brands like Nestle, Procter and Gamble and Johnson and Johnson for their ecommerce operations. In 2019 revenues came in just above £1.1bn in 2019, a rise of 24.5% on the previous year Since the IPO the shares have risen on the back of higher expectations for this year. In September management projected a rise in revenues to £1.3bn, while EBITDA, according to consensus estimates is expected to slide back from £74.5m in 2019 to £65.6m at the end of the current year, largely due to higher costs as a result of one-off costs as a result of the IPO.

8) JD Sports FY 21 – 13/04 – another retailer that has managed to ride out the worst the pandemic can throw at it, JD Sports has seen its share price recover most of its losses in 2020. When the company reported its H1 numbers back in September, the impact on revenues was fairly modest despite sharp drop in profits to £41.5m, from £130m. In January the company said they expected that group headline profit before tax would be significantly ahead of market expectations of £295m, at around £400m, on the back of a much better demand over the second half of the year. It has been notable that the company has also been on acquisition spree as well, bolstering its operations in the US, a move which was helped by a share placement that raised an extra £464.2m. In February JD Sports spent the money acquiring US based DTLR Villa for $495m, on top of two other acquisitions in January, and followed it up in March by acquiring about 60% of MIG in Poland, which operates around 410 retail stores across the country.

9) Tesco FY 21 – 14/04 – supermarkets have by and large had a good pandemic, even if they were criticised for taking government help in the aftermath of the initial lockdown. While a lot of this criticism was unjustified given the challenges facing the sector as supply chains creaked under the strain, the sector has by and large stepped up to keep the country fed, and ticking over. There have been weak spots notably around the Booker operation which caters to the hospitality sector, which has been ground zero of the pandemic fallout, however in other areas of the business the sector has seen fairly decent growth even as costs have risen. When Tesco reported in Q3 Christmas trading saw like for like sales over the period increase by 8.1%, driven by a 14% rise in sales of “Finest” branded products, while over the quarter, like for like sales rose 5.7%. This outperformance was fuelled largely by an 80% rise in online orders over the 19-week period, with 7m orders delivered over the Christmas period, as Tesco continued to take the fight to Aldi with its “Price Match” pledge on a range of everyday products. The performance over the quarter didn’t come without an increase in costs, which rose £85m to £810m. Another drag came from Tesco Bank which saw total sales decline 28.5%, a not altogether surprising outcome given the challenges being faced by its customers over the pandemic. Losses in the bank are expected to come in between £175m and £200m. In terms of expectations for full year profits, management said that these should be in the same level as a year ago, even with the associated extra costs of taking on new staff, as well as implementing various Covid-19 mitigation measures to protect its staff. This doesn’t include the repayment of the business rates relief that was announced last month, while all front-line staff received a 10% Christmas bonus. As a reminder operating profit, a year ago was £2.5bn, however after various costs, this came down to a more modest £973m.

10) JPMorgan Q1 21 – 14/04 – at its last set of numbers JPMorgan blew away consensus expectations on both profits and revenues. Revenue for the period came in at $30.1bn, topping the $28.7bn estimate, with investment banking revenue rising 37%. Trading revenue increased by 20%, while net interest income slipped by 7%, largely due to the flattish nature of the yield curve. This won’t be a problem this quarter given the sell-off in the long end of the curve which has pushed yields higher. The bank also boosted its profit numbers by releasing $2.9bn in credit reserves that it had set aside last year in respect of non-performing loans. With the Federal Reserve also opening the door to the resumption of buybacks and dividends expectations are high that the economic reopening of the US economy could well see more cash released from reserves in the form of extra dividends and cash.

11) Goldman Sachs – Q1 21 – 14/04 – another US bank that crushed estimates in January, generating revenues of $11.74bn and profits of $12.08c a share. The biggest gains were seen from the banks equities division which saw a 40% jump in revenues from a year earlier, to $2.39bn. Investment banking also saw decent growth of 27% to $2.61bn. In these latest numbers and in light of recent events around Archegos Capital particular attention is likely to be on the bank’s equities operation after the blow up of this hedge fund, and in particular how much the liquidations cost the bank. In the last set of numbers CEO David Solomon was very effusive about how well the bank was doing as he embarked on a restructuring with a greater focus on wealth management. Expectations for Q1 are for profits of $8.28c a share.

12) Morgan Stanley Q1 21 – 16/04 – at the end of last year Morgan Stanley saw full year net revenues hit a record of $48.2bn, while net income rose to $11bn, from $9bn the year before. A strong Q4 helped drive these record numbers with Q4 revenues coming in at $13.64bn, well over $2bn above estimates. The outperformance was once again driven by investment banking as well as the equities trading division, which saw revenues surge by $350m above estimates. Wealth management was also a strong contributor, and CEO James Gorman was also effusive in his expectations for the upcoming fiscal year, however in light of recent events, around Archegos Capital and Morgan Stanley’s involvement in it, questions are likely to be asked in terms of their risk processes, and how much the episode has cost the bank, after the block trade blew up.