1) UK retail sales (Sep) – 23/10 – the UK consumer has helped drive the recovery in the UK economy over the last four months after August retail sales showed a rise of 0.8%, rounding off the best sequence of gains in several years. The big question as Q3 draws to a close is whether this week's September numbers can round off another month of gains as summer draws to a close. The prevailing thinking, if judged purely on the basis of recent PMI data would be in the positive, however life is rarely that simple. Other retail sales surveys do offer some encouragement. The recent British Retail Consortium sales numbers for September showed a 6.1% rise, well above the 4.7% rise in August, driven largely by increased spending in pubs, as well as higher DIY spending and a back to school boost, however this could be as good as it gets for a while, as we head towards the potential for a train wreck in Q4, as new lockdown restrictions start to bite. Expectations are for a rise of 0.4%, though it wouldn't be a surprise to see that come in slightly higher.
2) China Q3 GDP – 19/10 – If you had any doubts about the accuracy of China's GDP numbers before recent events then the 11.5% rebound announced in its Q2 numbers would surely have helped reinforce those doubts. The rebound more than reversed the -10% fall in output seen in Q1, suggesting a nice V-shaped recovery in economic activity. The annualised number recovered to 3.2% from -6.8%. This seems highly questionable when you drill down into the component data as the headline number completely diverges from most of the data that has come out of China since April. In terms of the trade data, both imports and exports have struggled to recover, on both sides of the ledger, though the most recent September numbers do finally appear to offer some encouragement, though retail sales still appear to be in the doldrums, having only just about recovered into positive territory in August. For an economy which has seen the services component grow to almost 50% of economic activity this seems barely credible, even if recent data has been much improved from the February/March lows, with industrial production back to pre Covid levels. Expectations are for a 3.3% expansion in Q3, which equates to an annual 5.5%.
3) China retail sales (Sep) 19/10 - retail sales growth in China hasn't been the same since the country came out of lockdown at the end of February, though optimism in the summer started to improve as a result of positive data from the auto sector, with reports from the likes of Daimler, as well as Apple talking of some decent rebounds in their Chinese markets. Despite this optimism, retail sales in China only struggled back into positive territory in last month's August numbers. Year to date Chinese retail sales are down over 8%, and last month we saw a rise of 0.5%, a pretty pathetic number when you consider China came out of lockdown in March. It was also the first positive reading this year with the hope that the slow return to normal will see September retail sales rise 1.9%. This still remains well below the 8% gain seen at the end of last year, but the recent positive trade numbers do offer some encouragement. Fortunately, manufacturing has performed much better relative to the Chinese consumer, rebounding to its best level in almost a decade in July in the various official and private sector PMI's. Industrial production rose 5.6% in August, and is expected to improve further to 5.8% in September.
4) US Beige Book (Oct) – 21/10 – at the last Beige Book at the beginning of September Fed officials' economic gains were still being shown as modest, however there was increasing evidence that some furloughed workers were starting to lose their jobs. Many districts were reporting lower economic activity than normal and slowing jobs growth. This week's Beige Book is likely to paint a much weaker picture of the US economy, and some Fed officials, notably the head of the Minneapolis Fed Neel Kashkari wants to place greater emphasis on how workers are represented in this particular survey. It is notable that the Fed's great focus on unemployment over inflation, was likely to lead to a more interventionist approach, however there is a risk that the central bank could compromise its independence in doing so. Trying to combat inequality is not a central bank remit, but a political one and while its goals maybe noble, the central bank is sailing very close to the wind, policy wise. The most recent Fed minutes showed that Fed members continue to have concerns about the overall direction of the US economy, particularly over impacts on the labour market, with consistent calls for further fiscal measures to support the economy. This week's Beige Book is likely to see the trend of subdued economic activity in the face a virus rate that is likely to keep the US economy at well below its pre pandemic capacity for quite some time to come.
5) France, Germany and UK flash PMIs (Oct) – 23/10 – there has been increasing evidence in the last couple of months that the rebound being seen in France and Germany has run its course. In the most recent September PMIs, the numbers painted a mixed picture for the German economy, with services in particular showing a slowdown to 50.6, after a strong July performance. In France it was a similar picture with services slowing to 47.5 from 57.3 in July, as rising infection rates prompted localised lockdowns and restrictions being imposed across the country. As start out into Q4, it is clear that the recovery seen in the wake of the contractions in Q2 has been a robust one, however the sharp deterioration in the September PMIs is increasing concerns over an economic cliff edge, as we head towards the chill of a European winter. On the plus side manufacturing has been a strong performer for both Germany and France, helping to offset some of the slowdown. In the UK the economy has proved to be much more resilient, though that is probably down to having come out of lockdown later, as well as "eat out to help out" in August. No deal Brexit concerns notwithstanding the UK economy has continued to perform well in its post lockdown period, and after the outperformance seen in August, September also posted some decent numbers across the board. In September services activity slowed modestly to 56.1, while manufacturing came in at 54.1, showing that the UK economy performed extremely well in Q3. This seems unlikely to continue in Q4 and the October numbers could well falter, after what can only be described as a completely incomprehensible communications policy by the UK government around various new lockdown rules around the hospitality sector, in various parts of the country. Having encouraged people to enjoy the summer months, ministers have single handedly destroyed consumer confidence by inept messaging, and poor communication.
6) Reckitt Benckiser Q3 20 – 20/10 – like most companies that sell consumer hygiene and medicine products Reckitt saw profits rise in the first half of the year, and this trend is likely to continue in the second half if anecdotal evidence of half empty supermarket shelves for these types of product is any guide. Sales of Dettol products were popular, rising 62%, even if Nurofen sales were down, with health revenues up 9.3% to £4.2bn. Total revenues came in at £6.9bn a rise of 11.9%, however there is a concern whether this is sustainable given the narrow range of products Reckitt has in its portfolio. Profits before tax rose by 13.9% to £1.44bn, allowing the company to maintain an interim dividend of 73p a share. The company also raised its forecasts for net revenue in the full year to be in the high single digit percentile, and that the overall hit to net revenue to be closer to 5% than earlier higher estimates in February.
7) Unilever Q3 20 – 22/10 – when the company reported its H1 numbers in July it was notable that the main driver of its performance was in its home hygiene products and groceries products. Sales of Domestos, Cif, as well as PG Tips saw profits rise by 4% as consumers stocked up and spent more on products across the beauty and personal care division, as operating margins improved by 50bps, while Home Care saw margins improve by 130bps. With a broad geographical reach, the company will inevitably have its weak spots, but this week's Q3 numbers should see its food and refreshment division show an improvement after acting as a drag in the first half. The summer months tend to see a benefit in terms of higher sales, with sales of Magnum ice creams, and Ben and Jerry's likely to see a pickup during this year's hot summer months. In its H1 numbers sales were down in Europe, by 1.8%, and down 2.7% in Asia, however gains in the Americas saw these offset, with the total net sales in H1 totalling €25.7bn, and underlying profit was €5.1bn, a rise of 3.8%.
8) Barclays Q3 20 – 23/10 – one of the starker characteristics of UK banks Q2 earnings numbers was the impact the economic slowdown the coronavirus pandemic was having on their profit margins, as well as the rise in non-performing loans. This is unlikely to get any better in the coming months as lockdown measures get tightened in various local areas, and unemployment levels start to rise. Fortunately for Barclays it does have other revenues streams away from retail banking which it finally now appears to be seeing the benefit of, despite pressure from some shareholders to spin off. In the first half of this year Barclays set aside £3.7bn in respect of non-performing loans. In its Q2 numbers investment banking revenue improved by £6.9bn, up 31% from the previous year, with Fixed Income (FICC) seeing an 83% improvement on the same period last year, with a 31% rise in H1 profit of £695m. Investors will be hoping for a similar uplift for this quarter as we look towards what is likely to be a challenging Q4, as the weather gets colder and economic activity becomes more subdued.
9) Netflix Q3 20 – 20/10 – Netflix's biggest concern at the beginning of the year was a worry that the entry of a host of new content providers at cheaper prices may well have limited its ability to grow its subscriber base in international markets. The launch of Apple TV+ and Disney+ undercut its lowest price SD subscription meant that it was the most expensive streaming option which meant it would only have limited ability to increase prices, but it also would have to offer a significant value add to justify that premium, to not only keep its existing customers, but also acquire new ones. So far the premium price is a price worth paying, given the limited content available to Disney+ and Apple TV+ subscribers, not to mention that Netflix is way ahead in non-English content which also sets it apart from its peers internationally. In a way the lockdowns came to its rescue as the market leader, along with Amazon Prime, with the first two quarters seeing a huge increase in subscribers, as well as record revenues. In Q1 and Q2 Netflix added 25.8m new subscribers, almost as many as the whole of 2019, when it added 27.8m, while first half revenues came in at $11.92bn, though profits fell short due to a one off charge. As a result of these huge beats management took the option to be cautious about their guidance for Q3, due to concerns about new subscribers in the upcoming quarter coming up short due to pull forward effects starting to wane as lockdown measures started to get eased in the summer months. Estimates for new subscribers in Q3 were set very low at 2.5m new subscribers, the slowest rate since Q1 and Q2 2016, well below expectations of 5.3m. Revenue estimates were set at a fairly solid $6.33bn, which would still be a new record, but also below analyst estimates at the time. It is still conceivable that Netflix will see a weak quarter in Q3, however it still has a host of great content, with a host of new offerings coming up in Q4, including season 3 of Star Trek Discovery, and season 4 of The Crown.
10) Amazon Q3 20 – 23/10 – when Amazon reported in Q2, profits saw a sharp rise as people shopped on line through lockdown. These increased sales still managed to outstrip rising costs as a result of safeguarding measures for its staff. These costs came in at a staggering $4bn as the company hired 175k new staff, as it expanded its grocery delivery capability by 160%. Management said they expected to spend another $2bn in Q3 with sales expected to come in between $87bn and $93bn. Amazon's Web Services division also saw decent gains in Q2, with operating income of $3.4bn, up 60% on the year, though revenue growth slowed, as the cloud computing sector saw more and more new players come to the fore.
11) Tesla Q3 20 – 21/10 – when Tesla reported its Q2 numbers in July the company rather surprisingly managed to report a profit of $104m, the first time the company had managed to turn a profit for the fourth quarter in succession, raising hopes that the company might get included in the S&P500. Revenues came in at $6.04bn as the company sold 90,650 vehicles in Q2, above the 88,000 sold in Q1 when production was disrupted due to Covid related shutdowns. While the company was unsuccessful in its bid to get into the S&P500 on this occasion Tesla fans will be hoping that the company will be able to pull off another quarter of profits, though the numbers were flattered by the sale of regulatory credits to the tune of $428m. This means that on sales alone the company is still relying on sleight of hand in terms of being profitable on costs and sales. CEO Elon Musk has continued to maintain that the company will be able to hit its 500,000-delivery target for 2020, with the help of the new Chinese factory, which opened at the beginning of the year, having missed out on it in 2019. CEO Elon Musk will be hoping that Tesla is able to repeat its trick of last year, where a poor first half, was followed by a bumper second half of the year. The only problem with that is that the coronavirus pandemic may have other ideas. Expectations are for a quarterly profit of $0.57c a share, bringing to an end a run of three successive profitable quarters
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