1. ECB rate meeting – 22/07 – until recently there had been low expectations around this meeting after the last meeting saw the European Central Bank upgrade its GDP forecasts for 2021, from 4% to 4.6%. In recent months there has been some underlying grumbling amongst Northern European countries about the pace of asset purchases and an insistence they must end by March 2022. With virus cases rising again and some parts of the European economy uniquely vulnerable to rising infection rates it seems highly unlikely that the ECB will ever be in a position to withdraw support at a time when economic activity remains far from returning to normal. We’ve already heard that the ECB will be changing its inflation mandate in an attempt to try and give itself more flexibility over monetary policy. Its previous mandate was to keep inflation at or below 2% over the medium term. Its new mandate gives the central bank a more flexible and dovish inflation target of 2%, while also adopting a 2% asymmetric inflation target over the medium-term. This change will allow the central bank to tolerate temporary inflation overshoots to its policy target. While an entirely sensible measure on the face of it, this can only be described as a change of style over substance, given the ECB’s complete lack of success in meeting its previous mandate. We should get to hear more about the ECB expects to achieve this when Christine Lagarde gives her press conference later this week, along with details on an upcoming policy shift on the forward guidance on the PEPP program which she talked about earlier this month. Currently it sits at €1.85trn and is due to run to at least March 2022. This date is likely to get pushed out, given her comments that emergency stimulus will not be wound down any time soon, however there could well be considerable resistance to this from some members of the governing council which could mean that any decision is unlikely to be unanimous. 
  2. UK Retail Sales (Jun) – 23/07 – after two strong months of retail sales growth in March and April of 5.1% and 9.2%, retail sales in May slid sharply by 1.4%, against an expectation of a 1.5% rise. This was all the more unexpected given that a corresponding BRC retail survey showed a decent outperformance for the same month, with sales showing that May sales increased at their best rate since the pandemic struck the UK. Total sales for May increased 10% in May compared to 2019, and by more than the same number in April on a two-year basis, with clothing retailers the biggest beneficiaries of a return to the High Street. It was speculated that the bad weather at the beginning of May could well have impacted demand, while forward bookings for hotel accommodation in the leadup to the May reopening weren’t probably as strong as originally thought in the lead up to the half term break, which may help explain why the ONS number for May was so poor. As we look towards this week’s June numbers there is concern that the delay in relaxing restrictions might have knocked confidence, however the latest BRC retail survey for June showed that was far from being the case. According to the BRC UK retail had its best quarter on record with the spending in June rising by 13.1% against a decline of 1.9% in June 2019. Food and non-food sales were strong in June due to Euro2020 and other sporting events prompting additional spending. With more people being encouraged to holiday at home the delay in lifting travel restrictions could also act as a boost as more people book a domestic break instead. Expectations are for a rise of 0.4%.
  3. France/Germany flash PMIs – (Jul) – 23/07 – with most of Europe slowly easing restrictions we’ve seen economic activity also increase over the last few months, although services activity continues to lag a touch, with manufacturing outperforming. German manufacturing has performed well, posting levels above 60 every month this year, apart from January. Services activity has been much more of a slow burn, although in June we saw activity hit a three-year high. In France we also saw services activity hit a three-year high, as lockdown restrictions got eased, while manufacturing remain steady at 59. The biggest concern now is that a slowdown in the global economy and the recent easing of monetary policy by China speaks to a concern that in Germany especially, given its reliance on trade with China, that this could be as good as it gets for PMIs as we head into Q3.
  4. UK flash PMIs (Jul) – 23/07 – while we’ve seen a continued outperformance in PMI numbers over the course of the last few months, there appears to be increasing divergence between what the PMI numbers are telling us and what we are seeing from the ONS data. While manufacturing and construction surveys have come in above the 60 level for the last three months, the official ONS numbers have shown much weaker economic activity. The same divergence appears to now being manifested in the services data, which has remained strong, while retail sales numbers showed an unexpected decline in June. This week’s flash PMI numbers for July are expected to show fairly decent readings once again, however given recent trends we do have to start treating these PMI numbers with slightly more cautious given that they also exclude some important parts of the economy, that are continuing to struggle. One trend to keep a close eye on is the higher cost prices being reported by businesses as they struggle to source the necessary materials for their goods and services.
  5. EasyJet Q3 21 – 20/07 – when easyJet reported a H1 loss of £701m in May, the company said the outlook for Q3 wasn’t expected to look much better with the airline saying it only expected to fly around 15% of its 2019 capacity, with the hope that this would increase from June onwards as the next stage of lockdown restrictions were expected to be eased. The fact is that didn’t happen and that even if we get some semblance of a relaxation in July, it would still mean that the airline will have seen three quarters of capacity below 20% and it’s unlikely the upcoming Q4 will be any better as we head into winter, when the weather starts to get a little colder. On the plus side there has been some talk that fully vaccinated people might not have to quarantine after travelling but that still needs to be set against concerns that rising cases in Europe might prompt some tightening of restrictions at the other end. For now, the airline still has unrestricted access to £2.9bn of liquidity, having raised over £5.5bn since the start of the pandemic, however the sector remains a long way from any semblance of a return to normal, as shown by the share price declines seen in the past week.
  6. Royal Mail Q1 22 – 21/07 – last year proved to be a solid year for Royal Mail as full year profits came in at £726m, which was in line with previous guidance at the end of March, when management also announced a one-off dividend of 10p a share. In more good news for shareholders management also outlined a new progressive dividend policy with the dividend for 2021/22 set at 20p per share, which saw the shares push back up to the 600p level and three-year highs. While the pandemic has presented the wider business with a number of challenges, the parcels business has performed very well, with revenues there up 38.7%, although letter volumes were a drag declining 12.5%. Higher operating costs have been a factor with a rise of 9.2%, however by and large the business has adapted. The new trading year also got off to a positive start in April with revenue up 24.1%, with GLS showing a 22.3% rise, although Royal Mail parcel volumes was down 2%. This week’s Q1 update is expected to see May volumes slow a little as more people venture out as the economy reopens and consumers shop from home less.       
  7. Vodafone Q1 22 – 23/07 – Vodafone shares have lost ground since posting full year numbers in May which were somewhat underwhelming. To recap full year revenues for the year saw a decline of £2.6% to €43.8bn, with the lift to its revenues from its Liberty Global acquisition helping to offset a weaker market for handset sales and roaming revenue. The proceeds of the Vantage Towers IPO helped to reduce the company’s debt levels to €40.5bn, as full year EBITDA marginally missed the lower end of expectations of €14.4bn. Organic service revenue did beat estimates rising 0.8%, above expectations of 0.4%, helping the company to return to a profit of €536m, however free cashflow fell 11.9% to €5bn, and while both are expected to improve in 2022 with EBITDA expected to rise 4% to €15bn to €15.4bn, while free cash flow is expected to rise to €5.2bn.  It is clear the pandemic has affected mobile revenues, with UK revenues down 5.1% last year, while its European business has also suffered due to lower roaming charges, despite increasing its mobile customer base to 65.4m. it is clear that Vodafone still has much to do as it tries to navigate a reduction in its debt pile, while at the same time as investing in technology to improve its 5G network.
  8. Netflix Q2 21 – 20/07 – when Netflix reported a big miss on Q1 user growth in April, the shares fell back sharply, and while the shares have pared back some of those losses there is some concern that the explosive growth of the past 12 months is unlikely to be replicated. Despite the disappointment of a slowdown in user growth, revenues came in much better than expected, at $7.16bn, while profits came in at $3.75c a share, well above expectations of $2.98c. Expectations for user growth in Q1 were always likely to be a hostage to fortune given that they were set at a rather lofty 6m, and with lockdowns set to be eased and the summer months usually a time when people want to go outdoors, there was always this risk that we might see a miss which is precisely what we saw, with 3.98m new users added in Q1. While that was disappointing, the real kicker came with the user growth estimates for Q2 which came in at 1m, well below estimates of 4.4m, and sharply down from last year’s 10m, which were pumped up by the first Covid-19 lockdown. Estimates for Q2 revenues are still expected to be healthy at $7.3bn, and while the next two quarters are likely to see slightly slower subscriber growth, the second half is likely to see these numbers pick up as new series of Stranger Things, Lost in Space and The Witcher get rolled out. As far as operating margins are concerned these rose to 20%, while the company said it still expects to come in cash flow positive for the full year. Netflix faces a huge number of challengers in the months ahead with the likes of Disney+, Apple TV+, the Warner Media/Discovery merger, and Amazon paying $9bn for the MGM back catalogue, for its Prime offering, but it still remains very much the market leader internationally with nearly 210m subscribers. A planned move into streaming video games in the coming months is the latest attempt by management to grow and diversify the business, as well as grow a younger market. 
  9. Twitter Q2 21 – 22/07 – having posted a loss in 2020 Twitter management were much bullish heading into 2021, expressing optimism that it would be almost double revenue in the next two years to $7.5bn. This optimism got a wake-up call in Q1 when the results for revenue and monetizable active user growth missed their mark. The company may have lofty ambitions, however, there appears to be some scepticism that they will be able to meet them, after Q1 revenue fell to just over $1bn, from $1.29bn in Q4. To justify its current valuation the company needs to return to profit as well as significantly improve its ability to generate revenues of at least $2bn on a quarterly basis. Based on current consensus it is struggling to generate half that amount, with expectations for Q2 expected to be about $1.06bn. The company has been experimenting with new products like Fleets, an Instagram stories like feature, and Twitter Spaces, however these are struggling to catch on. In the case of Fleets, Twitter appears to be have taken the decision to remove it. It turns out Fleets was rather fleeting. Unless twitter can harness the holy grail of monetising as well as growing its user base investors should be prepared for more disappointment. Profits are expected to come in at $0.07c a share. 
  10. American Airlines Q2 – 22/07 – American got off to a poor start to the year with Q1 revenue falling 53% year on year to $4bn, posting a loss of $2.7bn. The company did manage to raise $10bn through a debt offering backed by its AAdvantage airmiles program, and used the proceeds to repay the US Treasury loan from last year’s Federal bailout. At the end of Q1 management said they had $17.3bn of total liquidity which they expected to see increase to $19.5bn by then end of Q2. On expectations of Q2 the airline expects capacity to be down by 25% from 2019 levels, and revenue to be down by about 40%. Last week American surprised by the market by saying it expects revenue to come in ahead of forecasts and could well post a slight pre tax profit for the quarter. The improvement in domestic air travel appears to be behind this improvement, with American saying it flew 44m passengers in Q2, an 82% increase from Q1, though still below the levels in 2019. Revenues for Q2 are expected to come in 37.5% below 2019 levels instead of the previously guided 40%, and that it expects to turn cash flow positive for the first time since the start of the pandemic.

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