The week ahead – Jackson Hole Symposium, flash PMIs, harbour energy and Nvidia earnings

Jackson Hole Annual Symposium – 24/08 – this year’s annual central bank Jackson Hole Symposium is entitled “Structural Shifts in the Global Economy” and will be closely scrutinised for evidence that we might see a pause next month when the Federal Reserve next meets to decide on monetary policy. It could also offer important insights into the risks facing central banks in terms of the risks in overtightening monetary policy at a time when the challenges facing the global economy are numerous. Markets have been chopping around for several weeks now on the basis that for all the Fed’s hawkish rhetoric the central bank is close to, or even at the end of its rate hiking cycle. The key question now appears to be less about how much further will rate rise, but for how long they will stay at current levels. It doesn’t seem that long ago markets were pricing in rate cuts for later this year. These have now been pushed out into next year, with significant uncertainty as to whether they will come during the first half or the second half of the year. When Powell spoke last year, he made it plain that there was more pain ahead for US households and that this wouldn’t deter the central bank in acting to bring down inflation, even if it meant pushing unemployment up. His tone this week is unlikely to be anywhere near as hawkish, although he will also be reluctant to declare victory either. It is clear that the Fed believes the fight against inflation is far from over, and in that context it’s unlikely he will deliver any dovish surprises.                         

France, Germany flash PMIs (Aug) – 23/08 – the last set of flash PMIs saw German manufacturing slide to its lowest levels since the Covid lockdowns at 38.8 in further signs that the engine of the German economy continues to stutter. Weak demand in its key export markets as well as domestically, along with higher energy prices weighing on economic activity. The only bright spot was services which came in at 52.3, but even here economic activity was slower. Economic activity in France was also disappointing, although the underperformance was more evenly distributed with both manufacturing and services both in contraction heading into Q3. Manufacturing slipped to 45.1 in July and services dropped to 47.1. With energy prices rising sharply over the last few weeks, its hard to imagine a scenario that will see a significant improvement given the weakness seen in China and other overseas markets.       

UK flash PMI (Aug) – 23/08 – while economic activity has been slowing in Europe, the UK has also seen similar slowdowns in both manufacturing and services, although the composite PMI is just about hanging on in expansion territory, unlike its peers across the Channel. Construction has been a notable strong point, however the focus this week remains on manufacturing which slowed to 45.3 in July, while services slowed from 53.7 in June to 51.5 in July. The recent GDP numbers for June showed a strong performance, however Q3 is likely to be much more challenging, with higher oil and gas prices likely to filter through at the petrol pump.  

Germany IFO (Aug) – 25/08 – the most recent German IFO business climate survey showed sentiment fall its lowest level since October last year in July at 87.3. Expectations also slipped back to 83.5 suggesting the economy could remain in recession in Q3. Any thoughts that we might see an improvement in August were likely dealt a blow by this sharp rise in oil prices seen in the last few weeks, while recent economic data out of China suggests that the economy there is in a funk, which will be difficult to get out of. 

Harbour Energy H1 23 – 24/08 – the decision by the UK government to implement a windfall tax has not only been ruinous for the Harbour Energy share price over the last 15 months, but also for its profits. The slide from highs of just over 520p last April, they’ve more than halved, hitting a low 218p back in June, just shy of their record lows back in 2020. Having struggled for years to turn a profit in its hunt for oil and gas resources in the North Sea the company has gone through several iterations in the last few years. Being a largely domestic oil and gas producer 90% of its UK production takes place through 5 key hubs with the latest one to come online being the Tolmount Gas field. Having spent years struggling to break even, let alone turn a profit, Harbour was uniquely positioned to play a key part in adding to the UK’s energy security at a time when energy security has risen up the political agenda, which makes the political decision to wipe out the company’s profits all the more inexplicable. The increase in production levels to 208 kboepd, a 19% increase from 2021 levels should have seen profits rise sharply, and they did, rising from $315m to $2.46bn, while revenues rose from $3.6bn to $5.4bn, with a more or less 50/50 split between oil and gas. After tax, the picture was rather different, profits sliding from $101m to $8m. Unsurprisingly Harbour said they would be rethinking their entire UK strategy, taking the decision not to bid for the new round of UK oil and gas licences, which resulted in the company announcing job losses earlier this year, with the prospect of further job cuts when the review is completed later this year. In June there was some talk that Harbour Energy was in talks with US based Talos Energy. Harbour is already partnered with Talos in an oil and gas field in the Gulf of Mexico and this move, if it plays out, would see it leave its existing UK business to carry on, but not grow in any meaningful way as it shifts its priorities elsewhere. The move would also give Harbour the possibility of a US listing which would then give the combined business the option to delist in the UK completely thus dealing a further blow to the UK’s reputation as a place to do business. Over the last few months, we’ve seen Harbour announce the sale of its Vietnam Assets for $84m, the sale of which should complete by the end of this year. This week’s H1 numbers are expected to see revenues fall to $2bn, down sharply from last years $2.6bn, due to lower oil and gas prices. This is expected to translate into a loss of $0.05c a share.    

John Wood Group H1 23 – 22/08 - Wood Group shares plunged in May after Apollo Global decided against trying to make a 6^th bid for the oilfield services business. Management had previously rejected 5 previous attempts by Apollo to purchase the company, with the most recent bid of £1.7bn being rejected back in early April, on the grounds it significantly undervalued the business. Judging by the sharp fall in the share price since then below the 155p level we saw prior to the first bid, it would appear that markets disagree with that assessment, even as management reaffirmed its full year guidance for the year. At its most recent trading update Wood Group reported a 3.9% rise in full year revenues to $5.44m while losses increased to $356m from $136m the year before. The increase in losses was mainly due to a $542m impairment on goodwill and intangibles. The company has a healthy order book of $6bn, however it has struggled with its margins, which fell to 7.1% in 2022.

Zoom Video Q2 24 – 21/08 – the Zoom share price appears to have reached a level of stability in the last few months, trading between $60 and $75. When Zoom reported at the end of last year Q1 guidance was set at between $1.08bn and $1.085bn, a figure which it comfortably beat with $1.11bn, while profits came in at $1.16c also well above guidance. For Q2 the company said it expected to be able to repeat its Q1 performance on revenue and expects to see profits of $1.05c a share. It also raised its full-year revenue guidance from between $4.44bn and $4.46bn to between $4.47bn and $4.49bn. Despite having to contend with increased competition from the likes of Microsoft Teams and other video conferencing software Zoom appears to be holding its own, however one must question how long the company will be able to fend off the deeper pockets of its competitors, with the company looking to integrate AI into its products. The company has already cut 15% of its workforce this year as it looks to keep costs under control. With growth slowing could Zoom become a target for acquisition? 

Nvidia Q2 24 – 23/08 – the best performing US share so far this year, up over 150%, and up over 200% from its October lows, Nvidia shares hit record highs last month, with a lot of the move higher getting driven by optimism that its high specification chips would be able to power an AI revolution. This optimism has powered the shares to a $1tr valuation the first time a chipmaker has achieved such a feat. Back in May the shares got a significant lift after the chipmaker surpassed expectations on Q1 revenues, coming in at $7.2bn, and raised its revenue guidance for Q2 to a record breaking $11bn. This was a huge increase on its Q2 numbers of previous years, or any other quarter, with the improvement being driven by expectations of a big increase in sales of data centre chips, along with investments in Artificial Intelligence. On data centre chips during Q1, the company generated $4.28bn, followed by gaming which generated $2.24bn. For Q2, data centre revenue is expected to come in at $7.78bn, providing most of the uplift, with gaming expected to see $2.4bn. Profits are expected to come in at $2.07c a share. In the aftermath of its Q1 numbers, Nvidia CEO Jenson Huang laid out a statement of intent by announcing a raft of new AI related products which could help shape how companies’ network and advertise.      

Snowflake Q2 24 – 23/08 – it’s been another choppy quarter for the Snowflake share price, the shares dropped sharply after the company downgraded its Q2 and full year estimates on revenues, even as Q1 revenues came in above forecasts at $623.6m, although losses were higher at $0.70c a share. Q2 revenues forecasts came in below estimates of $646.3m at $620m-$625m, while full year estimates were also nudged down to $2.6bn, down from $2.71bn. In June Snowflake announced an AI partnership with Nvidia to help customers develop models that will keep proprietary data safe. This comes off the back of another partnership with Microsoft. Since that Q2 guidance was issued estimates for revenues have ticked higher to $663m, with profits of $0.10c a share.  

Williams-Sonoma Q2 24 – 23/08 – the resilience of the US consumer over the past 3 months has helped the shares of US high end retailer, and owner of Pottery Barn push back towards their highs of the year. In Q1 the retailer saw revenues come in slightly below expectations at $1.75bn, even as profits slid to $2.64 a share. Over the last 12 months the company has reduced its presence to 531 locations, from 545 as it looks to streamline its cost base. Same store sales were down by 6%, with its West Elm business accounting for the bulk of that decline. Similar same store sales trends are expected for Q2. For Q2 the retailer was optimistic, reiterating its full year guidance of annual net revenue growth of between -3% to +3%, or around $8.27bn. The company also announced the launch of a new sustainable brand Greenrow. Q2 revenues are expected to come in at $1.96bn, while profits are forecast to slip to $2.81c a share.