The Week Ahead: US CPI, UK Q2 GDP, Deliveroo, Aviva and Disney results

US CPI (Jul) – 10/08 – with US CPI reaching another 40 year high of 9.1% in June, there was some concern that the Federal Reserve might have been tempted to go for a bigger than expected 100bps rate move in July. While the headline number grabbed all the attention it was notable that core prices fell back from 6% to 5.9%. Concerns about a 100bps rate move in July didn’t last very long as two of the most hawkish members of the FOMC pushed back against the idea, saying that they felt that 75bps was sufficient. Since those numbers were released, the debate has moved on a touch with concerns over a recession now outweighing concerns over aggressive central bank tightening. Bond market pricing since the June CPI numbers were released has seen prices rally strongly and yields fall back. Part of the reason for this change of tack has been the belief that while the Federal Reserve is likely to continue to talk tough on inflation in the short term, and continue to hike rates into year end, they will find it difficult to continue to do so into next year. We’ve already started to see weakness in broader commodity prices as well as in prices paid data in recent months, which suggests that headline inflation could well have peaked in the short term. Expectations are for a fall to 8.8%, with core prices expected to rise from 5.9% to 6.1%.
UK Q2 GDP – 12/08 – the UK economy managed to get off to a decent start to the year with 0.8% GDP growth in Q1. This is expected to slow sharply in Q2, especially given the sharp rise in the energy price cap in April, as well as the various tax rises which also came into effect at the same time. Having said that on the monthly numbers the picture looks slightly more positive. In April, not surprisingly the economy saw a -0.2% contraction in economic output, however in May this was more than reversed by a 0.5% expansion. On the various PMI indicators, despite rising costs economic activity has been positive, although retail spending has been a drag. Retail sales have also been a net negative thus far, however the Queen’s Platinum Jubilee celebrations could have acted as a positive catalyst in terms of tourism numbers. We saw in the latest GDP numbers from the likes of Spain and Italy how tourism can offer a positive catalyst and with a cheap pound the UK could see a similar uplift, which could see the UK avoid what is expected to be a negative print of -0.1%, even as Q3 offers an even more challenging environment.
US PPI (Jul) – 11/08 – having fallen back from its March peaks to 10.9% in May, US PPI unexpectedly jumped back to 11.3% in June, raising concerns that further inflationary pressure is building up in US supply chains. This was unexpected given that there had been little indication of such pressures in prices paid numbers for the same month. Furthermore, as far as core prices were concerned prices continued to fall away from their March peaks. Excluding food and energy, prices fell from 8.5% to 8.2%, with the hope that this wider trend can continue into July and Q3. There is some evidence that the June spike may have been a one-off given recent sharp falls in prices paid numbers. This could see prices slide back sharply from 11.3% to 10.3%, with core prices falling below 8%. The wider question for investors and markets in general is how much more can prices fall before finding a floor. This is the more important question when it comes to inflationary pressures. Where is the new neutral rate, given its highly unlikely to be at 2.5% which is where Fed chair Jay Powell seems to think it is.
China Trade (Jul) - 07/08 – China’s trade surplus hit a record in June, as the reopening of the economy after weeks of restrictions saw exports rise by 17.9%, and their strongest level this year. There is certainly an element of a pent-up rebound in these numbers and because of this the July numbers are likely to more subdued, with an expectation of a rise of 13.2%. Imports are likely to be a different story. These are expected to continue to look soft. We saw a 1% gain in June, as the stop start nature of China’s zero-covid policy is likely to weigh on internal demand. Retail sales have been weak for several months now and while demand has picked up in recent months as lockdown restrictions have been eased, the uncertain nature of China’s covid policy is likely to keep demand fairly weak. Forecasts are for a 4% rise which is still below the highs this year of 4.1% which we saw in May.
Aviva H1 – 10/08 – having returned £3.5bn to shareholders back in May, the Aviva share price hasn’t exactly set the world on fire with concerns about the insurance market holding back the performance of all the major insurers. The weakness in this area has been caused by higher used and new car prices, which has driven up the costs of claims in this area. This may seem harsh on the likes of Aviva which has a more diversified business model, but any concerns over erosion to margins no matter where they are, tends to lead to weakness across the board. In their Q1 numbers there was little evidence of that as UK and Ireland sales rose 2%, to £8.4bn, with general insurance sales rising 5% to £2bn. The company said it was on target to deliver on its full year targets and dividends for the next two years.
Deliveroo H1 22 – 10/08 – trying to pick the bottom in the Deliveroo share price has proved to be a thankless tax over the last 12 months, with the shares dropping below 100p in May in the aftermath of their Q1 numbers, the shares are even further away from their IPO price of 390p back in April 2021. The company has continued to grow over the last 15 months, and in its full year numbers back in March, revenues rose 57% to £1.82bn. Losses also increased to £298m from £213m in 2020, with a decline in margins from 8.7% to 7.5%, as market and overhead spend rose by 75% to £628.7m. On the guidance the company said it hoped to break even by 2024 on a full year basis and that on medium term Gross Transaction Value (GTV) it expected to grow at circa 20% a year. Deliveroo has made great strides in signing deals with Amazon and Waitrose, helping to push Q1 GTV up to £1.79bn, a rise of 11% from the same period a year before. At the time the company appeared confident of delivering GTV guidance of 15% to 25% for the year, with H2 expected to be stronger than H1. This always appeared unduly optimistic given the economic backdrop and in July the company was forced to lower this to between 4% and 12%, although EBITDA guidance was kept unchanged.
IHG H1 22 –09/08 – IHG shares have seen a decent rebound after falling to two-year lows back in June. In Q1 the Holiday Inn owner reported that revenue per room (RevPAR) rose 61% vs last year and was back at 82% of 2019 levels. The Greater China region has proven to be a drag due to lockdown restrictions and is likely to be an area of weakness in Q2, as well as the rest of the year as well. This has been borne out by occupancy rates, which by region were at 60% in the US, 50% in EMEAA and 36% in Greater China. The US outlook looks the most promising in terms of increased pricing power, with rates in the US business 4% ahead of 2019 levels in Q1, and likely to remain so despite concerns over the rising cost of living.
Vroom Q2 22 – 08/08 – having hit record lows just prior to the release of its Q1 numbers, Vroom’s share price appears to have found a short-term base. With so much negativity around the company, and the shares down over 80% in the last 12 months, some sort of rebound was always a possibility, however the online car retailer still faces enormous challenges as it looks to turn a profit. Q1 sales did come in better than expected at $923.7m, while gross profits rose to $81.6m. Vroom’s biggest problem is its overheads as operating losses widened to $315.9m in Q1. The company said it expects to achieve between $135m and $165m in savings over the course of the rest of the year, with the loss of 270 jobs. For 2022 the company said it expects to sell about 50k cars on the ecommerce side. We also saw the appointment of a new CEO, Tom Shortt, who used to be COO. Q2 losses are expected to come in at $0.75c a share.
Disney Q3 22 – 10/08 – Disney shares hit two-year lows back in July despite a better-than-expected set of numbers in Q2, which showed that unlike its streaming peers Netflix, it managed to grow its subscriber base. An increase to 137.7m subscribers from 129.8m, comfortably beat expectations, although revenues and profits across the wider business both fell short, due to higher spending costs on programming on Disney+ and Hulu. Unlike Netflix Disney does have the additional revenue from its film studios, as well as holiday and theme parks business. Total revenues in Q2 came in at $19.25bn, below estimates of $20.1bn. On the plus side the parks business did see a solid improvement with $6.7bn in revenue, and operating income of $1.76bn, although looking ahead Disney cited a potential hit of $350m due to the Covid closures of its Shanghai and Hong Kong theme parks in China. The company also warned on slower subscriber growth in H2 due to rising inflation hitting consumer incomes. Like Netflix, Disney said it is planning an ad supported tier of Disney+ in response to these concerns over rising prices. Profits are expected to come in at $0.96c a share
Rivian Q2 22 – 11/08 – that $78 IPO prices seems a long time ago now, with its major stakeholders Ford and Amazon taking huge write-downs on their stakes in the business over the past six months. On the day of its Q1 earnings announcement the shares hit a record low of just below $20. Since then, we’ve seen a modest recovery as the company finally gets its car production underway. In Q1 the confirmed that the company had built 2,553 vehicles and delivered 1,227 of them. Production had been slowly stepped up during the quarter and management expressed confidence that this would see 4,000 vehicles produced in Q2. This will be the key test as we look to this week’s Q2 numbers. The company says it has 10k new pre-orders since raising prices in March. Q1 revenue came in at $95m which was below expectations of $131.2m, while reporting a loss of $1.6bn or $1.43c a share. The company reaffirmed its 25,000 target of annual vehicle sales, despite supply chain bottlenecks which are currently acting as a headwind. The company is still spending significant amounts of money on new capacity and hopes to begin work on a new factory in Georgia this summer, which means losses are expected to come in higher at $1.60c a share.
Coinbase Q2 22 – 09/08 – on the day after its Q1 earnings numbers Coinbase shares hit a record low before finishing the day higher. Since then, the shares have struggled to make any significant progress against a backdrop of losses of over 70% year to date. Not only has turnover in the crypto market collapsed but its other markets have also seen a sharp drop in revenue, along with its peers. In Q1 revenues slid to $1.17bn, well below expectations of $1.48bn, and well below last year’s $1.8bn. The company also slid to a loss of $430m, with the company downgrading its guidance for Q2. The sharp decline in transaction and trading volumes is no better illustrated in the comparison between Q4 retail trading volume which came in at $177bn in Q4 last year, and fell to $74bn in Q1, as the slide in crypto kept a lot of the retail market on the sidelines. Fears over bankruptcy haven’t helped either after the company issued a warning about the implications of such an event on its Q1 earnings report. The company is also facing an SEC investigation on its cryptocurrency listings, and whether they should have been listed as securities. The company received a boost last week when it announced that it was partnering with BlackRock to target institutional clients in the crypto space. Losses are expected to come in at $2.27c a share.

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The Week Ahead: US CPI, UK Q2 GDP, Deliveroo, Aviva and Disney results

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