The Week Ahead - US non-farm payrolls, Bank of Japan, Darktrace, Harbour Energy and Aviva results

US Non-farm payrolls (Feb) – 10/03 – the boom in the January payrolls numbers proved to be a significant catalyst in a change of perception about the health of the US economy, as well as shaking markets out of the complacency that had characterised sentiment as we started 2023 on a strong note. The market reaction was most notable in terms of bond yields, and while equity markets have continued to hold onto a narrative that any further rate hikes are likely to be limited, the strength of the economic data since then has cast that perception into doubt. In the space of a month, we’ve gone from a narrative that had rate cuts coming before the end of the year, to an imminent pause in the next couple of months, to how many more rate hikes can we now expect? This week’s payrolls report could well go further in reinforcing the latter if the jobs growth we saw in January continued into February. Just to be clear, no one is expecting another 517k, and we could also see a significant revision, but a February number anywhere close to 200k would still be in line with a robust US labour market. Wages will also be a key touch point, as will the unemployment rate which fell to 3.4% and the lowest level since 1969. In a sign that people are also returning to the workforce, the participation rose to 62.4% matching its highest level since the start of the pandemic. Job vacancy levels will also be a key benchmark given they rose to just over 11m back in December. Could they fall back in January after that bumper 517k payrolls print?

Bank of Japan rate decision – 10/03 – much has been made of the recent appointment of Kazuo Ueda as the new Bank of Japan governor, replacing Kuroda as the new mouthpiece of Japanese monetary policy. A lot of the commentary around Ueda has seen him paint a fairly neutral stance when it comes to the prospect of possible policy tweaks. This would suggest that the current policy of yield curve control (YCC) is unlikely to see any changes in the short term. That said this will be Kuroda’s last meeting as central bank Governor begging the question as of whether he might start to lay the groundwork for a policy change in the coming months. Japanese inflation is already well above target at 4.3% and looks set to continue rising. It’s hard to envisage a scenario that would see the Bank of Japan happy with an inflation rate that is rising sharply, and a currency that is once again wilting against the onslaught of a strong US dollar.

China Trade (Feb) – 07/03 – the last 2 months of 2022 saw the various rolling restrictions and lockdowns slow down the Chinese economy markedly. This has been shown clearly, not only in the trade numbers but also in a sharp decline in consumer spending, which has seen retail sales slide sharply. In Q4 the Chinese economy stagnated to the tune of growth of 0%, equating to annual GDP growth of 3%. With this week’s trade numbers for the months of January and February which will showcase the period over the Chinese New Year, we will get a better idea of how much the relaxation of lockdown restrictions has unleashed pent-up demand. Having seen exports finish 2022 with a -9% decline, while imports declined -7,5%. This week’s numbers will be a decent indicator of how much consumer confidence there is in the economy, compared to previous January, and February numbers. 12 months ago year to date exports saw a gain of 16.1%.

Bank of Canada rate decision – 08/03 – at its last meeting in January the Bank of Canada decided that it would take the decision to signal a pause in its rate hiking cycle after its latest rate rise of 25bps took the headline rate to 4.5%. The central bank did indicate that the pause was conditional on inflation coming down, however, the decision to signal a pause with hindsight, given the strength of recent data does come across as a little hasty. Headline CPI in Canada has fallen to 5.9%, but core prices still look sticky at 5%, and recent economic data has shown the economy looks resilient. Consumer spending has held up well in recent months, while January payrolls also saw a huge jump of 150k, with most of them being in full-time employment. The participation rate also surged to 65.7%, a sharp rise from 65.4%. No changes are expected to monetary policy; however, we could see some hawkish guidance.

Darktrace H1 23 – 07/03 – back in January Darktrace shares fell to record lows of just below 200p after management cut its recurring revenue growth forecasts for the full fiscal year to between 29.5% and 31%, from its previous forecast of 31% to 34%. Management said they expect H1 revenue to come in at $258m, an increase of 35.2% from a year ago, while the number of customers has risen by 741 since the end of the last fiscal year to 8,178. The rate of customer growth in percentage terms does appear to be slowing, however, it is still in the mid-20 %. Back in August the shares briefly spiked up on reports that the company was in talks with Thoma Bravo. Since it was announced that these talks had ended its been one-way traffic lower with questions being asked in various circles about the transparency of the company’s accounting methods. Last month short seller Quintessential Capital Management expressed scepticism over the validity of its financial statements, while also taking an active short position.

Harbour Energy FY 22 – 09/03 – the decision by the UK government has been ruinous for the Harbour Energy price over the last 12 months, sliding from highs of just over 520p last April, they hit a low of 270p back in February, just shy of their record lows of 260p back in 2020. As a largely domestic producer, and a company that recently upped its contribution to UK energy security to 5% of UK gas output. 90% of its UK production takes place through 5 key hubs with the latest one to come online being the Tolmount Gas field. With higher gas prices its annual revenue looks set to rise sharply. In 2021 the company saw annual revenues of $3.48bn, and this looks set to rise to $5.4bn in the current fiscal year. As a result of the extension of the windfall tax, the company said that it would have to set aside a higher amount than the $600m it set aside in its H1 numbers. Full-year production is expected to come in at the top end of expectations at 208k oil equivalent barrels per day with a 50/50 split between oil and gas. Total capex for the year is also set to be lower at $1bn, down from the previous $1.3bn due to the decision not to proceed with several North Sea exploration and appraisal wells due to the decision to reassess its future investment plans in the North Sea, and not bid for the new round of UK oil and gas licences, resulting in the company announcing job losses earlier this year. Guidance for 2023 is forecast to be lower at between 185-200kboepd as well. While the decision to rethink its UK investment plans is not surprising, it is depressingly predictable given current government policy. If you take the decision to overtax businesses, especially small ones, don’t be surprised if they choose to walk away.

Aviva FY22 – 09/03 – has been trading steadily between 430p and 460p over the last 3 months since the company posted its Q3 numbers back in November. The general insurance business saw a 10.7% rise in gross written premiums from a year ago, turning over £7.2bn. The UK and Ireland life business also saw a 46% rise in new business to £466m, however, the wealth division saw assets under management slip back from £7.3bn a year ago to £7bn. Aviva’s dividend guidance of 31p for this year and 32.5p for next year was left unchanged. All so far so good, however, we did see some volatility in January after sector peer in the insurance business Direct Line cut its dividend citing higher claim costs due to extreme weather events related to the hot weather last summer and the cold weather in December and January. Later in the month, Aviva said that it expected to see an extra £50m in costs due to the freezing weather during December and January.

DocuSign Q4 23 – 09/03 – DocuSign shares have seen a modest rebound since posting record lows back in November. In their Q3 numbers in December, revenues and profits beat expectations, helping to lift the shares higher. Q3 revenues rose 18% coming in at $645.5m while profits came in at $0.57c a share. The company also upgraded its full-year guidance, edging its annual revenue forecast of between $2.49bn to $2.5bn, as gross margins improved in Q3 to 83% from 80.6%. Earlier this year in response to concerns about pressure on margins the company announced it was going to be laying off 10% of its workforce, taking an impairment charge of $25 to $35m primarily during Q1 of the next fiscal year 2024. Q4 profits are expected to come in at $0.52c a share, however, the main focus is expected to be on the outlook and how the company sees itself faring over the next 6-12 months.

Brown-Forman Q3 23 – 08/03 – when Jack Daniels maker Brown-Forman released its Q2 numbers back in December the company said it was on track for a “solid” year of growth. Sadly, for the share price the market didn’t appear to be listening with the shares sliding back sharply. For H1 the company delivered a net sales increase of 11% to $2.1bn, with Q2 delivering $1.1bn of that. This was driven by higher prices with decent growth in areas like Woodford Reserve, as well as the company’s Tequila portfolio. The main downside appears to be in a decline in gross margins which fell by -1.3%, with the strong US dollar and high inflation weighing on profitability, as costs went up. Q3 profits are expected to come in at $0.46c a share slightly down from the $0.47c seen in Q2.

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