The Week Ahead - US Nonfarm Payrolls, EU flash CPI, UK lending, GameStop and Broadcom results

US payrolls (May) – 02/06 – the resilience of the US economy continues to manifest itself in the jobs data, despite concerns that a slowing economy will start to see jobs growth falter. While the monthly payrolls numbers have been slowing in terms of the numbers of jobs being added on a monthly basis, economists have consistently underestimated the resilience of the labour market over the last few months, even with the recent turmoil in the banking sector hitting business and consumer confidence. The last few months have seen the headline numbers consistently beat forecasts, with the April jobs numbers no different in this regard, with 253k jobs added, while the unemployment rate fell to 3.4%. Wages growth also edged up to 4.4%. There was a downside in a negative -149k adjustment to the previous 2 months, which took some of the gloss over the broader numbers, but they don’t support the idea that the US economy is struggling, particularly when there are still over 9.5m vacancies, although this number has declined by more than 2m since the peaks of March last year. Nonetheless the number of vacancies remains eye-wateringly high and well above the levels before the pandemic. The participation rate has also been rising and is at its highest level since before the pandemic at 62.6%. ADP payrolls have also remained solid, rising by 269k in April while weekly jobless claims have remained steady, only modestly increasing from the levels we were seeing in March. This week’s jobs numbers are expected to see 180k jobs added, and for the unemployment rate to edge higher to 3.5%.

EU CPI flash (May) – 01/06 – the fall in energy prices over the last few months has seen headline inflation across Europe decline quite sharply in recent months. Having hit a peak of 10.7% back in October the headline number fell back to 6.9% in March only to tick higher in April to 7%. Core prices have proved to be somewhat sticker, these hit a record high of 5.7% in March and only slipped back to 5.6% in April. This presents a problem for the European Central Bank with growing splits on the governing council as to how many more rate hikes are coming over the next few months. The chatter from central bank officials has been very hawkish of late, with talk of more 50bps rate hikes, however few believe the ECB will be able to continue to hike if the Federal Reserve starts its rate pause in June. This week’s flash May CPI could well make the ECB’s life more difficult if prices start to tick higher again and raise the prospect that rates may have to either go higher or stay at current levels for much longer. Expectations are for another fall in the annual rate to 6.4%, however core prices don’t appear to be going anywhere with a modest tick down to 5.5% expected.

UK Mortgage Approvals (Apr) – 31/05 – we’ve started to see a modest improvement in mortgage approvals since the start of the year, after they hit a low of 39.6k back in January, as the sharp rise in interest rates at the end of last year weighed on demand for property as well as house prices. As energy prices have come down, along with lower rates, demand for mortgages has started to pick up again with March approvals rising to 52k, while net consumer credit has also started to improve after similar weakness at the end of last year. With inflationary pressures starting to subside we could see this trend continue in the coming months, as long as energy prices remain at their current levels, and the Bank of England starts to signal it is close to being done on raising rates.

Manufacturing PMIs (May) – 01/06 – last week saw the latest flash PMIs show that manufacturing activity in France and Germany remained weak, while in Germany activity deteriorated further to its lowest levels since June 2020, when economies were still reeling from the effects of pandemic lockdowns. We also found out that the German economy was in recession after Q1 GDP was revised lower to -0.3%. The UK and US on the other hand were able to see a modest pickup in economic activity. It is clear that manufacturing globally is in a difficult place, we’re also seeing it in China, as well as copper and iron ore prices, which suggests that global demand is weakening sharply. Italy and Spain economic activity is also expected to see further weakness in manufacturing when their latest PMIs are released later this week.

Dr Martens FY 23 – 01/06 – when Dr Martens launched its IPO in January 2021 at 370p the shares initially pushed higher on optimism that this iconic brand would go from strength to strength. This optimism didn’t last and since then the shares have been on a slow steady decline, culminating in another profits warning earlier this year which saw the shares hit a record low of 127p. The company cited supply chain issues in its US operation which could reduce wholesale revenues by £15m-£25m, and EBITDA by around £20m. For the full year the company says it expects to see EBITDA in the region of between £250m and £260m below estimates of £285m. Revenues in Q3 also fell shy of company expectations for the same reason, coming in at £335.9m. Looking forward their sole concern now is resolving these issues and reversing this decline in profitability. Full year revenue is expected to rise to £1bn, a still respectable improvement on last year’s £908m, while net profits are forecast to fall to £140m from £181.2m last year.

B&M European Retail FY 23 – 31/05 – B&M European Retail has seen a solid rebound in its share price in the wake of the slump from the record highs seen at the end of 2021. Rebounding from 2 and a half year lows in late September, just below 300p they are now trading near to 500p, helped by a retail environment that has favoured the discount retail sector more than the higher end. In January the retailer reported a strong pre-Christmas quarter, with Q3 revenues rising 12.3%, prompting an upgrade to full year group adjusted EBITDA to between £560m to £580m. The retailer also announced a special dividend of 20p per share to be paid on 3^rd February. This week’s full year results are expected to show revenues of £4.96bn, up from £4.67bn in 2022, although pre-tax profits are expected to fall to £463m.

Broadcom Q2 23 – 01/06 – Broadcom's recent financial performance has been strong. Last year full year revenue was $33.2 billion, an increase of 21% year-over-year. Adjusted EBITDA margin was 63%, and non-GAAP diluted EPS was $40.71. In addition to its strong financial performance, Broadcom is also returning significant cash to shareholders. In the fourth quarter of fiscal year 2022, the company repurchased and eliminated 2.7 million shares for $1.521 billion. For the full fiscal year 2022, Broadcom repurchased and eliminated 10.6 million shares for $6.1 billion. In May the shares hit new record highs on optimism that strong demand for its variety of end markets including hyperscale data centres, service providers, and enterprise customers will continue. In Q1 the company saw revenues rise $8.91bn, while profits increased to $$10.33c a share. For Q2 revenues are expected to slow modestly from Q1 levels to $8.72bn, along with profits of $10.16c a share. These past few days have seen the shares hit record highs after the company signed a billion-dollar multiyear deal with Apple for 5G radio frequency components for the iPhone. It also got a lift from Nvidia’s blowout earnings numbers as well.

GameStop Q1 24 – 01/06 – GameStop shares surged out of the blocks to a 3-month high when they reported a surprise Q4 profit of $0.16c a share, the first quarterly profit in 2 years. Q4 revenues came in at $2.23bn, only slightly below the levels they were a year ago, helped by a strong performance from collectibles and hardware sales. Annual revenues were only modestly lower than the previous year, coming in at $5.93bn. It is important to note that the profit numbers were boosted by a $4.5m boost from the sale of some digital assets. The company offered no guidance as management look to turn around a business that has been ailing for several years. Management have been successful in cutting costs as well as withdrawing from non-core markets, however they have been hampered by some poor decisions, the partnership with failed crypto exchange FTX, as well as experimenting with NFT at around the same time the bottom fell out of that market. For Q1 revenues are forecast to fall to $1.34bn, with losses of $0.17c a share.

Salesforce Q1 24 – 31/05 – Salesforce shares have been on a slow road to recovery after hitting their lowest levels since March 2020, back in December last year. In March their Q4 numbers helped to give the Dow a boost after the company reported better than expected Q4 results and an upbeat outlook for the upcoming year. Q4 revenues rose 14% to $8.38bn, while profits doubled to $1.68c a share. The Q1 outlook saw revenues estimated at $8.16bn to $8.18bn, and profits of $1.60c a share, while annual 2024 revenues are expected to rise to a minimum of $34.5bn, a decent increase from 2023’s $31.35bn. The outperformance has come from a number of factors, the continued growth of the cloud computing market. Salesforce is a leading provider of cloud-based CRM software, as well investing heavily in AI powered tools, recently launching its Einstein platform, which is a suite of artificial intelligence-powered tools that help businesses make better decisions.

HP Q2 23 – 30/05 – the last 2 quarters have seen the HP share price undergo a decent recovery in the wake of its full year results back in November when the PC and hardware manufacturer announced the loss of 6,000 jobs over 3 years, due to a slowdown in the PC and laptops market. HP hasn’t been alone in this regard with Dell also announcing similar reductions in headcount. Revenues have been in decline over the last few quarters with weak PC demand very much a headwind. At the end of its last fiscal year annual revenues slowed to $62.98bn, with consensus for 2023 for this to slow to $55.2bn. In Q4 revenues came in at $14.8bn and slowed to $13.8bn in Q1 of this year, while profits came in slightly ahead of expectations at $0.75c a share. For Q2 the company was slightly more optimistic given the lifting of lockdowns in China, keeping its fiscal year 2023 guidance of full year adj. EPS expected to come in between $3.20 and $3.60c a share. For Q2 profits are expected to remain steady at $0.76c a share, although revenues are expected to plunge from $16.49bn a year ago to $13.04bn, with computers and notebooks still forecast to be a drag.

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