The mid-point of the week will be in keeping with the busy theme of the preceding days, with trading updates due from banking giant Lloyds and pharma firm GSK alongside results from supermarket chain Sainsbury’s.
It will also be a busy day over in the US with earnings from Apple and Facebook competing for investor attention alongside the latest interest rates decision from the Federal Reserve.
Update from the Black Horse
The current low-interest environment may mean that bank interest income is weak for the UK banking sector, the UK mortgage market has been surprisingly strong, which is likely to be good news for the likes of Lloyds Banking Group PLC (LON:LLOY).
Loan impairment charges in the first quarter are expected to be low for the banks, with analysts at Barclays suggesting credit distress “is on ice” given government support schemes and, following the example of US banks, there is “increasing potential for writebacks” of loan loss provisions, especially where there was high provision building last year.
As with its peers, Lloyds’ key issues are likely to be around dividends and the reopening of the British economy, however, analysts at UBS have said previously that these aren’t likely to be covered in detail in any trading updates.
Triple threat for GSK
GlaxoSmithKline PLC (LON:GSK) faces a “triple whammy” when it reports first-quarter figures on Wednesday, according to Steve Clayton at Hargreaves Lansdown.
“Last year saw an unusually strong outcome as customers stocked up, anticipating lockdowns ahead. That sets a high hurdle, plus GSK’s Consumer business will have had a weak ‘flu season’ because social distancing has kept seasonal bugs under control. To top it off, the pandemic has reduced the number of patients receiving vaccinations for non-Covid conditions, which will hit their important Shingrix shingles vaccine revenues. So trading numbers could well look a bit light and investors will have to look through a lot of one-off factors to get a feel for the underlying state of play,” Clayton said.
Sainsbury’s checks its receipts
Wednesday will bring full-year results from J Sainsbury PLC (LON:SBRY), with investor expectations likely to be high following its strong third quarter.
The supermarket chain will be eyed to see if it has managed to maintain the high demand for online orders as lockdown measures have eased in the UK.
The outlook statement will also be in focus, particularly regarding costs which have recently been holding back profits. If the firm decides to invest further in its digital capability this pressure could continue, eating into margins.
Persimmon looks to build on housing market activity
The housing market continues to boil, much to the dismay of would-be first-time buyers but to the delight of housebuilders such as Persimmon PLC (LON:PSN), which is scheduled to update the market on Wednesday.
UBS is confident sales rates will be strong at around 0.85 – 0.90 per site for the year to date.
“Given the easy basis of comparison from the prior year (0.66) this will represent a meaningful increase. For 2021, we currently expect +9% volume growth and flat pricing (incl adverse mix) and margins to moderate slightly by 30bps y/y [year-on-year],” UBS said.
Fed in focus
The big macro event of the week if not the month is often the US Federal Reserve meeting decision, though this Wednesday is one of the times when no one expects much in the way of changes.
Chair Jerome Powell’s subsequent press conference is more likely to make headlines.
The Fed is likely to leave its headline interest rate at 0.25% and its quantitative easing (QE) programme running at US$120bn a month, taking its current asset base up to US$7.8trn.
“Such aggressive monetary policy underpins the ongoing surge in US money supply which some economists think will lead to the return of inflation, something that the Fed clearly craves,” said analyst Danni Hewson at AJ Bell.
The big issue at the Federal Open Markets Committee’s last meeting in March was about trying to balance the optimism of a strong economic rebound against rising expectations of some QE tapering or that interest rates will start to rise rates well before 2024, in the face of rising inflationary pressures.
With another set of stimulus payments having landed in US consumers bank accounts, a big rises in March jobs and retail sales, the economic picture is still improving and yields have gone as high as 1.77%.
However, yields have since slipped back on a belief that the data from here on in is unlikely to be as good.
“This seems a little naïve,” said market analyst Michael Hewson at CMC Markets, “and while the Fed will be pleased at how the economy is looking now and with another bumper payrolls report expected next week, they will be keen to temper any enthusiasm or foster any expectation of a change in stance.”
So, as Hewson says, even if FOMC officials do alter their dot plots to signal a slightly earlier taper, it’s more than likely that the Fed message will remain the same in terms of its “outcome-based guidance” – the new policy of not reacting to perceptions of a direction of travel, but waiting until both goals of higher inflation and full employment has been achieved.
A bite of Apple as the Facebook opens
Meanwhile, US earnings seasons rolls on with more figures from Big Tech on Wednesday in the form of results from Apple and Facebook.
Given Apple already announced a new suite of products on Tuesday, including new ranges of its iMac desktop computers and iPad tablets, investors may be looking for any details on the rollout of these new products or how the company expects to perform once they hit the market.
Meanwhile, iPhone sales will continue to be a key area of interest, as well as the company’s performance in the critical Chinese market.
More cautious investors may be keeping an eye on any comments about a global shortage of computer chips which could dent the firm’s production capacity.
Facebook has also been unveiling new products recently, notably a suite of audio features including ‘Live Audio Rooms’, audio-only group chats that many see as an effort to compete with audio-only chat app Clubhouse after it surged in popularity last year.
Aside from any further product details, investors are likely to focus on the company’s key metrics of user growth and ad revenue, as well as how it hopes to deal with increasing pressure from national governments over fake news and its influence on society.
Significant announcements for Wednesday April 28:
Trading announcements: Lloyds Banking Group PLC (LON:LLOY), GlaxoSmithKline PLC (LON:GSK), Persimmon PLC (LON:PSN), 1Spatial PLC (LON:SPA), British American Tobacco PLC (LON:BATS), CRH PLC (LON:CRH), Dixons Carphone PLC (LON:DC.), Fresnillo PLC (LON:FRES), Network International Holdings PLC (LON:NETW), WPP PLC (LON:WPP)
Finals: J Sainsbury PLC (LON:SBRY), French Connection Group PLC (LON:FCCN), LSL Property Services PLC (LON:LSL), Heiq PLC (LON:HEIQ), The Property Franchise Group PLC (LON:TPFG)
Interims: AB Dynamics PLC (LON:ABDP)
Economic data: Fed rates decision