The Week Ahead: China trade, RBA meeting, Darktrace results

Here's our pick of the top three economic and company events in the week commencing Monday 4 September 2023. 

Reserve Bank of Australia rate meeting 

Tue 5: With China’s economy continuing to show little sign of improving, the prospect of more interest-rate hikes from the RBA seems a remote prospect. With rates at 4.10% and the RBA leaving rates unchanged at the last meeting, this week is set to see more of the same. August purchasing manager indices (PMIs) have slipped into contraction territory, and with the unemployment rate at 3.7%, the RBA will be nervous about further tightening after the previous employment report showed the loss of -24,200 full-time jobs. When part-time roles are included, that’s a net loss of -14,600 jobs in July, although those losses were off the back of 107,000 new jobs added over May and June. Expectations are for no change to the current rate at 4.10%. 

Darktrace full-year results

Wed 6: When Darktrace reported in July, the shares surged higher after the company said it expected to see a 31% increase in full-year revenue, with 396 new customers added in Q4 expected to show total customers rising to 8,799, up 18.3%. 

The shares hit a record low at the start of the year, after short seller Quintessential Capital Management expressed scepticism over the validity of its financial statements, while also taking an active short position. To combat these accusations, Darktrace contracted Ernst & Young to review its finances, to draw a line through the unwelcome speculation over its accounting practices. In July, the company announced that the review had been completed and that nothing in any of its previous financial statements remained unchanged, and that the financial statements accurately reflected the firm’s financial position. 

Darktrace’s share price is currently finding it difficult to overcome the 400p level, which also equates to the highs of the year, as well as the November 2022 highs at 415p. Full-year revenue is expected to come in at $544m, an increase of 31%. On guidance, Darktrace said it expects margins for this year to match those of 2022, and for 2024 to come in around 22%. 

China trade balance and consumer price index (August) 

Thu 7/Sat 9: Over the past few weeks, China has taken several measures to help boost its economic prospects, from easing overseas travel restrictions, to modest cuts to lending rates, as  concern over its economy has increased. 

In July, the economy slipped into deflation after headline CPI fell from 0.2% in June to -0.3%. The producer price index (PPI), which has been in deflation since the end of last year, improved slightly but still declined by -4.4%. This wasn’t a surprise given how poor the July trade numbers were. Markets had been expecting a weak reading, so expectations were low, however we still managed to see a surprise in that they were even worse than expected  

The last two months of Q2 saw sharp declines in exports, with a -12.4% fall in June. There was little let-up in the July data, with a bigger than expected decline of -14.5%, the worst performance since February 2020, with global demand remaining weak. Imports have been little better, with negative numbers every month this year, and July was no different with a decline of -12.4%, an even worse performance than June’s -6.8%, with all sectors of the economy showing weakness. 

As we look toward the August figures, expectations are already low given the relative lack of support put forward by Chinese policymakers this past month, and the concerns over the real-estate sector. Expectations are for exports to decline by -7.8%, and imports to decline by -8.8%. 

Here's our pick of the rest of the week's major economic and company events. 

Ashtead Q1 results

Tue 5: The company has been one of the better performers on the FTSE 100 this year, with Ashtead’s exposure to the US market ensuring that it has benefited from the resilience of the US economy, through its US subsidiary Sunbelt. When the company reported its Q4 and full-year numbers back in June, the shares slipped back. Increased rental revenue has helped boost revenue and profit, with Q4 revenue rising from $1.87bn a year ago to $2.13bn. Full-year revenue rose by 24% to $9.67bn, helping to boost pre-tax profit by 30% to $2.15bn. For Q1, revenue is expected to rise to $2.65bn, with Sunbelt US expected to contribute $2.27bn of that, with operating margins expected to remain steady at 30%. Net profit is expected to increase to $476m.  

Global services PMIs (August) 

Tue 5: For most of this year it’s been notable that services purchasing manager indices (PMIs) have managed to offset the weakness in manufacturing PMIs, which has been keeping economies afloat. The strength of the services sector has been a major factor behind the hawkishness of central banks in their efforts to contain inflation, with prices in this sector proving to be much stickier than other areas of the economy. 

This thinking appears to be starting to shift after some poor flash PMI numbers a couple of weeks ago, after a sharp slide in services sector activity in both France and Germany during August, to 46.7 and 47.3, with Italy and Spain also set to show a similar slowdown. The UK also slid to 48.7, in a sign that higher prices were finally starting to constrain consumer spending. These numbers could well be the final piece of the puzzle when it comes to whether the ECB decides to pause its rate-hiking cycle, even as August inflation saw an unwelcome tick higher. 

Barratt Developments full-year results

Wed 6: Despite a difficult economic backdrop, the Barratt Developments share price has managed to recover from the six-year lows it fell to in October of last year in the aftermath of the spike in UK gilt yields prompted by the market response to some of the measures in Kwarteng budget and the ensuing meltdown in the LDI market. Despite gilt yields moving back, and above the levels seen at the end of last year, we’ve seen modest gains in the share price despite reporting a drop in forward sales in Q4, back in July. Completions were down from 17,908 a year ago to 17,206, with adjusted profit before tax expected to be in line with expectations. Private reservations were 0.55 down from 0.81 in 2022, although they have still recovered from the levels they were at the end of last year. With interest rates set to remain high, and the end of Help to Buy the risk is that looking ahead, forward bookings may well struggle to match the levels seen over the last few years. 

GameStop Q2 results 

Wed 6: The last two earnings reports have seen decent gains in the GameStop share price, however on both occasions these spikes proved to be the top of the moves higher with the share price now close to its lowest levels this year. It would appear that the higher rate environment is blunting risk appetite to these so-called meme stocks and it’s not hard to see why. While the company posted a surprise profit in Q4, it slipped back to a loss in Q1 of -$0.14 a share and is expected to see a similar loss in Q2 as well. Q1 revenues came in at $1.24bn, with hardware and accessories making up over half of that total at $726m. For Q2 revenues are expected to come in at $1.14bn, although inventories should reduce to $600m. Same store sales are expected to decline by 0.1%. 

Bank of Canada rate meeting 

Wed 6: Since the Bank of Canada last raised interest rates back in June, the headline rate has remained at 5%. At the last set of jobs numbers, the Canadian economy saw a net decline of -6,400 jobs, with most of the jobs lost being part-time. The unemployment rate edged up to 5.5%, its highest level since January 2022. With wage growth at 5% and the economy growing at 0.3% in June, it would appear that the increase in rates is slowly acting as a brake on the Canadian economy, with consumer spending stalling over the last couple of months. With the central bank saying that inflation is unlikely to return to target until 2025, no changes are expected to the 5% base rate. 

DocuSign Q2 results

Thu 7: DocuSign shares have had a disappointing time of it year to date, its shares slightly lower year to date, despite generally seeing their recent quarterly numbers coming in better than expected. They haven’t really recovered from the weak guidance it issued at the end of last year when it gave weak guidance for Q1. When DocuSign reported in June, revenues came in comfortably ahead of expectations at $661.4m, while profits came in at $0.72 a share, sending the shares sharply higher initially, but the gains didn’t last, even as guidance was upgraded for Q2 revenue of $675m to $679m, while full year revenue forecast was raised to between $2.71bn to $2.73bn. 

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SELECTED COMPANY RESULTS

Note: While we check all dates carefully to ensure that they are correct at the time of writing, company announcements are subject to change.

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