The week ahead: UK jobs, inflation; eBay, Netflix results

Watch our week ahead video preview, read our pick of the top stories to look out for this week (15-19 July), and view our key company earnings schedule.

China fixed-asset investment, retail sales, industrial production

Monday: The Chinese economy has been cooling for a number of years, though it’s still growing at a rate many western economies would be delighted to achieve. The world’s second-largest economy grew by 6.6% in 2018, its slowest rate in 28 years, and the trade spat with the US isn’t helping. The Beijing authorities devalued the yuan in 2015, and from time to time there is speculation they will do something similar. In recent years, the Chinese government has had various stimulus programmes aimed at boosting economic output, which worked to a certain extent. The decline in fixed-asset investment has been crystal clear in the past few years, which could be a sign that further economic cooling is in the pipeline. Industrial production is at its weakest since 2009, which highlights the decline in heavy industry, even though China has made a concerted effort to be become more focused on the services sector. Retail sales have been a bit more volatile, but the wider downtrend is still clear.

Citigroup, Goldman Sachs, Morgan Stanley, JPMorgan Q2 results

Monday-Thursday: The US banking sector has undergone some major changes since the credit crisis. The banks are unwilling to take on as much risk, and in recent years there has been a big cutback in banks’ trading departments. Volatility in the financial markets has dropped off in the past few years, compared with the days of the eurozone debt crisis, and before that, the global credit crisis, and that has been another reason for the fall in trading revenue. In recent quarters, major banks have been seeking to increase their income form less risky operations, like investment banking fees, mergers and acquisitions (M&A), capital raising, wealth management, and depending on the group, retail banking. The fact that some US indices have reached all-time highs on a few occasions in the past year should have helped the banks’ wealth management units, as well as their M&A teams. Speculation the US Federal Reserve is going to cut interest rates later this year has driven down US government bond yields, and that is likely to compress the net lending margin rate, so those banks that have retail banking units are likely to earns less from lending.

UK unemployment & average earnings, CPI

Tuesday-Wednesday: The jobless rate in the UK is at 3.8%, the lowest since the mid-1970s. It’s clear the sharp fall in the pound on the back of the Brexit vote, and the loosening of monetary policy by the Bank of England (BoE) in 2016, helped the UK jobs market. The weakening in sterling did bring about higher inflation on account of the increased costs of imports, but the subsequent rebound in the pound has brought down the cost of living. The consumer price index (CPI) is now at 2%, in line with the BoE’s target. In April, average earnings excluding bonuses ticked up to 3.4%. Seeing as workers’ earnings are comfortably outstripping the cost of living, there is a decent increase in the ‘real wage’. Disposable income is crucial, as it drives the economy along. There are some soft areas of the UK economy, like construction and manufacturing, but by-and-large it’s in good shape.

Eurozone CPI inflation rate (June)

Wednesday: In June, European Central Bank chief Mario Draghi suggested that interest rates could be cut, while the government bond-buying scheme might be restarted, as a way of reinvigorating the subdued eurozone economy. Mr Draghi is due to step down as the ECB chief later this year, so it was easy for him to drop a hint about monetary easing, as his successor will have to make the call. The CPI inflation rate held steady in May at 1.2%, while the core reading jumped to 1.1% from 0.8%. The rise in the core reading indicates that underlying demand is on the rise, which is encouraging. The headline produce price index (PPI) report for May dropped sharply, a sign that demand at factory level is falling and potentially leading to softer CPI levels in the month to come. Eurozone manufacturing and services PMI surveys were mixed, with a weak manufacturing report, while the services reading was largely positive. The fact the eurozone has a bigger services sector bodes well for the currency bloc.

Canada CPI inflation rate

Wednesday: The Canadian economy is in good shape. The June employment report showed that the unemployment rate ticked up from 5.4% to 5.5%, but the 5.4% reading was the lowest since the 1970s. Average wages grew by 3.6%, which was a sizeable jump from the 2.55% growth rate achieved in May. The headline CPI rate is 2.4%, so workers are receiving a decent real wage. The core inflation report is usually regarded as a better gauge of underlying demand, and the latest reading was 2.1%, which is a robust level. Recently, the Bank of Canada (BoC) kept interest rates on hold at 1.75%. Stephen Poloz, the head of the BoC, said the Canadian economy is “returning to potential growth”, but also expressed concern global tensions. The Fed and ECB are edging towards more dovish policies, but the BoC seem to be content to sit on their hands, which suggests they are happy with current demand levels.

eBay Q2 results

Wednesday: eBay had a respectable first quarter, but the company is still under pressure from activist investors. In the first three months of the year, the group posted a fractional increase in first-quarter revenue to $2.6bn, ahead of the $2.58bn consensus estimate. Adjusted earnings per share came in at 67c, with traders expecting 63c. For Q2, the firm predicts revenue between $2.64bn and $2.69 billion, equating to a mediocre growth rate of between 2% and 4%. The company is under pressure from traditional retailers as well as Amazon, so is ramping up its online presence. eBay has been under pressure from activist investors, Elliott Management and Starboard, who have been calling for the group’s breakup. There has been speculation that eBay will spin off its ticket exchange business, StubHub, so traders will be listening for any strategic review.

Netflix Q2 results

Wednesday: Netflix’s first-quarter figures might be a tough act to follow. In April, it released numbers for the first three months, as EPS came in at 76c, comfortably topping the 57c forecast. Revenue jumped 22.2% to $4.52bn, slightly ahead of the consensus estimate. The US streaming services company is still adding new clients at home and abroad. Domestic subscribers increased by 1.74m, while international subscribers jumped by 7.86m, topping forecasts in both cases. The group is confident it will retain its dominant position in the streaming sector, though it faces increasing competition from Apple TV, Amazon Prime and Disney – who will remove their content from the Netflix platform this year. The company recently reported that its in-house show, Stranger Things, pulled in over 40m households since the third season was released in early July. Netflix has only recently started to publish its viewing figures, and given it operates in a specialised industry, it’s possible it will become a metric of its success, and could also be a yardstick for competitors to measure themselves against.

Australia unemployment

Thursday: The Australian economy has slowed as China has gone down a gear or two, but the Reserve Bank of Australia (RBA) has been quick to react. The RBA cut interest rates in June and July, and they are now at a record low of 1%. Not only does Australia have to contend with a cooling Chinese economy, it also has problems in its domestic housing market, as property prices in Sydney and Melbourne have fallen, and there are fears about a bubble. The unemployment rate in May remained at 5.2%, its joint highest rate since August, although February’s 4.9% rate was the lowest reading since 2012, so the jobs market is still in great shape. The move by the RBA to cut rates by 0.5% in two months should take a while to trickle down to the economy, but it sends out the worrying message that things must be bad if back-to-back rate cuts are required.

Selected UK & US company announcements

Company announcements are subject to change. All the events listed above were correct at the time of writing.

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