The Week Ahead: Jackson Hole; Nvidia, Harbour Energy results

Here’s our pick of the coming week’s key economic and company events:

1) Jackson Hole Economic Symposium – 24-26/08: The US Federal Reserve’s annual conference, the theme of which this year is “Structural Shifts in the Global Economy”, will be closely scrutinised for signals that the Fed might pause its monetary tightening campaign at its next rate-setting meeting in September. The symposium could also offer important insights into the risks facing central banks if they overtighten monetary policy at a challenging time for the global economy. Markets have been choppy for several weeks now as, despite the Fed’s hawkish rhetoric, the central bank is close to, or may have even reached, the end of its rate-hiking cycle. The key question now is not how much further rates will rise, but for how long they will stay at current levels. Not long ago, markets were pricing in rate cuts for later this year. Expectations of cuts have now been pushed to next year, with significant uncertainty as to whether they will come during the first half or the second half of 2024. When Fed chair Jay Powell spoke last year, he said that although there was more pain ahead for US households, the Fed would stay the course in its fight to bring down inflation, even if it meant pushing unemployment up. He is likely to strike a different, less hawkish tone at this year’s conference, but he will also be reluctant to declare victory. Clearly, the Fed believes the fight against inflation is far from over. In that context, it’s unlikely that Powell will deliver any dovish surprises.                            

2) France, Germany flash PMIs (August) – 23/08: The last set of flash purchasing managers’ index (PMI) readings saw German manufacturing slide to its lowest levels since the Covid lockdowns at 38.8, providing further evidence that the engine of the German economy continues to stutter. Weak demand in its key export markets, as well as domestically, and high energy prices are weighing on economic activity. The only bright spot was services which came in at 52.3, but even here economic activity was slower. Economic activity in France was also disappointing, although the underperformance was more evenly distributed with both manufacturing and services both in contraction heading into Q3. Manufacturing slipped to 45.1 in July and services dropped to 47.1. With energy prices rising sharply over the last few weeks, it’s hard to imagine a scenario that will bring about a significant improvement, given the weakness in China and other overseas markets.        

3) UK flash PMI (August) – 23/08: As in Europe, the UK has also experienced a slowdown in both manufacturing and services activity, although the composite PMI is just about hanging on in expansion territory, unlike its peers across the Channel. Construction has been a notable strong point, though the focus remains on manufacturing which slowed to 45.3 in July, while services slowed from 53.7 in June to 51.5 in July. The recent GDP numbers for June showed a strong performance, but Q3 is likely to be much more challenging, with higher oil and gas prices likely to filter through at the petrol pump.       

4) Germany IFO (August) – 25/08: The German IFO business climate index put sentiment in July at 87.3, its lowest level since October last year. Expectations also slipped back to 83.5, suggesting the economy could remain in recession in Q3. Any thoughts that we might see an improvement in August were dealt a blow by the sharp rise in oil prices in the last few weeks, while recent economic data from China suggests that the economy there is in a funk that will be difficult to get out of.  

5) Harbour Energy half-year results – 24/08: The UK government’s windfall tax on energy profits has weighed on not only the Harbour Energy share price but also the company’s bottom line. The shares’ slide from highs of just over 520p in April 2022 saw them more than halve to a low of 218p back in June this year, just shy of their record low in 2020. Having struggled for years to turn a profit in its hunt for oil and gas resources in the North Sea, the company has gone through several iterations in the last few years. A largely domestic oil and gas producer, 90% of its UK production comes from five key hubs, with the latest one to come online being the Tolmount Gas field. The company therefore seemed well positioned to play a role in supporting the UK’s energy security – a topic that has risen up the political agenda. All of which renders inexplicable the political decision to wipe out the company’s profits. The increase in production levels to 208 kboepd (thousand barrels of oil equivalent per day) – a 19% increase from 2021 levels – lifted profits from $315m to $2.46bn, while revenues rose from $3.6bn to $5.4bn, with a more or less 50/50 split between oil and gas. After tax, however, the picture was rather different. Profits slid from $101m to $8m. Unsurprisingly, Harbour said they would be rethinking their entire UK strategy, taking the decision not to bid for the new round of UK oil and gas licences, which resulted in the company announcing job losses earlier this year, with the prospect of further job cuts when the review is completed later this year. In June there was some talk that Harbour Energy was in talks with US-based Talos Energy. Harbour is already partnered with Talos in an oil and gas field in the Gulf of Mexico. If the move plays out and Harbour shifts its priorities elsewhere, the company’s UK operations might carry on but not grow in any meaningful way. That could give Harbour the possibility of a US listing, which would then give the combined business the option to delist in the UK completely, thus dealing a further blow to the UK’s reputation as a place to do business. Over the last few months, we’ve seen Harbour announce the sale of its Vietnam Assets for $84m, with that deal set to complete by the end of this year. The upcoming half-year results are expected to see revenues fall to $2bn, down from $2.6bn in the year-ago period, due to lower oil and gas prices. This is expected to translate into a loss of $0.05 a share.     

6) John Wood Group half-year results – 22/08: Wood Group shares plunged in May after Apollo Global decided against trying to make a sixth bid for the oilfield services business. Management had rejected five previous attempts by Apollo to purchase the company, with the most recent bid of £1.7bn being rejected back in early April on the grounds that it significantly undervalued the business. Judging by the sharp fall in the share price since then – below the 155p level we saw prior to the first bid – it would appear that markets disagree with that assessment, even as management reaffirmed its full-year guidance. At its most recent trading update, Wood Group reported a 3.9% rise in full-year revenue to $5.44m, while losses increased to $356m from $136m the year before. The increase in losses was mainly due to a $542m impairment on goodwill and intangibles. The company has a healthy order book of $6bn though it has struggled with its margin, which fell to 7.1% in 2022. 

7) Zoom Video Communications Q2 results – 21/08: The Zoom share price appears to have reached a level of stability in the last few months, trading between $60 and $75. When Zoom reported at the end of last year, Q1 guidance was set at between $1.08bn and $1.085bn, a figure which it comfortably beat with $1.11bn, while profits came in at $1.16 – also well above guidance. For Q2 the company said it expected to be able to repeat its Q1 performance on revenue and deliver profits of $1.05 a share. It also raised its full-year revenue guidance from between $4.44bn and $4.46bn to between $4.47bn and $4.49bn. Despite having to contend with increased competition from the likes of Microsoft Teams and other video conferencing software, Zoom appears to be holding its own, but one must question how long the company will be able to fend off the deeper pockets of its competitors, with the company looking to integrate AI into its products. The company has already cut 15% of its workforce this year as it looks to keep costs under control. With growth slowing, could Zoom become a target for acquisition?  

8) Nvidia Q2 results – 23/08: The top-performing US share of the year so far, up over 150%, and up over 200% from its October lows, Nvidia shares hit record highs last month. A lot of the upward move was driven by optimism that its high-specification chips could power an AI revolution. This optimism has sent the shares to a $1tn valuation, the first time a chipmaker has achieved such a feat. Back in May the shares got a significant lift after the chipmaker surpassed expectations on Q1 revenues, which came in at $7.2bn. The company raised its revenue guidance for Q2 to a potentially record-breaking $11bn. This was a huge increase on previous quarterly revenue, with the improvement driven by expectations of a big increase in sales of data centre chips, along with investments in AI. On data centre chips during Q1, the company generated $4.28bn. Gaming generated $2.24bn. For Q2, data centre revenue is expected to come in at $7.78bn, providing most of the uplift, with gaming expected to see $2.4bn. Profits are expected to come in at $2.07 a share. In the aftermath of the Q1 numbers, Nvidia CEO Jenson Huang laid out a statement of intent by announcing a raft of new AI related products which could help shape how companies network and advertise.         

9) Snowflake Q2 results – 23/08: It’s been another choppy quarter for the Snowflake share price. The shares dropped sharply after the company downgraded its Q2 and full-year estimates on revenues, even as Q1 revenues came in above forecasts at $623.6m, although losses were higher at $0.70 a share. Q2 revenue forecasts came in below estimates of $646 3m at $620m to $625m, while full-year estimates were also lowered to $2.6bn, down from $2.71bn. In June Snowflake announced an AI partnership with Nvidia to help customers develop models that will keep proprietary data safe. This comes off the back of another partnership with Microsoft. Since that Q2 guidance was issued, revenue forecasts have ticked higher to $663m, with estimated profits of $0.10 a share.   

10) Williams-Sonoma Q2 results – 23/08: The resilience of US consumers over the past three months has helped the shares of US high-end retailer Williams-Sonoma push back towards their highs of the year. In Q1 the Pottery Barn owner saw revenue come in slightly below expectations at $1.75bn, even as profits slid to $2.64 a share. Over the last 12 months the company has reduced its presence to 531 locations, down from 545, as it looks to streamline its cost base. Same-store sales were down by 6%, with its West Elm business accounting for the bulk of that decline. Similar same-store sales trends are expected for Q2. For Q2 the retailer was optimistic, reiterating its full-year guidance of annual net revenue growth of between -3% to +3%, or around $8.27bn. The company also announced the launch of a new sustainable brand, Greenrow. Q2 revenues are expected to come in at $1.96bn, while profits are forecast to slip to $2.81 a share.

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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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