About us 
- China Q2 GDP – 15/07 – this week’s China Q2 GDP numbers are unlikely to tell a positive story. With retail sales and industrial production affected by the various covid lockdowns that were imposed across the country and Shanghai locked down for most of April it’s going to be a very tall order for the Chinese economy get anywhere close to its annual GDP target for this year of 5.5%. In Q1 the economy was said to have seen an expansion of 4.8%, which comes across as extremely generous. Retail sales plunged in April and May and are likely to have remained weak in June, while industrial production has also been disappointing. The various lockdowns have also shutdown Chinese ports as well businesses. One particularly significant statistic during April was that not a single car was sold in Shanghai through the entire month. Against such a backdrop its hard to make the case for any sort of significant economic expansion during Q2 at all. Annualised GDP is expected to come in at 1% and decline -2.3% Q/Q.
- China retail sales (Jun) – 15/07 – it’s set to be a disappointing quarter for Chinese retail sales. Having declined by -11.1% and -6.7% in April and May it’s hard to make a case for a significant pick up apart from a reopening bounce as lockdown restrictions got eased and people were briefly allowed out to restock on essentials. Another monthly decline in retail sales activity would be the worst run since the first lockdown was announced back at the beginning of 2020. Industrial production appears to be showing more signs of life having rebounded by 0.7% in May after slipping by -2.9% in April. Nonetheless economic activity is likely to remain subdued while Chinese authorities continue to lockdown at the merest hint of an outbreak.
- US CPI/PPI (Jun) 13/07 – ordinarily US CPI numbers aren’t something that prompts the US central bank to shift on policy given that its preferred inflation measure is core PCE. The recent May CPI numbers prompted a different reaction, rising sharply to 8.6% and in so doing marking a significant shift in central bank thinking during a policymaker blackout period. The act of anonymously briefing financial markets through friendly journalists that a 75bps rate hike was being actively considered in a significant shift in guidance was hugely controversial and also fraught with danger when it comes to future guidance expectations. It’s still highly uncertain as to whether the May CPI number was a one-off given that all other inflation measures do appear to show signs of plateauing. Recent PPI numbers appear to support this mindset down from 9.6% in March and falling to 8.3% in May. We already have a number of Fed policymakers arguing for another 75bps rate hike at the July meeting. Expectations for this week’s June CPI number is for a rise to 8.8%, and a new forty year peak. This rather flies in the face of recent prices paid data, as well as the recent weakness in PPI and core PCE, which have been trending lower since March. If US CPI suddenly slips back in June, does that weaken the case for a 75bps, and make the prospect of a 50bps more likely? Time will tell, but weak CPI and PPI numbers for June probably won’t weaken the case for 75bps at the July meeting, but they could weaken the argument for further aggressive rate action over the rest of the year.
- US Retail Sales (Jun) – 15/07 – having seen US retail sales post four successive months of gains at the start of this year, we were somewhat overdue a slowdown in May. That we saw retail sales slide by -0.3% came as a bit of surprise, but should it have done? When looking at the rising cost of living from energy and food prices, as well as the wider cost of living its perhaps not surprising that US consumer spending slowed sharply in May. Consumer confidence has been falling steadily for months now, and it was only a matter of time before it showed up in the retail sales numbers. June retail sales are expected to come in at 0.9%, which seems optimistic at a time when consumer confidence is still plunging and prices are still rising.
- Bank of Canada rate decision – 13/07 – at its last rate meeting the Bank of Canada raised interest rates by 50bps which was in line with expectations, however the statement suggested more aggressive hikes were likely, due to the risks of elevated CPI becoming entrenched. CPI in Canada has already risen to 7.7% in May, jumping sharply from 6.8% in April. The risks of elevated CPI “has risen”, which suggests that the Bank of Canada will act again with another big rise of at least 50bps, and possibly 75bps, pushing the headline rate above 2%, as it looks to stay ahead of the Federal Reserve who hiked last month by 75bps, and could do another 75bps at the end of this month.
- UK GDP (May) – 13/07 – the most recent April GDP numbers showed that the UK economy contracted by -0.3%, a much bigger decline than was expected. On the face of it the numbers were very disappointing, however the fall was largely driven by the end of the NHS test and trace program, as the Covid free testing regime came to an end. Given that this is a one-off effect, and won’t be repeated, the actual numbers, although poor, weren’t as bad as they appear on first glance, despite the difficult macro backdrop. As we look to the May numbers the outlook isn’t likely to improve significantly even if we see a modest improvement. Fuel prices are set to go even higher with daily reports of record highs for diesel as well as petrol, as it becomes more and more expensive to fill up. At some point this will lead to demand destruction as consumers prioritise spending.
- JD Wetherspoon Q4 22 – 13/07 – there’s been little in the way of cheer for the hospitality sector over the past two years, with Wetherspoon CEO Tim Martin being particularly scathing about some of the help the government has sent its way over the past two years. Last year the pub chain posted a record loss of £154.7m as full year revenues fell to £772.6m. at the time the mindset was this was probably as bad as things could get, however the shares have remained under pressure and are down by over 30% since last October. As we look towards this week’s trading update there has been an improvement in trading from last year, but the sector still faces massive challenges. The sharp rises seen in tax rates in April, as well as the rising cost of living have already made an impact on its numbers. In an update in May, like for like sales fell 4% for the 13 weeks to 24th April. The last two weeks of the reporting period, which covered the Easter period, like for like sales, were positive. The Platinum Jubilee could also have provided a decent uplift as well helping to lift revenues in what has been another challenging year. As far as the outlook is concerned CEO Tim Martin said he expected to see a break-even outcome for profits in the current financial year, and that 2023 would see a return to relative normality.
- JPMorgan Chase Q2 22 – 14/07 – despite the prospect of higher rates, US banks have performed poorly and although they aren’t the worst performers on the S&P500 this year, the sector is still down around 25% year to date. Concerns about a recession by year end have been rising, as the cost of living starts to impact consumer spending in the face of rising energy and food prices. Declining house prices have also weighed on consumer sentiment, and this deterioration in the economic outlook is likely to manifest itself into demand for banking services from business as well as consumers. A flat to inverted yield curve isn’t helping the banks either. At its last set of numbers JPMorgan Chase posted adjusted revenue of $31.59bn, and profits of $8.3bn or $2.63c a share, falling slightly shy of expectations on the profits front. One of the notable takeaways from those Q1 numbers was a shortfall in revenues at its investment banking division, which came in short at just over $2bn, with fees revenue sharply lower. Equities trading, and fixed income managed to beat expectations to the tune of $3.06bn and $5.7bn. CEO Jamie Dimon tried to paint a positive picture on the retail side saying the bank was largely seeing positive trends, with deposits up 9%, credit and debit card spending up by 21%, while card loan balances were up by 11%, although still below pre-pandemic levels. Home lending unsurprisingly was down 37% mainly due to the higher interest rate environment, and this is a trend that looks set to continue, after the bank announced at the end of last month it was laying off, or re-allocating over 1,000 employees from its mortgage business. Another concern was the bank setting aside $1.5bn in various loan loss provisions due to rising inflation risks. Expenses are likely to be a major theme as well, with the cost of retaining staff likely to erode margins. With CPI now much higher now than it was then could we see further set asides here? Profits are expected to come in at $2.89c a share.
- Morgan Stanley Q2 22 – 14/07 – it’s been a similar theme for Morgan Stanley’s share price, down sharply from the record highs seen in February, the shares are at 15-month lows, with the entire sector suffering on the back of worries over US recession risk. In Q1 revenues came in at $14.8bn, while profits were $2.22bn, or $2.06c a share. Equities sales and trading drove most of the outperformance, contributing $3.17bn. FICC trading also saw a beat, with $2.9bn, well above forecasts of $2.1bn. Wealth management revenues fell short of estimates coming at $5.94bn, below estimates of $6.19bn, but still a lot higher from where they were in Q4, when they dropped below $5bn. Wealth management could well see further underperformance in the coming quarters if stock markets continue to look weak. Profits are expected to come in at $1.76 a share.
- Citigroup Q2 22 – 15/07 – despite a decent beat on its Q1 numbers Citigroup’s share price has continued to drift lower along with the rest of the sector as concerns over a slowdown in the US economy prompt concerns that the banks underlying business will see a drop off in business lending, as well as home loan and personal loan demand. Q1 revenues came in at $19.2bn, while profits were $2.02c a share, both above expectations. FICC sales and trading saw a return of $4.3bn, beating expectations of $3.98bn, and a fall of 1% from a year ago. As with other US banks, equity sales and trading revenue helped drive the revenue beat, coming in at $1.53bn. Expenses came in higher than expected, not surprising perhaps given the restructuring process currently being undertaken, rising 15% to $13.17bn. Citigroup has also reduced its Russia exposure from $9.8bn to $7.8bn. The bank has set aside $1.9bn in respect of potential losses with a worst-case scenario now set to be in the region of $2.5bn to $3bn. Profits for Q2 are expected to come in at $1.67c a share.
09
2022-07
2022-07-09
The week ahead: China Q2 GDP, US CPI, US bank earnings
previous
