03.05.16 Tuesday Morning

With the end of April not quite living up to the month’s 2016 highs, how will the markets fare in a non-farm dominated start to May?

US
The Dow Jones spent much of last week struggling to break beyond the 18000 mark, with a dovish/gently hawkish Fed statement (depending on who you talk to), an index-dragging plunge by Apple and a woeful first quarter GDP reading preventing it from matching the year highs seen earlier in April.

The index is set to get another thorough workout as May gets underway, the week building to Friday’s non-farm jobs report, a set of figures that have become all the more important since the Fed left the door open to a summer rate hike. Before all that, however, the US markets will have to deal with the Markit and ISM manufacturing and services PMIs on Monday and Wednesday respectively. The latter day also sees the ADP non-farm preview, the trade balance numbers and the latest factory orders figure, whilst Thursday brings with it the usual jobless claims.

On the earnings-front whilst the majority of the major US companies have now reported there are still a few notable stragglers to reveal their latest quarterly figures. The notorious Halliburton updates on Tuesday, whilst Wednesday brings with it the future-focused Tesla Motors, the traveller’s best friend Tripadvisor, health-conscious supermarket Whole Foods and the Warren Buffet-backed Kraft Heinz. Thursday then sees gaming giant Activision Blizzard and the Comcast-bound Dreamworks Animation.

UK
Like the Dow the FTSE had a rather rubbish end to April, failing to see a sustained rise above 6300 in the face of the Bank of Japan stimulus disappointment, weak Q1 growth and a generally shoddy showing from the major members of its banking sector.

The FTSE starts off the month pretty slowly, UK investors taking Monday off for May Day, before leaping back into action on Tuesday with the latest manufacturing PMI. Wednesday then sees the construction PMI (which last month remained stuck at near year lows) before Thursday reveals the state of the services sector, the PMI currently looking just as shoddy as its construction and manufacturing peers.

Whilst not quite as busy as last week, there is nevertheless a decent chunk of the FTSE reporting at the start of May. HSBC completes the UK banking sector’s Big Four on Tuesday when it reveals its first quarter results, whilst Wednesday sees the Q1 report from Shell and the full year figures from the soon-to-be Home Retail Group-owning Sainsbury’s (see below). BT then reveals its latest update on Thursday, the UK media giant hoping to capitalise on Sky’s slowing subscription growth.

Eurozone
With the UK and US once again dominating proceedings the Eurozone indices remained in the shadows as April wrapped up. They still, however, succumbed to the same pressures as their market-brethren, the DAX and CAC both tumbling away from their 2016 highs.

Data-wise this week sees the region engulfed with a wave of manufacturing and services PMIs (on Monday and Wednesday respectively). However, more pressing will be the issue of Greece. Nearly a year on from 2015’s Grexit drama the Eurozone is beginning to catch up with the Greek debt can it kicked down the road, the country currently (and unsuccessfully) trying to negotiate the release of more funds so it can meet its huge repayments in June. The sticking points remains the implementation of ‘emergency measures’ if Greece doesn’t reach its bailout-dictated economic targets, with the country recently accusing the IMF of stalling any deal. Any increase in tension between the involved parties (something that seems more than likely) could well see the Eurozone leapfrog to the top of investors’ minds as May begins.

Stock of the week: J Sainsbury PLC – Full Year 2016 Earnings Release
Since the New Year began the talk around Sainsbury’s has been dominated by the supermarket’s bid for Argos (and former Homebase) owner Home Retail Group. With the takeover confirmed at the start of April, hot on the heels of the supermarket’s first quarterly rise in like-for-like sales in 2 years, Sainsbury’s managed to surge to its £2.98 by April 20th, its highest price since September 2014. There has been a bit of a downturn since that peak, however, the fact that Home Retail Group saw a 28% slump in full year profits, with Argos’ sales flat across the 12 months, taking Sainsbury’s away from its recent highs.

In terms of the company’s full year update, beyond the hopes of a smaller than expected sales decline (or, far more unlikely, a sales rise), investors will be looking for some kind of indication of how Home Retail Group’s brands, including Argos and Habitat, will be integrated into Sainsbury’s long term plan.