The week ahead - EU summit, ECB rate meeting, China trade, Rolls Royce, Ted Baker, Ocado and Airbnb IPO

1) ECB rate meeting – 10/12 – when the ECB expanded the size of its Pandemic Emergency Asset Purchase program from €750bn to €1.35trn as well as extending it into the middle of next year, there was probably an expectation that any recovery seen in Q3 would extend into the end of the year. While we've seen some evidence of an economic bounce back from the lockdowns seen in March and April, the economic lockdowns seen in France and Germany through November have increased the pressure on the ECB to try and fill the gap when it comes to a lack of fiscal support, with the delays to the EU's fiscal package likely to extend into 2021. On the plus side manufacturing appears to be holding up fairly well, however services PMIs are still well into contraction territory, with little prospect of a strong rebound due to the continuation of restrictions in France, as well as Germany. While the ECB has gone to great lengths to insist that their monetary toolbox still has plenty of ammunition to deal with the prospect of a double-dip recession, the rise of the euro and a weaker US dollar is not helping their cause. This is a problem for the ECB, particularly given the absence of an imminent fiscal response from the EU, and while we could well see further easing measures this week, with talk of a further 6-12-month extension of QE, they are likely to be constrained by splits on the governing council, with a number of members pushing back against further large-scale stimulus measures. This week's meeting is likely to be important in the context of trying to keep a lid on the euro, which has already broken above the 1.2000 area, and could well head towards the 1.2500 area in fairly short order.

2) EU Summit – 10/12 - will this be the EU Summit that finally signs off a UK/EU trade deal? Negotiations look set to come to a head in the coming days with France threatening a veto if they don't like the deal that is agreed. If France were to do that then there would be very little time to avoid a no deal scenario on the 31st December, with significant consequences for the French economy as well as the UK economy. It could also poison the well for future negotiations if France were to act in that fashion, and make future side deals in 2021 that much more difficult.

3) Bank of Canada rate meeting – 09/12 – the Bank of Canada is having to contend with similar problems as the rest of North America, with a slowdown in hiring trends as we head into winter, and the prospect of tighter restrictions as the weather gets colder. In October hiring slowed sharply to 83.6k, from 378.2k in September. Friday's November payrolls report showed that this trend continued to slow further. With interest rates already at record lows of 0.25% and the Canadian dollar close to its highest levels this year against the US dollar central bank officials will be concerned about how to stem the rise against a greenback that is coming under pressure as a result of an expectation that the US Federal Reserve will look at further easing measures, when they meet for the last time this year later this month.

4) China Trade (Nov) – 07/12 – the most recent China trade numbers for October continued the improvement that we saw in September, when imports surged to their best levels this year, rising 13.2%. In October, this slowed a little but was still positive rising 4.7%, half of the 9.5% that was expected, which was a little disappointing, however given the strength of recent PMI data, it looks increasingly likely that barring a second wave of coronavirus, China looks set for a strong finish to the year. Exports have continued to do well in recent months, largely as a result of strong demand for medical PPE. The last couple of months has seen a big improvement in Chinese domestic demand and this trend should be reflected in the November trade numbers, with particular attention once again set to be on the import numbers, especially given that Golden Week happened in the first part of November, and recent data has shown that services PMI in particular has been a strong performer.

5) UK Industrial and Manufacturing Production (Oct) – 10/12 – while services still make up the majority of the UK economy the performance of the manufacturing sector in recent months has been fairly positive, registering gains in every month since May, though the pace of expansion has slowed as we have headed into Q4. Q3 was an especially positive quarter, after a post lockdown rebound helped reverse some of the worst of the losses seen in Q2. Nonetheless one thing the recent PMIs numbers have shown us is the resilience of the manufacturing and construction sectors in comparison to the services sector which is much more exposed to tighter restrictions. Expectations for manufacturing and industrial production are for a continuation of the positive trend seen since May, however we are only looking at modest gains of 0.3% and 0.3% respectively.

6) Rolls Royce Q3 20 – 11/12 – in October, Rolls Royce shares fell to their lowest levels since 2004, after the the company announced its plans to raise extra cash to bolster its finances. The launch of a £1bn bond issue as well as a £2bn 10 for 3 rights issue at a 41% discount to 130p was eventually taken up by shareholders, while the prospect of a vaccine has helped pull the shares back up in the hope that next year will see the economic gloom lift and air travel start to return to much higher levels than is the case now. The company has also continued to announce job losses with fears another 1,400 could go at Barnoldswick, where the company makes the fan blades for its engines, with the production shifted to Singapore. While the shutdown of the aviation sector is likely to see another quarter of cash burn, it is important to remember that on a longer-term basis, the outlook is probably somewhat brighter. As part of the government's new energy plans Rolls Royce is part of a consortium to build 16 mini nuclear plants in the UK, while it is also working on a prototype engine that uses 100% sustainable aviation fuel.

7) Ted Baker H1 21 – 07/12 – When Ted Baker announced in June it was looking to raise over £100m at a discounted price of 75p the share price tumbled, as the new management looked to rescue a business that has seen its fortunes implode spectacularly in recent years. In March 2018 the shares were up at over £30 each, however a raft of profit warnings, the departure of founder Ray Kelvin in controversial circumstances, and various stock accounting errors, has seen the shares fall sharply. Earlier this year the company sold and leased back its head office in London for the sum of £78.75m, with £72m of that cash used to pay down debts. The company has an uphill struggle in the current retail environment, however underlying profits in its last fiscal year did come in at £4.8m, despite the various write downs, while total revenues fell 1.4% to £630.5m. Gross margins are also above 50% at 55.6% as per its last annual report. On the plus side, its store footprint is much narrower than a lot of its peers, and the business rates holiday will also help on the margins, while its collaboration with Next has expanded beyond childrenswear, to include lingerie and nightwear from May 2021. Its e-commerce business has been a bright spot, a 35% year on year rise when the company reported in July, however new CEO Rachel Osborne seems to be very aware that digital is the way forward, and this week's first half results are likely to be a decent arbiter of progress in that regard.

8) Ocado Group Q4 20 - 10/12 – this year has been another decent year for Ocado, despite the embarrassment early on in the pandemic of having to close their website temporarily, and pull their shopping app to aid resilience in the lead up to the March lockdown. In the summer, in an attempt to bolster its finances, the company raised another £1bn in the form of a share and convertible bond placing so that it could speed up the upgrading of its current and future infrastructure to build additional capacity, not just here in the UK, but also at its partners in the US, France and Canada. In November Ocado management said it expected full year EBITDA to come in well above its previous guidance of £40m at £60m, helping to give the shares a bit of a lift off before some sharp declines on the back of the positive vaccine news, over concerns an improvement in economic conditions could prompt people to shop a little bit less on-line.

9) Brown Forman Q2 21 – 08/12 – it appears that peoples taste for Jack Daniels whiskey, as well as its new Tennessee Apple brand has helped Brown-Forman share price to continue to reach new heights in the past month or so. At the end of last year, its US market saw the best performance with a net sales rise of 5%, and this outperformance continued in Q1 with US sales rising 3%. International markets also improved rising 13%, however emerging markets saw a 20% drop. The company pulled its guidance initially in the wake of the Covid disruption, however it did keep the dividend and went on to say it fully expected to continue to be able to do so, despite the uncertainty around Covid. In July the company paid a quarterly cash dividend of $0.1743c a share, and said it expects to be able to continue to do so, keeping intact a record of pay outs dating back 75 years. Q2 profits are expected to come in at $0.50c a share.

10) Adobe Inc – Q4 20 – 10/12 - another tech stock that has seen its stock price surge to record highs this year, due to the surge in home working. The company that is the home of the ubiquitous Adobe Reader app, as well as Photoshop, and other digital marketing tools has seen its revenues surge in recent months. It is already on course to easily beat last year's annual revenue numbers of $11.17bn, helped by its diversified product mix, of Digital Media and Cloud business and Print and Publishing. Its Q3 numbers saw its Digital Media Business add 19% of that revenue rise. Its cloud business has also shown strong growth, in both tools for designing and publishing creative content, for photographers and graphic designers to products that deliver functionality in advertising, marketing and analytics. Q4 profits are expected to come in at $2.65c, while total annual revenues are expected to come in at $12.8bn, an increase of 15% on last year.

11) Airbnb IPO – 9/12 – TBC - It's been a long time coming but after months of speculation Airbnb looks set to pull the trigger on an IPO on the 9th December, to start trading on the 10th, with a valuation expected to be in the region of $30bn. The timing appears curious given the huge hit to the travel sector as a result of the Covid-19 pandemic, and the fact that Airbnb has seen its revenues fall sharply, from the levels seen in 2018 and 2019, with the likely prospect that they could take some time to bounce back, even with all of the recent optimism over a Covid-19 vaccine.