Weekly Market Outlook
The release of high-priority pieces of economic data this week starts on Wednesday, when the UK is scheduled to report its Q1 GDP figure. Later in the day, Cisco Systems will publish its earnings report, so that investors will be carefully watching to assess how the company has been affected by the global economic turmoil. On Thursday and Friday, China is releasing its industrial production and retail sales numbers respectively. We close the week with Germany posting its gross domestic product data and the US giving account of its closely observed retail sales.
UK Q1 GDP (Wednesday)
Judging from the GDP figures of other European countries, chances are pretty high that we will see the UK economy contracting in the first quarter as well. It is true that the lockdown took place close to the end of March and that there was a rise in business activity in January and February, following the win of the Conservative party at the December election. The combination of February’s flooding and the rising uncertainty prior to the lockdown, however, are two factors widely expected to contribute to a negative reading of the Q1 GDP. Looking back at past data, the March retail sales declined 5.1%, and the service sector activity dropped to 34.5. The April number saw the latter plunging to 12.3, the lowest so far.
Cisco Systems Earnings Report (Wednesday)
In spite of seeing some business disruption in China last year, due to the US-China trade war, the company has been a solid income source for dividend investors. In the last quarter, Cisco reported profits of $0.77 per share, with a 4% revenue slip to $12 billion. At that moment, the management expected revenue to slide further by another 2.5% in the upcoming quarter, with profit rising to $0.80 per share. Since then, we have witnessed a brutal global economic disruption resulting from the coronavirus-induced lockdowns. The adversely affected demand around the globe makes even the reduced to $0.70 per share analyst expectations sound too optimistic at the moment.
China April Industrial Production & Retail Sales (Thursday and Friday)
The Chinese economy has been struggling to recover since having spent the entire month of February in a lockdown. There has been little evidence that consumers are ready to reopen their wallets following the restart of the country’s business activity. The retail sales declined by 20.5% and 15.8% in February and March respectively. The April numbers are likely to be better but still negative: -5.8%, according to estimates. Economic activity is anticipated to improve, with industrial production set to move back into positive territory. Rising unemployment, however, makes a more rapid rebound look like a less probable scenario.
Germany Q1 GDP (Friday)
The significant reductions in business activity in each of its main trading partners makes it hard to believe that Germany will be able to avoid a contraction in the first quarter of the year. March saw the German economy and those of its neighboring countries grinding to a halt, while February was marked by trading between China and Germany virtually stopping. Given the considerable deterioration in March and the biggest plunge in retail sales in the last 20 years (-5.6%), it is widely expected that we will see a 3.5% plunge in first quarter GDP.
US April Retail Sales (Friday)
Despite the fact that the US economy was locked down late in March, last month’s retail sales fell by a record 8.7%, as millions of Americans lost their jobs in the last two weeks of April. The dramatic fall of the services sector has inflicted great pain to the US economy, slashing a 10-year long jobs growth in a matter of 7 weeks. As a result, unemployment spiked sharply from 3.8% to 20%, which led to a substantial fall in personal spending. April retail sales are likely to come out at -10%, as the COVID-19 pandemic has closed down entire sectors of the US economy.