You may be pleased to know that we have a pretty quiet week for macroeconomic news ahead
of us. The two main features – barring the ongoing Brexit situation - will be the latest
policy decision from the European Central Bank on Wednesday 10 April and then the Spring
Meeting of the International Monetary Fund that runs from the 12th to the 14th in Washington
DC.
So far as the ECB is concerned, it has already backtracked on any plans to tighten policy
this year. President Mario Draghi put interest rates on hold for 2019 at the last meeting
and also announced the offer of fresh cheap credit for banks to they can in turn lend
more (or so the theory goes). The so-called Targeted Long Term Refinancing Operations,
or TLTRO, starts again in September.
It’s hard to imagine Signor Draghi being any more dovish than has been already, although
the US Federal Reserve surprised everyone with its much softer policy line at its March
meeting, so you never can tell. This first graphic shows the headline ECB interest rate
and its balance sheet (to show how much Quantitative Easing it has done) since the start of 2009.
As for the IMF, most interest will focus on any revisions to its global GDP growth forecasts
in the half-year update to its always-interesting World Economic Outlook document, which you
can download for free from its website.
Just to remind you, its key forecast for 2019 last autumn was global GDP growth of 3.7%,
the same as 2018. That was based upon
• 6.2% growth in China • 2.5% in the USA
• 1.9% in Germany • 1.5% in the UK
• 0.9% in Japan
To look at just five major economies. In the chart by the way, the bar on the left is 2018,
the bar on the right the IMF’s current forecast for 2019.
It will be interesting to see if the IMF reflects financial markets’ (and for that matter
central banks’) latest bout of jitters about the global economy and growth forecasts.
Company-wise, scheduled news announcements are also due to be a little thinner on the
ground, although it’s going to be a busy week for retailers. Interim or full-year results
releases or trading updates which may be worthy of note include:
• Silver miner and FTSE 100 member Fresnillo on Wednesday 10th, when retailers Dunelm and
ASOS and recruitment firm PageGroup will also publish numbers
• Two more retailers, in the form of WH Smith and Mothercare, on the 11th
• And to finish things off, yes, you guessed it, another retailer will report, this time
Moss Bros
But the company which could cause the biggest fuss in the week ahead just might be supermarket
giant Tesco when it releases its full-year results for the year to the end of February
on Wednesday 10th April.
As we can see here, Tesco’s shares lost ground along with the broader UK stock market
in the second half of last year but they have rallied strongly so far in 2019.
Last year Tesco’s operational performance was dogged by weak trading in Asia (especially
Thailand) and also Central Europe, while the launch of discount chain Jack’s raised some
concerns that the new venture would cannibalise sales at the core brand, even as the firm
took the fight back to discounters such as Aldi and Lidl.
At least the third-quarter, Christmas results were solid enough as Tesco unveiled strong
trading at wholesaler Booker, acquired for around £3.7 billion in cash and stock last
March, and also its twelfth straight increase in like-for-like sales in the UK.
So, when it comes to the full-year results, analysts will first turn to the fourth-quarter
trends in like-for-like sales. Remember that in Q3, the UK grew by 0.7% and Booker by 11%
to give a group-wide advance of 0.5%, even if sales fell in Central Europe and Asia.
Signs of improvement in Asia, where Tesco has launched a turnaround programme, and ongoing
progress in the UK and at Booker would no doubt be welcome.
For the record, the consensus forecast for the actual, stated sales figure is £64.1
billion against £57.5 billion in 2017.
Next up, analysts and investors will head to the pre-tax profit figure. Here the consensus
forecast is for £1.8 billion compared to £1.3 billion a year ago, although last year’s
number was boosted by a net £155 million in positive exceptional items (mainly the
sale of assets and property) so the underlying base for comparison is nearly to £1.1 billion.
The third and final headline figure to note will be the dividend. Chief executive Dave
Lewis and the board sanctioned a 67% increase in the first-half payment and for the full
year analysts are looking for a distribution of 5p a share, compared to 3p a share last
year. We can see the trend over the last decade here and Mr Lewis will be looking to banish
the memories of the 2015 to 2017 financial years when Tesco either cut its dividend or
made no payment at all.
Finally, investors will look to Mr Lewis for an update on the core strategic goals that
he first outlined in October 2016:
Remember that before the Booker deal Mr Lewis was targeting a 3.5% to 4.0% operating margin
target for 2019-20, up from 2.3% in 2016-17. When the Booker deal was first announced in
January last year, Tesco targeted £200 million of cost benefits, on an annual run-rate basis,
within three years and a further £25 million in revenue synergies.
Thank you for watching and I look forward to seeing you again next time.