AstraZeneca PLC, Royal Dutch Shell PLC, Lloyds Banking Group and other banks under microscope in busy week ahead

Seven of the UK’s 10 biggest blue chip companies report in the coming week, plus four of the five big banks and, across the Atlantic, tech titans including Apple and Alphabet.

With these FTSE 100 giants spread across the global pharma, commodities and consumer goods industries, it is likely to provide a crucial litmus test for the health of the global economy and the direction for equity markets for the coming weeks.

With some Wall Street watchers worrying about a bubble as earnings season rolls round to include two of the world’s largest companies and a Federal Reserve policy statement, it’s undoubtedly a compelling week for finance fans. 

The development of a coronavirus vaccine will probably be an even more important decisive, with PLC () involved in developing one of the leading potential candidates.  

AZ, which has been the largest member of the Footsie since April, reports half-year results on Thursday, a day after rival (), which is currently the third-largest constituent of the London equity benchmark.

In the past week, AZ the University of Oxford reported encouraging data from their clinical trial of a potential coronavirus vaccine, but only the costs of this venture are likely to figure in the first six months of the year. 

Standout elements of the Anglo-Swedish drugs giant’s first quarter back in April were its oncology portfolio, with emerging products such as Tagrisso, Imfinzi and Lynparza registering year on year growth of 56{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca}, 57{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} and 67{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} respectively.

After group revenue rose 16{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca}, core earnings per share jumped 27{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} and reported EPS climbed 17{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca}, AZ’s guidance was maintained for full-year revenue growth of “a high single-digit to a low double-digit percentage”, with core EPS advancing by a “mid- to high-teens percentage”.

Over at GSK, guidance was also unchanged but for a reduction of 1-4{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} in earnings, as first-quarter sales rose 19{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} thanks to strong demand for its Shringrix shingles treatment and increased demand for HIV and respiratory products.

Shell shocks over?

There should be no confusing what the key focus of Plc’s () upcoming update – it’s all about the dividend.

Shell shocked the market in April as it cut its dividend for the first time in eight decades, leading it to lose its crown as the most highly valued company in London.

The only question in town that matters then is what will the oil supermajor pay out this time?

“Investors will be looking to see whether the $0.16 payment offered in Q1 is the new normal or not,” said Russ Mould, investment director at AJ Bell.

Analysts on average forecast US$0.66 a share for the full year in 2020, which implies a small increase in the second half.

If Shell does stick to $0.16 a quarter it will still be the third single-biggest dividend payer in the FTSE 100 at just over £4bn, Mould noted, trailing only BP and British American Tobacco.

Beyond dividends, investors will also have an eye out for further writedowns and importantly a new gauge on Shell’s profitability in the current oil price environment.

Banks coronavirus impairments in spotlight

Ahead of interims from four of Britain’s big high street banks, second-quarter earnings from the US banks set a likely tone, with higher provisions for coronavirus loan losses, lower loan margins offset for some by a strong investment banking performance.

The question will be the size of extra COVID-19 impairments for the London-listed lenders after the US main street banks took an additional US$33bn in charges to cover possible bad loans, the highest number since the wake of the (previous) financial crisis.

Encouragingly, in the first quarter, the provisions by Britain’s big five banks of £7.5bn in the first quarter was well below the US$24bn absorbed by their US cousins.

However, as they were given leeway by the  with regards to the accounting for the potential losses, meaning they were not required to immediately book hefty losses, this could mean larger losses are coming down the line.

, which report its numbers the following week, took the largest charge, making a US$2.4bn increase in provisions to US$3bn (around £2.4bn); followed by  () ramping up its credit impairment charges to £2.1bn;  PLC () with £1.8bn; for  () it was US$956mln; with PLC () making impairments of £802mln under its previous RBS name.

With FTSE 250-listed Virgin Money UK PL () acting as an hors d’œuvre on Tuesday, the big boys start with Barclays on Wednesday, Lloyds and StanCart on Thursday, with the newly renamed NatWest occupying its usual Friday spot.

Airlines check in with updates

The week will see releases from three airlines, starting on Monday with a trading update from (), followed by PLC () on Wednesday, and interim results from British Airways owner SA () on Friday.

Airlines have been at the sharp end of the pandemic, which has slammed the brakes on air travel, so the figures for the previous few months are unlikely to make for pleasant reading.

However, for budget carriers Ryanair and Wizz, investors are likely to focus on the outlook for the coming year as travel restrictions are eased between the UK and a selection of other countries in Europe that have been deemed safe enough to visit without a high risk of coronavirus infection.

For IAG, which has retired its fleet of BA jumbo jets but also agreed to scale back its plans for job cuts at the airline, costs are likely to be the overriding factor as the group looks to stay afloat with most of the global still sheltered behind closed borders. 

Jobs cuts are also likely to loom large on the agenda with BA having previously said it needs to cut 12,000 jobs to survive a likely reduction in air travel in coming years as the travel industry recovers from the pandemic shutdown.

Next’s retail reveal

Giving a reading of the UK consumer’s spending on clothing, retail bellwether () will deliver a trading update on Wednesday, following a bruising few months that saw its sales fall by 38{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} between late January and late April, worse than its stress testing had anticipated as the pandemic forced it to shutter all its stores.

The update will provide a better picture of how the firm will fare across the rest of the year, having previously forecast a worst case scenario that will see sales drop 40{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} or 35{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} in a more median outcome.

Meanwhile, investors are likely to turn their attention to the company’s balance sheet, particularly how the company’s cash reserves have held up during the lockdown period as well as whether it may need to borrow from the government’s coronavirus corporate financing facility.

Aston Martin still in for repairs

The auto industry is another that had been stuck on the hard shoulder during the pandemic, with () also punctured by problems all of its own.

The luxury carmaker has had a mixed year so far, having already tapped investors for over half a billion pounds in a rescue deal led by billionaire Lawrence Stroll to help support the business and tide it over as a restructuring is attempted.

In June, 500 job cuts were announced production was slashed of front-engine sports cars, with COVID-19 disruption meaning lower retail and wholesale sales in the second quarter compared to the first, while both retail and wholesale average selling prices are being affected by de-stocking.

Analysts at have forecast a drop in wholesale volumes on the back of dealer closures, late reopening and also inventory clearing.

As a result, the bank predicted that losses for Aston’s second quarter “should come in slightly above £80mln” alongside negative free cash flow due to a forecast cash burn of £350mln.

One silver lining is the DBX, the company’s first sport-utility vehicle, which began rolling off the production line in early July.

BT’s Huawei costs and Openreach arm in focus

Telecoms giant () will close out the week with a trading update, around two weeks after the firm denied that it is planning to offload a multibillion-pound stake in its Openreach infrastructure arm.

However, one issue investors may be looking for more detail on is the removal of equipment made by Chinese tech firm Huawei, with earlier this month was banned by the UK government from the country’s 5G mobile internet networks.

While the UK’s telecom groups have been given longer than they expected, seven years, to rip out Huawei’s technology, cost is likely to be at the forefront of investor’s minds.

Analysts at UBS have previously calculated that there is a risk that a reduction to zero Huawei equipment would double BT’s capital expenditure on its 5G rollout.

Aside from the mobile network, investors will be keen to see if the company’s TV arm has seen any uptick from the restart of Premier League matches in June.

Macro matters

The big macro event for the market in the coming week will be the US Fed policy update on Wednesday.

Fed chair Jerome Powell has stressed that the central bank is not going to be in a rush to raise interest rates from their record-low of 0.25{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca}, nor are he and his Federal Open Markets Committee intending to take rates into negative territory.

Although the FOMC meeting may be the highlight of the week, “the real action will be in Congress”, said analyst Marshall Gittler at BDSwiss, with politicians trying to hammer out an agreement on the US£2.2tn second part of the CARES, or Coronavirus Aid, Relief, and Economic Security Act. 

“Fiscal policy is what matters now, not monetary policy,” said Gittler.

Berenberg economist Mickey Levy agreed that the economic and financial environments are “far different from when the Fed announced its emergency policies” and with financial markets “functioning normally”, he said the Fed will now “face the tricky dilemma of how to unwind these programs without jarring markets”.

“The Fed is most likely to postpone addressing this issue,” Levy said, suggesting its most likely path will be to maintain its bloated balance sheet, keep rates at zero and signal that it would allow or prefer inflation to rise temporarily above 2{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca}. 

“From its muddled exit from its emergency monetary policies of the GFC, the Fed wants to avoid any controversy, particularly in today’s charged political environment.”

Apple, Alphabet and the rest

As US reporting season rolls on, the cascade of earnings reports will kick off in the coming week on Tuesday with , , McDonalds, , Altria, , AMD, eBay and Harley Davidson on Tuesday; Facebook, Qualcomm, Boeing, , Spotify, General Motors, , Beyond Meat and  on Wednesday; Apple, Alphabet, , , Gilead Sciences, Newmont Mining, Conoco-Philips, Kraft-Heinz, Electronic Arts, , Ford and Kellogg on Thursday; closing the week with Merck, ExxonMobil, Chevron, Caterpillar, Colgate-Palmolive, Tiffany and Pinterest.

Significant announcements expected for week ending 31 July:

Monday 27 July:  

Trading announcements: ()

Finals: ()

Economic data: US durable goods

Tuesday 28 July:

Trading announcements: PLC (), PLC (), Virgin Money UK PLC ()

Finals: (), ()

Interims: (), (), Group PLC (), Group PLC (), St. James’s Place PLC (), (), (), Aberforth Smaller Companies Trust PLC (), Group PLC (), (), ()

Economic data: CBI retail survey, US consumer confidence

Wednesday 29 July:

Trading announcements: AVEVA Group PLC (), (), PLC (), Lancashire Holdings Ltd (), ()

Interims: (), (), PLC (), FDM Group Holdings PLC (LON:FDM), (), (), (), Rathbone Bros PLC (), (), (LON:SN.), (), PLC (), PLC (), PLC (), Aptitude Software Group PLC (LON:APTD), PLC (), Development Co PLC ()

Economic announcements: Fed interest rate decision, UK mortgage lending

Thursday 30 July:

Trading announcements: (), PLC (), PLC (), (), (), ()

Finals: ()

Interims: (), PLC (), PLC (), (), Group PLC (), Goco Group PLC (), (), PLC (), PLC (), (), (), PLC (), PLC (), (), PLC (), PLC (), Holdings PLC (), (), (), Hutchinson China Meditech Ltd (), PLC (), Limited ()

Economic data: UK house prices, US GDP, US jobless claims

Friday 31 July:

Trading announcements: (), (), (), ()

Finals: China Nonferrous Gold ltd (), PLC ()

Interims: (), (), PLC (), SA (), PLC (), (), F.B.D. Holdings PLC (), ()

Economic data: US personal spending, China PMIs