Earnings season eyed nervously and Next gets back to work (slowly)

“The Easter break was very different this year and despite gains for Asian stocks overnight the FTSE 100 didn’t seem too refreshed on Tuesday, erasing gains achieved first thing to trade modestly lower,” says AJ Bell Investment Director Russ Mould.

“While other European markets did put their best foot forward amid signs coronavirus cases in countries like Germany, Italy and Spain are hitting a plateau, sentiment remains fragile as investors brace themselves for the corporate first quarter earnings season to get underway.

“Results are likely to range somewhere between horrible and horrendous, although to some extent the market is already looking beyond these historic numbers.

“Crude oil remains depressed. Saudi Arabia may have brought its price war with Russia to a rapid end as producers’ cartel OPEC gets its ‘plus’ back and brings Russia on board for big production cuts, but these look set to fall short of the concurrent drop in demand."

Next

“The latest update from retailer Next offers a window into what the next few months could be like as the UK comes out of its coronavirus-inspired period of stasis.

“Anyone expecting the economy to crank back into gear overnight is likely to be disappointed as the recovery looks set to happen in slow motion.

“Next’s decision to gradually ramp up capacity in its online arm looks prudent and suggests it is taking its responsibilities as an employer seriously.

“By consulting with unions, only selling limited items such as childrenswear and using staff who won’t need to crowd on to public transport, it should avoid the kind of negative headlines which could damage the brand in the longer term.

“The move will also mean the company at least brings in a little bit of revenue while the current containment measures remain in place, stemming the bleeding by reducing the level at which it drains through its cash.

“While some rivals have kept their online operations open through the lockdown, subdued demand means it is unlikely they will have stolen much of a march on Next.

“The company has already taken decisive action, appointing agents last month to sell its head office and three warehouses – although it may be difficult to find buyers in the current environment.

“If the situation stays within the bounds of the company’s stress test scenario, with a near six month lockdown, £1bn worth of lost sales, nothing coming through its tills for four weeks and sales picking up after two months, then it may emerge stronger as one of the retail survivors.”

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