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  • After Davos and interest rate decisions in Japan and Europe, the big macroeconomic items

  • of the week will be the monetary latest policy announcements from the US Federal Reserve

  • on Wednesday 29th January and then the Bank of England on the 30th.

  • With regard to the US central bank, the CME Fedwatch survey currently puts an 84% chance

  • on no change in policy at this meeting, which would leave the upper band of the target range

  • at 1.75%. However, the same survey puts a 54% chance of at least one cut (and just a

  • 6% chance on at least one increase) by year end.

  • As such the outlook statement may be telling, especially as the Fed’s apparent plan is

  • to leave rates unchanged all year at 1.75%.

  • Also watch for comments on the central bank’s intervention in the overnight bank funding

  • (repo) market since the autumn. Fed Governor Jay Powell continues to swear blind that this

  • isNot QE4” but whether it is Quantitative Easing or not, three things are clear

  • One, the Fed’s balance sheet is swelling again

  • Two, the intervention looks set to run for longer than expected

  • Three, financial markets seem to be feasting on this cheap cash, as share prices have really

  • motored since the Fed began to pour fresh liquidity into the system last autumn.

  • This does however beg the question of what may happen when the Fed starts to withdraw

  • this support.

  • Back here in the UK, the chances of a rate cut seem to be rising after recent weak GDP,

  • PMI and retail sales readings, though you could argue that all of these were still affected

  • by the former Brexit deadline of 31 October and the General Election of 12 December. With

  • the Budget due in mid-March, the Bank of England might decide to wait and see if there really

  • is a bounce post-Brexit and how much extra money the Government is going to spend.

  • Then again, it might not.

  • In December the Monetary Policy Committee voted 7-2 to leave interest rates unchanged

  • at 0.75% and 9-0 to leave Quantitative Easing at £435 billion but a third member of the

  • Monetary Policy Committee, Mr Vlieghe, now seems to be leaning toward joining Jonathan

  • Haskel and Michael Saunders in calling for a cut.

  • The Bank of England is still running its QE scheme, which topped out at £435 billion.

  • It has stopped adding to this but it is not exactly dashing to withdraw or sterilise it

  • either, and the market does not expect any change at this meeting.

  • On the corporate front, we have a growing number of results releases and trading statements

  • from FTSE 100 and FTSE 250 and small cap firms due in the coming week. They include

  • Petra Diamonds on Monday 27th January

  • Virgin Money UK, house builder Crest Nicholson and PZ Cussons on the 28th

  • Wizz Air on the 29th

  • BT, Evraz, St James’s Place, Unilever, TalkTalk and Diageo on the 30th

  • And finally SSE and Shaftesbury on Friday 31st January

  • But for all of those the name perhaps the stock most capable of causing a fuss in the

  • week ahead is oil major Royal Dutch Shell, which is due to its full-year results on Thursday

  • 30th January.

  • As we can see here shares in Shell are down a little bit over the last 12 months, lagging

  • the FTSE 100 and also the oil price, which is up by around 7% in dollar terms.

  • This modest showing comes despite a pledge from chief executive Ben van Beurden to return

  • $125 billion of cash to investors via dividends and share buybacks. That compares to a market

  • cap of £177 billion or $231 billionso more than half, in dollar terms.

  • However, three issues are hurting Shell’s shares

  • First oil may have rallied late in the year but only because OPEC oversaw another cut

  • to output. Overall, the market feels well supplied right now

  • Second, natural gas price prices continue to sag, thanks to rampant output growth from

  • US shale fields in the USA

  • Third, the pushback against fossil fuels and hydrocarbons is gathering pace. This may mean

  • fund managers and investors running Ethical, Social and Governance (or ESG) screens start

  • to avoid or sell shares in firms such as Shell.

  • This combination forced Shell to cough up a profit warning in late December. The company

  • lower its oils products sales forecast and also said it would write down the value of

  • certain assets by between $1.7 billion and $2.3 billion, joining Chevron, BP, Repsol

  • and Equinor in taking similar hits.

  • Besides the degree and location of those write-downs, which will hit the stated figures, investors

  • and analysts will dig into three main sets of figures when they look at the full-year

  • numbers.

  • The first is the mix of earnings. Gas, upstream (which is oil exploration and production)

  • and downstream (which is refining and petrol stations) are all expected by analysts to

  • show a drop in profits on a year-on-year basis. That divisional mix means that full-year current

  • cost accounting earnings, which adjust for movements in the value of inventory, will

  • reach $18.1 billion, down from $21.4 billion a year ago. Note that for 2020, analysts are

  • expecting a recovery to $20.5 billion, helped by the assumption a modest increase in Brent

  • crude to $71 on average and broadly flat gas prices of $2.75 for one million British Thermal

  • Units.

  • The second is cash flow. Shell got through the oil price’s collapse down to around

  • $30 in 2015-16 by cutting investment, selling assets and raising debt. None of those three

  • are a sustainable way of paying a dividend and the good news is that free cash flow more

  • than covered the dividend in 2017 and 2018.

  • The second is cash returns. Shell pays a dividend of $0.47 a quarter or $1.88 a year and no

  • change is expected there. The actual cash payout comes to around $15 billion or £11.5

  • billion by the way and implies a dividend yield of around 6.5%. Comments on buybacks

  • will also be noted. They totalled $7.3 billion in the first nine months of 2019.

  • After the hard numbers, analysts will look to the ESG issue and Shell’s strategic progress

  • in the field of renewables. Do note that Shell already owns

  • substantial amounts of solar power capacity a stake in solar panel manufacturer SunPower

  • NewMotion, an operator of more than 40,000 home-based charge points for electric vehicles

  • across the UK, France, Germany and the Netherlands And battery expert Saft

  • Moreover, Shell has committed 10% of its research budget to renewable energy and around a quarter

  • of development spending on low-carbon initiatives.

  • Aha, some of you will counterthat still some 90% of R&D is still focused on non-renewables

  • and you may not feel Shell is doing enough to meet your own, personal ESG criteriabut

  • that is a decision only you can take.

  • Thank you for watching and I look forward to seeing you next time.

After Davos and interest rate decisions in Japan and Europe, the big macroeconomic items

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AJベル・ユーインベストは型破り - ロイヤル・ダッチ・シェル (AJ Bell Youinvest Breaking the Mould - Royal Dutch Shell)

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    林宜悉 に公開 2021 年 01 月 14 日
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