A punishing first quarter results season with a wave of profit warnings, fundraisings and dividend cuts could be a prelude for the carnage to come when companies report on the three months to 30 June.

Widespread lockdown conditions, which have effectively paused global economic activity, were only really brought into force at the tail end of the first quarter.

While some countries are cautiously opening up their economies again, a record quarterly contraction in GDP is expected in Q2 – investment bank Morgan Stanley forecasts a 7.5% decline worldwide. In the UK the Office for Budgetary Responsibility has said GDP could fall by as much as 35% in the period.

This is likely to be reflected in companies’ second quarter and first-half updates when they begin to be reported from July onwards. These grim announcements will be a test for the market, with its reaction likely to be dictated by how successfully the transition from containment measures to a ‘new normal’ is going at that point.

Morgan Stanley comments: ‘The prospect of a record quarterly contraction in economic activity in Q2 2020 has already driven a record pace of earnings downgrades in Europe over the last month.

‘However, despite these downgrades consensus bottom-up forecasts look too optimistic to us with projections of a 20% fall in earnings per share this year and a 21% recovery in 2021.

‘Given that consensus generally lags in these fast moving situations the market is already likely expecting an outcome worse than these consensus numbers, however they nevertheless point to the risk of many more downgrades to come, especially for 2021 which is the year investors are arguably now focusing on.’

Q2 CARNAGE – SOME KEY ANNOUNCEMENTS 

16 July – EasyJet trading update

29 July – Next Q2 update

30 July – Royal Dutch Shell H1 results

30 July – Lloyds Banking H1 results

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