Interest rate policy in both the UK and Europe returns to focus over the coming week. On the corporate front, the spotlight turns firmly to the banking sector, whilst in the US, probably the world’s most anticipated economic release, the monthly unemployment statistic, returns to the fore.
Economics
The Bank of England’s (BoE) latest announcement on interest rate policy is scheduled for midday Thursday. Uncertainty regarding the Bank’s decision has increased, with committee member Andrew Sentance voting for a 0.25 percent increase in both June and July. The recent first estimate of Gross Domestic Product (GDP) in the second quarter of 2010 has also muddied the waters. The estimate came in at +1.1 percent, almost double the consensus economist forecast. Nonetheless, recent comments from BoE Governor Mervyn King appeared to play down the chances of a near-term increase. Consensus expectations continue to suggest no change in rates ahead of both the interest rate meeting itself and the next quarterly BoE inflation report due Wednesday the following week.
The European Central Bank (ECB) is also expected to provide its latest interest rate policy decision on Thursday. As in the UK and the US, economic data in the Euro zone remain highly volatile. Again, no change in rates is expected ahead of the meeting.
In the US, the latest Institute of Supply Management (ISM) manufacturing sector survey is scheduled for Monday. The July release for the month of June came in at 56.2, down from May’s 59.7 and below the consensus forecast of 59.0. (A reading above 50 percent indicates the manufacturing economy is generally expanding; below 50 percent indicates it’s generally contracting.) The forward looking nature of the survey is seen as important for investors. Finally, with many commentators concerned the recent economic recovery has proved to be jobless in nature, monthly unemployment numbers for July are expected to be announced on Friday. June numbers broadly met investor expectations, following poor figures for May. The data continue to carry great weight for investor sentiment.
Companies
The banking sector very much moves into focus on the corporate front. All of the nation’s major banks (HSBC Holdings, Lloyds Banking Group, Standard Chartered, Barclays, Royal Bank of Scotland) are expected to announce second quarter/half year results over the course of the week. HSBC Holdings, the bank which gave early warning of the US credit crisis, is expected to announce its latest results on Monday. The group’s first quarter trading update in early May saw the bank reporting a significant improvement against that seen in the comparable period in 2009. Bad debt provisions for the group’s traditional banking operations declined, led by operations in the US. A similar picture is expected in the coming update. Retail and business banking operations globally are expected to continue benefiting from reduced bad debt write-downs, although more subdued conditions for the bank’s investment banking operations could provide something of a drag. Profitability on a consensus basis is expected to rebound by around 83 percent to $6.14 billion for the half year period (source: Bloomberg). Market opinion currently denotes a buy ahead of the results (source: Digital Look).
Barclays, the bank which acquired significant operations from the failed US investment bank Lehman’s, is expected to report its second quarter/half year results on Thursday. Like HSBC, improvements were reported in the group’s first quarter update back in late April. The recovering domestic economy had slowed loan impairments – UK Retail operations enjoyed a 20 percent increase in profitability. However, unlike HSBC, the growing significance of investment banking operations provided for a greater drag on overall performance. As for the coming half year results, a far more sedate rebound in profitability is forecast. On a consensus basis, a 6.25 percent recovery in first half profits to £2.0 billion is expected (source: Bloomberg). Nonetheless, market consensus opinion ahead of the results also currently denotes a buy (source: Digital Look).
Other corporate announcements expected over the course of the week include results and trading updates from life assurer Legal & General, mining mammoth Rio Tinto and medical equipment group Smith & Nephew.
Week Ahead Diary
Corporate Diary
Monday – HSBC Holdings (I), Hammerson (I),
Tuesday – Drax Group (I), Taylor Wimpey (I), Xstrata (I),
Wednesday – Legal & General (I) Lloyds Banking Group (I), Standard Chartered (I), Next (TS)
Thursday – Barclays (I), Aviva (I), Cobham (I), Randgold Resources (I), Rio Tinto (I), RSA Insurance (I), Smith & Nephew (I), Unilever (I),
Friday – Logica (I), Old Mutual (I), Royal Bank of Scotland (I)
Key: Interim results (I), Trading statement (TS)
Economic Diary
Monday – US ISM manufacturing survey
Tuesday –
Wednesday –
Thursday – Bank of England interest rate policy meeting, European Central Bank interest rate policy meeting,
Friday – US monthly unemployment data, UK producer prices
Note: This list represents what we believe are the highlights of the coming week and is not an exhaustive list of company announcements or economic events. Sources: Dow Jones news, Digital Look.
