A week in advance. 2nd June - 6th June 2008
By Keith Bowman | 30 May, 2008
This coming week sees both the number of UK corporate and economic announcements increase, whilst in the USA, the wait for second quarter corporate results begins – with many due in July.
Economics
In the UK, one announcement stands head and shoulders above all else – the Bank of England’s decision on interest rate policy, scheduled for midday Thursday. Despite earlier 2008 forecasts that UK rates would be cut in June, a combination of inflation data for April, underwritten by the upward movement of oil prices (now above $120 per barrel), looks to have caused an abrupt U-turn in economists’ forecasts. In April, the adopted European measure for inflation – the Consumer Price Index – reached 3pc, a full 1pc above the Bank of England’s target of 2pc and close to requiring the Bank of England Governor to write a letter of explanation to the Chancellor. Under the old UK measure of inflation, the April statistic hit 4.0pc against the previous target of 2.5pc. With low and stable inflation the generally agreed priority for all developed economies, a ‘no change’ decision appears to be the minimum signal which the UK Central Bank can send to investors in order to underline its inflation-fighting credentials.
Across the channel in Europe, the European Central Bank (ECB) is also scheduled to meet regarding interest policy on Thursday. At the height of the credit crisis to date - back in mid March - aggressive interest rate cuts by the US Central Bank were being applauded, at least by banks on Wall Street, in helping to avert an even deeper crisis. Now with the genie of inflation looking to be at least popping his head out of the bottle across the globe, a growing number of economists are questioning whether holding interest rates, as maintained by the ECB, may now prove to have been the correct approach. Whilst only time will truly tell, another ‘no change’ decision by the ECB looks highly likely.
In the USA, the employment or unemployment situation again comes back into focus. Monthly employment statistics (for May) are due to be released on Friday. As of April, the US economy had lost jobs for the previous four consecutive months, although the rate of loss in April was below that expected by economists (20,000 versus 75,000). Investors globally will be watching avidly to see whether a combination of aggressive interest rate cuts and a markedly lower US dollar – aiding demand for US exports – has helped to contain the traditional evil of an economic slowdown/recession; rising unemployment.
Companies
On the UK corporate front, communications retailer Carphone Warehouse is expected to release its full year results on Tuesday.
The group made headline news back in early May with its announcement that it will sell 50pc of its retail operations to U.S. joint venture partner and electrical retailing giant Best Buy of the USA for £1.1 billion. A new company is to be formed, with both Carphone and Best Buy owning a 50pc stake. The new company will roll out Best Buy consumer electronics stores in certain European markets from 2009, and will also expand the existing Carphone Warehouse retail footprint in Europe. Prior to this major announcement (15April) the group’s third quarter update saw solid mobile phone growth counterbalancing marginally disappointing internet broadband sales. Furthermore, management also highlighted higher customer acquisition costs – the group’s free laptop computer offer – and currency volatility in adding to costs which were likely to have a marginal impact on profits. Current consensus estimates for pre-tax profits stand at around £209m, +2.6pc over last year and adjusting for exceptional charges taken last year. Overall group revenues are forecast to materialise at around £4.56 billion (+14.4pc), whilst the total dividend over the full year is forecast to be up by around 32pc to 4.29 pence per share.
Staying on the high street although moving to the DIY sector, owner of B&Q stores, Kingfisher, is due to announce its first quarter trading update on Wednesday. A cold Easter Holiday break and mixed weather over the early May Bank Holiday both provide reason for caution ahead of the update. Furthermore, a recent survey of consumers by market research group Gfk suggested that DIY sales had fallen by 20.5pc over this year to date, with gardening items particularly badly hit. The group’s full year 2007 results announced in late March saw management cutting the full year dividend by 32pc, with further reductions planned, although overall group sales on a like-for-like basis grew by 2.6pc, aided by international expansion and a more buoyant first half period. Current consensus estimates for full year pre-tax profits stand at around £380m, (-3.75pc over 2007), with overall group revenues expected to rise by 6.9pc to $10.0 billion.
Other corporate announcements expected over the course of the week include results and trading updates from water provider United Utilities, fellow utility company Severn Trent and maker of vehicle catalytic converters Johnson Matthey.
Week Ahead Diary
Half Year Results
Monday – n/a
Tuesday – n/a
Wednesday – Kingfisher (Q1) update,
Thursday – n/a
Friday – Signet Group (Q1)
Full Year Results
Monday – n/a
Tuesday – Carphone Warehouse, United Utilities, Ryanair
Wednesday – n/a
Thursday – Johnson Matthey, Severn Trent, FKI, Halfords, Wincanton
Friday – Fuller Smith & Turner, Hornby
Economic Diary
Monday – n/a
Tuesday – n/a
Wednesday – n/a
Thursday – UK Central Bank interest rate decision, European Central Bank interest rate decision Friday – US Monthly employment report
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. Source: Digital Look.
