A week in advance. 9th June - 13th June 2008

By Keith Bowman | 06 Jun, 2008 

This coming week sees a continued flow of both UK corporate and economic announcements, whilst in the USA, economic indicators are likely to dominate over corporate news.

Economics

In the UK, the prospects for inflation (rising prices) come back into focus. On Monday, pricing data for industry is due to be announced in the form of Producer Price Indicators (PPI). In April, UK producer prices hit a series of record highs, further underlining the threat of inflationary pressures in the pipeline. In annual terms, input prices rose by 23.1pc, the biggest increase since the data was first collected over twenty years ago. The April surge follows a 20.5pc rise during March. Rising oil prices remain at the centre of the increases. Later on in the week, the Bank of England is due to issue its latest inflation attitudes survey. Consumers’ perception of inflation has in the past proved as important as the reality of inflation, given its importance in negotiating annual wage reviews. With consumers having recently been bombarded with messages of rising prices, the survey is unlikely to provide good news.

Over in the USA, inflation or Consumer Price Indicators are also due to be released (Friday). In April, relatively subdued energy prices helped to offset a significant increase in food prices. April’s headline inflation rose by 0.2 pc, while core inflation, which strips out volatile food and energy prices, rose by just 0.1 pc. However, the recent surge in the price of a barrel of oil is expected to have made a significant impact. Earlier in the week (Wednesday), the US Central Bank is due to release its latest economic survey of the regions – known as the Beige book survey. Recent surveys have continued to prove mixed in tone, as domestic weakness caused by falling house prices has been offset by the boost being given to the manufacturing sector by the falling US dollar.

Companies

On the corporate front, supermarket giant Tesco is due to release its first quarter trading update on Tuesday. At the release of the group’s full year results back in mid April, Tesco management noted that it had made a strong start to the current financial year, with 13pc growth in group sales, including an increase in UK like-for-like sales (excluding petrol) of over 4pc during the first five weeks. The group’s international business remains a key driver of group momentum, with management highlighting its plans to open over 11.5 million square feet of new space this year, 80pc of it being outside the U.K. International sales were up 19pc over the first 5 weeks of the new financial year. The Group’s relatively recent commencement of business in the USA with the ‘Fresh n Easy’ brand has added another line of attack for overseas markets, although to date, management has noted a promising start to the venture, but considered it too early to provide sales statistics. Like-for-like sales numbers for the first quarter period are expected to be similar to the 4pc (UK) and 19pc (international) rises seen over the initial 5 weeks. Pressures on UK consumers, particularly within the mid market arena, could be further assisting Tesco, although lower end retailers such as Netto and Aldi have been seen as the most likely beneficiaries.

Staying on the high street although moving to the badly shaken banking sector, owner of the Natwest brand, Royal Bank of Scotland, is due to provide its latest trading statement on Wednesday. This highly acquisitive bank of the late 1990s and early millennium era has over recent months found itself against the ropes. The group’s contested takeover bid for Dutch Bank ABN Amro, set against the spectrum of an unfolding credit crisis, has subsequently proved a takeover too far in the eyes of the market. The bank’s participation in a 71 billion euro (£56 billion) joint consortium acquisition has rapidly looked over priced, as a new world of declining property prices has taken its toll on investor perception of property related credit market investments, particularly in relation to the sub-prime US mortgage arena. The outcome for RBS has proved a massive blow to management reputation, with the launch of a £12 billion funding raising exercise and the now proposed sale of the group’s formerly favoured insurance businesses in order to raise the bank’s financial safety buffer. Wednesday’s update statement is likely to focus on the ongoing negotiations for the sale of now non-core businesses, along with what looks likely to prove a broadly successful take-up of the group’s significant rights issue.

Other corporate announcements expected over the course of the week include results and trading updates from retailer and owner of Argos and Homebase chains, Home Retail Group and media concern United Business.

Week Ahead Diary

Full Year Results
Monday – Workspace Group, Volex Group
Tuesday –  n/a 
Wednesday – Rensburg Sheppards
Thursday –  n/a 
Friday –  n/a

Trading Updates
Monday –  n/a 
Tuesday – Tesco (Q1)
Wednesday – Royal Bank of Scotland
Thursday – Home Retail Group, United Business Media
Friday –  n/a

Economic Diary
Monday – UK Producer Price Indicators (May)
Tuesday – Royal Institute Chartered Surveyors house price survey
Wednesday – US Beige book survey
Thursday – Bank of England Inflation attitudes survey,
Friday – US Consumer Price Indicators

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.