A week in advance - 14 July to 18 July 2008
By Keith Bowman | 11 Jul, 2008
This coming week sees UK corporate trading updates continuing to take precedence over results, whilst on the economic front, attention moves to inflationary pressures. Over in the USA, the second quarter results season has finally commenced.
Economics
In the UK, the prospects for inflation (rising prices) come back into focus. On Monday, pricing data for industry (during June) is due to be announced in the form of the Producer Price Index (PPI) or as sometimes known, factory gate prices. In May, on a non-seasonally adjusted basis, prices jumped by 8.9pc from a year earlier. This was the highest since comparable records began in 1986 and indicated that manufacturers had been passing on higher costs in their prices. On Tuesday, broader pricing data is scheduled, with the release of the more general Consumer Price Index (CPI) for June. The annual CPI inflation figure for May rose by 3.3pc, up on the 3.0pc seen in April and beating economists’ expectations for a 3.2pc increase. Furthermore, with the likelihood that the figure will remain more than 1pc above the UK Central Bank’s target of 2.0pc, we may see the need for another consecutive letter of explanation to the Chancellor of the Exchequer, Alistair Darling. This would be the first time in the UK Central Bank’s independent history that back to back letters have been required.
Over in the USA, inflation or Consumer Price indicators are also due to be released (Wednesday). In addition, the US Central Bank is due to release the minutes of its most recent interest rate policy meeting on the same day. Whilst the US Central Bank has taken aggressive action in cutting interest rates in the face of the unfolding credit crisis, concerns over inflation appear recently to have overtaken concerns for economic slowdown. Investors will be scrutinizing closely both the minutes and the pricing data in order to try and ascertain the next likely move in US interest rates. Although consensus opinion, at least for now, suggests an upward move is likely, the size and timing is still highly uncertain.
Companies
On the corporate front, plumbing and building materials merchant group Wolseley is due to provide its latest trading update. With the group having grown substantially over recent years via a series of bolt-on acquisitions, the group’s finances have been receiving growing attention in light of the current credit crisis. With group net borrowing back in May close to £3 billion, concerns that the company could breach its banking covenants - requiring a fund raising exercise to correct it – have been evident. The group’s most recent trading update back in May saw management noting a 23pc decline in trading profit over the first nine months of the current financial year, with the outlook seen as ‘challenging’. With a 70pc plus fall in the share price over the last 12 months (as of 8 July 2008), market consensus opinion is currently negative in tone.
On the same day (Wednesday), managed pub group JD Wetherspoon is also expected to release its latest trading update. As of the company’s late April update, like-for-like sales were down just 0.1pc for the 13 weeks to 27th April, compared with a forecast decline of 3pc for the quarter. Year-to-date like-for-like sales were down 1.5pc. However, operating profit margin was running at just below second half guidance of 9.5pc and management indicated that the group does not expect a change to analysts' full-year pretax profit consensus of £56m, down from £62m last year. Founder and current Chairman Tim Martin has recently been purchasing shares (300,000 at 199.49p on 1 July 2008), although the size of transactions has been small compared to his existing holding of over 30 million shares. Current market consensus opinion is cautiously positive in tone.
Other corporate announcements expected over the course of the week include results and trading updates from luxury goods group Burberry, food manufacturing company Premier Foods and property giant Land Securities.
Week Ahead Diary
Half Year Results
Monday – Low & Bonar, St Modwen Properties
Tuesday – n/a
Wednesday – n/a
Thursday – n/a
Friday – n/a
Trading Updates
Monday – n/a
Tuesday – Burberry, Premier Foods
Wednesday – JD Wetherspoon, Wolseley, Land Securities
Thursday – Blacks Leisure, Smiths News
Friday – n/a
Economic Diary
Monday – UK Producer Price Index
Tuesday – UK Inflation data
Wednesday – US Inflation data, Meeting minutes for the US Central Bank’s last interest rate policy meeting
Thursday – US Housing data
Friday – n/a
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.
