Friday preview: RBS, IAG and Shire results, US GDP later

Friday sees trading updates from Royal Bank of Scotland, British Airways owner IAG and pharma group Shire before attention later turns to the US economy, with readings on national growth and inflation.

Other macro news that could interest currency traders will include the constantly evolving Catalan independence issue, another potential Russian interest rate cut and Japanese inflation.

US gross domestic product growth is expected by the market to ease back in the third quarter from the 3.1% in the second quarter to around 2.5%.

Prior to several data releases this week, HSBC was forecasting a rate of 2.8%, driven by moderate business fixed investment growth and a pick-up in inventory accumulation, with little expected from other components, including residential investment, government spending, and net exports.

After the goods exports and weak inventories figures on Thursday followed new and existing home sales, durable goods and industrial production this week, Barclays's model for third-quarter GDP fell to 2.4%.

Last week, economists at the forecast a rate of 2.5% on the expectation that the three large storms that made landfall in August and September would slow economic activity.

"Our assumption was that activity would be subdued in both August and September and subsequently return to normal in early Q4. On net, we expected growth in the second half of the year to be largely unchanged, with any weakness in Q3 data made up in Q4."

Excluding fuel and food, core personal consumption inflation appears to have remained subdued in the quarter and the market expects a 1.3% quarter-on-quarter annualised increase in the index.

Looking at Japan, consumer prices climbed 0.7% year-on-year in August, or 0.2$ at the core level, the eighth consecutive monthly increase. Consensus forecast is for another month of the same.

For Russia, the Central Bank of the Russia is forecast to slow monetary policy easing this month, cutting its key policy rate by 25 basis points after the 50bp cut in September.

Consumer inflation slowed to an all time low of 3.0% in September from 3.3% a month before August, and the third month in a row below the CBR’s 4% end-year target.

Not only does the CBR see the inflation slowdown as temporary, as food price growth is a key driver of the headline disinflation, HSBC economists noted Russians "do not appear to be impressed by the recent record-low inflation prints", with observed inflation remaining in double digits.

RBS, IAG AND SHIRE UPDATES

RBS will update investors on third-quarter trading, with the City pencilling in adjusted operating profit of £1bn compared with £1.2bn a year earlier, with annual profit forecast to increase to £4.8bn from £3.7bn.

Analysts suggest the main question on current trading is the trade-off between margin and sales volumes in the UK business after RBS indicated it had expanded its mortgage lending.

After results from rival Barclays revealed disappointing fixed-income business, Natwest Markets part of RBS will also be under the spotlight, plus any update on discussions with the US Department of Justice over its selling of mortgage-backed securities before the financial crisis.

For Lloyds, on the other hand, impairment charges for bad loans were more than expected for the last quarter, which will be yet another area of potential focus.

IAG will be closely examined as the airline sector has provided plenty of news in recent months.

A "brutal punch" is how analyst Nicholas Hyett at Hargreaves Lansdown described it, with Monarch, Alitalia and Air Berlin having hit the canvass.

"However, IAG’s exposure to long-haul destinations and focus on international business travel have so far helped it soar above the dogfight.

"Keeping costs under tight control is a key theme for at present. Cheap fuel is providing a decent tailwind, but of course the oil price is out of IAG’s hands. This means investors’ attention is more likely going to be focussed on non-fuel operating costs."

Half year results from IAG in July showed a 14% jump in first-half operating profit but constant currency non-fuel unit costs increased 2.5%, although that did include the financial impact of the high-profile power failure that affected British Airways’ customers.

Third-quarter results from the airline group were forecast by UBS to show yields increased 1.5% with revenues forecast to come in at €6.7bn from €6.5bn last year, while EBIT is seen improving to €1.4bn from €1.2bn.

Over at drug maker Shire third quarter results should allow the company to tighten up full year guidance of 7-9% product sales growth and 13-17% for non-GAAP earnings per share.

Analysts were focused on performance of the rare disease specialist's hereditary angioedema (HAE) franchise given a recently launched competition from one rival and supply constraints on its Cinryze drug.

Other key areas of focus, said analysts at Deutsche Bank, may be Xiidra prescription growth, which is expected to have moderated to 8% on the quarter from 13% in the second quarter, with Shire having recently sued Allergan based on the allegation it has blocked access to the Medicare channel.

Beyond this, DB said US prescription growth of Vyvanse was slowing versus last year and Lialda will be impacted by a first generic rival, with haematology sales expected to grow around 6% and immunology to remain strong.

UBS was also looking for news on Shire's strategic review of the neuroscience franchise.

ELEMENTIS AND LAIRD

Chemicals group Elementis produced a strong set of interims in the summer, with good sales growth and a maiden contribution from the Summit-Reheis acquisition.

The third quarter update will be with a qualitative statement.

Broker Numis predicted management will confirm that they remain on track to growth operating profit across all three segments for the full year, which analysts were forecasting revenues rising to $813m versus $660m a year ago and adjusted PBT of $115.3m versus $89.7m.

UBS was looking for an update on any disruptions to the chromium chemicals business from the hurricane in Texas, but on an underlying basis expect ongoing strong growth in oil & gas, solid progress in coatings and robust personal care performance.

Among the small caps, Laird, a supplier of electronics components including to Apple, is often one to watch. At its interim results in late July, organic revenue growth of 10% was topped by PBT growth at 47%.

House broker Numis was looking for 5% organic revenue growth in the second half and a "broadly flat" profit contribution, allowing scope for outperformance.

With the launch timetable of new devices at Apple later this year and with the highly anticipated iPhoneX not due to begin shipping until November, whereas iPhone7 started shipping in September, Numis said it made it "very difficult to forecast revenue on a quarterly basis", while the profit contribution from Apple "is expected to be modest".

"As such the qualitative outlook at the trading update is likely to be much more meaningful and we believe it is most likely at this point this will be in-line with expectations, although still with scope for outperformance in Q4."

UBS said after Laird's difficult 2016, it believed management "took necessary actions to fix several key issues" but was still looking for potential strategic adjustments to boost growth and value creation in the Performance Materials division.

"We would expect the main focus to be on: 1) ramp of Apple and update on the content opportunity/pricing; 2) outlook for Q4; 3) progress on bookings in Connected Vehicle Solutions.

UBS forecast group revenue of £222m in the quarter including £111m revenues from Performance Materials, £41m from WTS and £70m from CVS.

Friday October 27

INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Gross Domestic Product, Q3 (US) (13:30)
U. of Michigan Confidence (US) (15:00)

INTERIMS
System1 Group

TRADING ANNOUNCEMENTS
Berendsen, Elementis, Hastings Group Holdings, International Consolidated Airlines Group, Mail.ru Group , Novolipetsk Steel, Royal Bank of Scotland Group, Shire Plc

SPECIAL DIVIDEND PAYMENT DATE
Symphony International Holdings Ltd.

EGMS
Air China Ltd., Bank Audi S.A.L. GDR (Repr 1'Com'Shr Lbp1650)(Reg S)

AGMS
K3 Capital Group

FINAL DIVIDEND PAYMENT DATE
Brooks Macdonald Group, Consort Medical, Dart Group, Eckoh, Fulcrum Utility Services Ltd. (DI), IG Group Holdings, Mattioli Woods

INTERIM DIVIDEND PAYMENT DATE
Advanced Medical Solutions Group, Air Partner, Belvoir Lettings, Central Asia Metals, Dignity, EMIS Group, Hansteen Holdings, HGCapital Trust, John Laing Group , JPMorgan Russian Securities, Keywords Studios, Learning Technologies Group , Luceco , Medica Group , Midwich Group, Mortgage Advice Bureau (Holdings) , Premier Technical Services Group , Puma Vct 8, Servelec Group , Smurfit Kappa Group, Sprue Aegis, STV Group, Xpediator

QUARTERLY PAYMENT DATE
Supermarket Income Reit, Value and Income Trust