Wednesday preview: BoE clues, Canada hike and Yellen guidance eyed
Wednesday will see close scrutiny paid to UK labour data due for clues about the next Bank of England meeting, a predicted first rate hike in seven years from Canada's central bank, US Federal Reserve chair Janet Yellen giving testimony to Congress, plus updates from FTSE 100 constituents Burberry, Micro Focus and Barratt.
The strength in the UK jobs market is a key reason for the increased hawkishness at the Bank of England's Monetary Policy Committee and so the UK unemployment and average earnings figures for May will be examined for factors that might influence the MPC's voting at their 3 August meeting.
Wage growth is likely to be to the fore again, with rising inflation flattening real pay to put the squeeze on consumer spending and the brakes on the country's main recent growth engine.
A month ago regular pay was shown to have risen just 1.7% over the three months to April compared to the same period a year ago, with total pay weaker than expected at 2.1%.
Unemployment was unchanged at its previous forty-year low of 4.6%.
May's labour market figures, said economist Sam Tombs at Pantheon Macroeconomics, are "likely to have something for both the doves and the hawks on the MPC, who have been wrangling over whether to reverse last year's rate cut".
Tombs said the headline three-month average of average weekly wages is likely to have fallen below 2% in May for the first time since February 2015.
The consensus is for the total rate to have eased to 1.8% or 1.9% for the ex-bonus figure.
"But we think the headline unemployment rate also probably fell by one-tenth, to just 4.5% in May—the lowest rate for 32 years -- surprising the consensus forecast for no change," Tombs said.
HSBC, which also forecast a 4.5% ILO unemployment rate, said if the rate drops to what is the MPC's estimate of the equilibrium rate "it could fire further expectations of a rate rise in the near term" - even though the economists expect wage growth to remain below 2%.
Barclays forecast unemployment will print unchanged but that wage growth will remain bleak, with poor bonuses resulting in a total number of 1.7% but for core wage growth to remain stagnant at 1.8%.
YELLEN AT CONGRESS, CANADA EYED
Fed Chair Janet Yellen will appear before the House Financial Services Committee to deliver her semi-annual monetary policy testimony at 1330 BST, 90 minutes before the session begins.
Craig Erlam at Oanda said Yellen's testimony and the Bank of Canada potentially raising interest rates for the first time in almost seven years, makes Wednesday the most notable session of the week.
"A rate hike from the BoC would come as a number of the G7 central banks adopt a more hawkish stance, despite the economic data not necessarily supporting such a move," with the move echoing a wider desire of central banks to begin moving away from the ultra-accommodative monetary policies that have been necessary over the past decade.
Yellen will also talk about the path of interest rates and the unwinding of the balance sheet, after the minutes of the June FOMC meeting showed that most of the policymakers believe current policy remains "accommodative" and will likely support a return to 2% inflation.
HSBC said it expected the FOMC will announce the start of disinvestment in September and that the Committee will deliver another 25 basis point rate hike in December.
"We expect that Chair Yellen will generally hint that this is a likely course of policy over the remainder of the year, provided that there are no unexpected shocks to the economy or financial markets."
COMPANY UPDATES
Burberry reports first-quarter results in the month that Marco Gobbetti takes the chief executive reins from Christopher Bailey, with the fashion house likely to report on retail sales and update the annual outlook, including currency effects.
Deutsche Bank expects retail sales of £479m for the quarter, representing year-on-year growth of 13% thanks in part to a full quarter of the 'tropical gabardine' trench coat, which launched in February and has sold out in parts of Asia and reported rise of the new 'DK88' bag has apparently already moved into the 'top five of bag shapes’.
Software company Micro Focus will report final results what will be the last report before it merges with HP Enterprise Software on 1 September, which has been approved by shareholders and regulators.
Management has already indicated it met its underlying growth target for the year to 30 April, with the consensus forecast for sales of $1.39bn and earnings per share of $1.76.
UBS said of far greater impact will be any communication management can give around the likely plan of engagement following the deal's completion and impact on the financials of a move to an 18 month reporting period, the likely interest charge to be faced, the likely post-merger tax rate given Micro Focus' 23% and HPE Software's 60% in 2016, and the impact of exceptional items on profits and cash flow post-closing.
Housebuilder Barratt Developments will provide a pre-close trading update that comes on the back of a bullish trading update in May and strong updates from its peers last week.
Barratt guided to full year completions of 16,650, average selling price supported of £267,000, a private selling rate per site per week of 0.8, and a continuation of gross margin of roughly 20%.
"The uncertainty that encased the sector following the Brexit vote has mostly dissipated, and the builders are once again reaping the benefit of the current favourable conditions," said analysts at Hargeaves Lansdown.
Deutsche forecast profit before tax of £736m, which it noted was above the top end of analyst estimates of £733m.
Wednesday July 12
FINALS
Micro Focus International, The Fulham Shore
TRADING ANNOUNCEMENTS
Barratt Developments, Burberry Group, Eve Sleep, Nex Group, Robert Walters, SSP, Wetherspoon (J.D.), Xaar
DRILLING REPORT
Hochschild Mining
INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Crude Oil Inventories (US) (15:30)
Industrial Production (EU) (11:00)
MBA Mortgage Applications (US) (12:00)
UK ECONOMIC ANNOUNCEMENTS
Claimant Count Rate (09:30)
AGMS
Altitude Group, Biotech Growth Trust (The), BT Group, Global Fixed Income Realisation Limited, Magnolia Petroleum, MyCelx Technologies Corporation (DI), Nex Group , Northern 2 VCT, Speedy Hire
FINAL DIVIDEND PAYMENT DATE
Alliance Pharma
INTERIM DIVIDEND PAYMENT DATE
Hollywood Bowl Group