Wednesday preview: Lots riding on services data, Fed minutiae on offer

Wednesday will see eyes turn to research firm IHS Markit as it unloads a cavalcade of reports on the services sector around the world, while in the US non-manufacturing sentiment is expected to remain high and minutiae lovers will get a look at the FOMC's minutes.

Beginning with Japan's overnight, throughout the morning purchasing managers' index reports will be rolled out to reveal services output of various European states, beginning with Ireland and Russia and passing through Spain, Italy, France and Germany before the European PMI at 0900 BST, plus a composite number that incorporates the recent manufacturing and construction reports.

The consensus forecast is for the services PMI to remain at the 56.5 level from February, meaning the composite will stay at 56.7.

Any reading for the index above 50 signals expansion, while a reading under 50 shows contraction.

For the UK, which gets its report at 0930 BST, the services sector is by far the most important part of the economy.

After February saw the UK PMI slow to a five-month low of 53.3 in from 54.5 in January and 56.2 in December, the consensus forecast is for a slight improvement in growth to 53.5.

If the data disappoints it would likely hit the pound and gilt yields fairly hard.

Markit indicated that weaker consumer spending was a key cause of slower service sector growth in February and the latest data from the Office for National Statistics showed services output edged down 0.1% month-on-month in January, which was the first drop since August 2015.

With services activity being particularly led by consumer-facing sectors last year, IHS economist Howard Archer said he suspected consumer services activity will be increasingly pressurized by consumers’ purchasing power weakening over the coming months as inflation rises appreciably and earnings growth is muted.

"This is likely to cause some consumers to cut back on their discretionary spending, including on services."

RBC Capital Markets said a PMI-based GDP forecast pointed toward expansion of 0.3–0.4% quarter-on-quarter in real terms, though this was notably softer than the Bank of England 0.6% 'nowcast' in the minutes of the March MPC meeting.

With limited hard data still to come before the first estimate of Q1 GDP on 28 April, RBC said this round of PMIs could well influence expectations for whether or not the Bank’s more optimistic forecast or the 0.4% consensus is more likely.

"With ‘new orders’ and expectations components still in expansionary territory last month, none of the headline sector indices is expected to drift far from last month’s numbers, which translated into a composite index level just below the long-run average."

US non-manufacturing and Fed minutes

Given the strength of consumer confidence in March, the consensus is for the ISM non-manufacturing index to fall back to 57.0 from the previous 57.6

After the last FOMC meeting, Federal Reserve Chair Janet Yellen indicated during the post-meeting press conference that the committee had discussed the balance sheet.

Barclays said it would be looking to the minutes to gauge the extent of that conversation.

"Although we believe the Fed will likely leave its balance sheet unchanged through at least the end of 2018, the committee has an opportunity to do so at the end of this year. We expect the committee to see risks tilted to the upside as a number of members likely continue to expect a large fiscal stimulus and most members probably believe that the recent surge in confidence will lead to a faster near-term pace of activity."

Corporate news

McCarthy & Stone will report interim results, following a trading update where the retirement home builder reported completions down 6% to 866 units and expected revenues down 5% to £238m.

UBS predicted the key highlight will be the underlying gross margin, which it expected to be 20.5% and for which McCarthy & Stone already flagged a sequential decline from the 20.8% in the latter half of 2016.

The Swiss bank expected an underlying operating profit down 20% to £32.7m resulting in a pre-tax profit of £32m.

With company management expecting higher weighting of completions from higher-margin new sites to be delivered in the second half to reach consensus PTP of £102m, UBS said it believed this "puts some risk of disappointment in not meeting consensus estimates if liquidity levels do not improve over H217".

Hire company HSS will also publish its preliminary results for the 53 weeks to December 2016.

Broker Numis forecast revenues up 9% to £342m, adjusted PTP up 3% to £3.7m, and EPS 4% higher at 1.9p.

"In 2H16, HSS suffered dislocation and revenue shortfalls as it migrated branch replenishment to its new NDEC, located outside Oxford. The transition has now been completed and a number of low profitability branches closed. This should enable the business to be more externally focussed in 2017."

Corporate news for Wednesday April 05

INTERIMS
McCarthy & Stone

QUARTERLY PAYMENT DATE
Barclays

FINALS
HSS Hire Group , Learning Technologies Group , Mi-Pay Group, Property Franchise Group

FINAL DIVIDEND PAYMENT DATE
MTI Wireless Edge Ltd., Thomas Cook Group