Thursday preview: Bank of England likely to lower forecasts but hold rates
There will be lots of attention on the Bank of England's Monetary Policy Committee even though it is not expected to produce any change in policy but will update its forecasts, while there will be a torrent of company results earlier, including from clothing retail bellwether Next, medical devices group ConvaTec and satellite specialist Inmarsat.
Super Thursday will see the MPC produce an inflation report which tells us how the UK economy looks from Threadneedle Street three months after forecasting gross domestic product growth of 1.9%.
With a reading of 0.2% for the first quarter, and an estimate of 0.3% for the second quarter, a downgrade seems likely.
The last MPC meeting on 15 June saw a surprise split among policymakers, with three of eight members voting for an increase in UK interest rates.
Since then, however, one of the hawks voting for higher rates, Kristin Forbes, has left the committee, replaced by Silvana Tenreyro.
Moreover consumer price inflation dipped to 2.6% in June from 2.9% in May after a series of increases since last November, which has been a chief area of concern for the hawkish members of the MPC.
The June meeting, said analyst Chris Beauchamp at IG, "may be the hawks’ only hurrah for a long time yet", predicting the split will shift back to 6-2 as Tenreyro is "likely to be a dove, having voiced her concerns about a balance between growing inflation and weaker output growth".
"Since then, Mark Carney, the BoE's governor, has become more hawkish, with his comments at the recent central bank conference in Sintra being viewed as making him more amenable towards tightening policy."
Markets are pricing in a 40% chance of a rate rise by the end of the year, though a rate hike would only likely take us back to where we were a year ago, when the Brexit vote prompted the MPC to cut base rate to 0.25%.
"The longer term outlook for interest rates is still weak," noted Laith Khalaf at Hargreaves Lansdown. "The Office for Budget Responsibility thinks rates will only rise to 1% by 2022, 15 years after the financial crisis started. And one thing we do know about such forecasts, is that for the best part of a decade they have consistently over-egged the prospects of interest rate rises."
COMPANY REPORTS
High street clothing retailer Next will update on its first-half performance, following a quarter where many retailers have benefited from the warmer weather, particularly during June, albeit with July slightly more volatile.
"We feel this could potentially provide Next with some much needed relief during its second quarter given the downward pressure trading has been under in recent times," said broker Shore Capital, forecasting Next brand sales to be down 2.0% during the second quarter and full-price sales down by 4.4%. "Whilst we still have long-term concerns about the company’s market position in UK apparel retail, we feel that the shares could have some near-term upside if favourable seasonal weather feeds through into trading performance," analysts said recently, upgrading their 'sell' to a 'hold',
recommendation.
Barclays noted that Next lowered full-year full price sales guidance to '-3.5% to +0.5%' from '-3.5% to +2.5%'. "Since Next
reported these results well into the second quarter, this suggested to us that the company was likely facing a further slowdown in full price sales in the second quarter as well," analysts wrote, projecting a 2% fall in full price sales during 2Q with LfL contracting by 8.5%.
First-half numbers from Aviva are expected to show operating profit of around £1.44bn, a rise of 7% year on year.
The focus is likely to be on updates to the sustainability of Solvency II capital generation, progress toward earnings growth objectives, Friends Life synergies and more details on the capital return and redeployment strategy, said UBS.
London Stock Exchange is due to report interim results too, with UBS forecasting net revenues of £733.6m, up 13.8% on last year largely driven by improvement in the Information Services and LCH.Clearnet business divisions. Expecting LSE
to benefit from operating leverage with operating costs increasing only 7.6%, this should leading to adjusted operating profit of £411.5m.
Randgold Resources is scheduled to report Q2 earnings, with UBS forecasting revenue of $396m, down 3% on quarter, from a slight decrease in production at 314Koz.
Medical devices group ConvaTec, a relative newcomer to the FTSE 100, has seen its shares soften over recent weeks due to investor concerns over cost inflation, and therefore margin progression will be in focus. "Investors are likely to also look to the ostomy division for continued evidence of a turnaround" suggested UBS, expecting some weakness in the wound division given french reimbursement changes, and weakness at competitors.
Satellite group Inmarsat will give a half-year report following the launch of its I5-F4 satellite, adding to its three existing Ka-band spacecraft already in orbit as well as announcing the construction of an additional GX satellite ($130m) that will be designed to specifically match the routes of aviation customers, plus a successful launch of its S-band satellite.
Barclays expects results to show continued strength in the core business, with core revenues up 5.3%, which is lower than the 7.5% in the first quarter which benefitted from low margin installation revenues in aviation and an early contract payment, plus a decline in EBITDA. "We see continued positive trends from the Government and Aviation segments. However, this should be partly offset by expected weakness in Enterprise."
Thursday August 03
INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Continuing Claims (US) (13:30)
Factory Orders (US) (15:00)
Initial Jobless Claims (US) (13:30)
ISM Non-Manufacturing (US) (15:00)
Retail Sales (EU) (11:00)
UK ECONOMIC ANNOUNCEMENTS
BoE Interest Rate Decision (12:00)
INTERIMS
Aviva, Centamin (DI), Cobham, Communisis, Convatec Group , Dairy Farm International Holdings Ltd. (Singapore), esure Group, Ferrexpo, Hellenic Telecom Industries SA ADS, Hongkong Land Holding Ltd. (Sing.Reg), Inmarsat, London Stock Exchange Group, Mandarin Oriental International (Singapore), Mondi, Non-Standard Finance, Portmeirion Group, Randgold Resources Ltd., Serco Group, Shire Plc, Spirent Communications
TRADING ANNOUNCEMENTS
Centamin (DI), Hellenic Telecom Industries SA ADS, Inmarsat, Next, Randgold Resources Ltd, Shire Plc, UDG Healthcare Public Limited Company
ANNUAL REPORT
Collagen Solutions
SPECIAL DIVIDEND PAYMENT DATE
Caledonia Investments
AGMS
Amiad Water Systems Ltd, Dekeloil Public Ltd
INTERIM DIVIDEND PAYMENT DATE
ITE Group, WH Smith
INTERIM EX-DIVIDEND DATE
Aberforth Smaller Companies Trust, Berendsen, Blackrock Throgmorton Trust, Domino's Pizza Group, Inchcape, Independent Inv Trust, International Biotech Trust, Jupiter Fund Management , Microgen, Moneysupermarket.com Group, Octopus Titan VCT , Sanderson Group, Tyman
QUARTERLY EX-DIVIDEND DATE
Fair Oaks Income Limited 2017 Shs NPV, JPMorgan Claverhouse Inv Trust, Toro Limited , Unilever
FINAL DIVIDEND PAYMENT DATE
Caledonia Investments, De La Rue, Homeserve, Norcros
FINAL EX-DIVIDEND DATE
Aberdeen New Dawn Investment Trust, CMC Markets, Halfords Group, Latham (James), Micro Focus International, Motorpoint Group, QinetiQ Group