Where Main Street Meets Wall Street

No break til Xmas: Fed, Bank of England and ECB meetings come as Ocado, Purplebricks and other results fill up agenda

4


There’s a busy pre-Christmas calendar of economic data, along with plenty of company updates to keep investors interested

With Ocado, Purplebricks (AIM:PURP), Currys and many others there will be plenty of company results action – and omicron reaction – for investors to mull over even as many of us start to wind down for Christmas.

Central bankers are not taking any time off yet, with a bonanza of big policy decisions on the agenda, including the US Federal Reserve on Wednesday, Bank of England, European Central Bank and Swiss National Bank on Thursday and Bank of Japan on Friday.

After a decade of record low interest rates and in some cases even negative interest rates, could one of them take a small step higher at this week’s meeting?

Tuesday 14 December

UK jobs data

Before the Bank of England’s meeting on Thursday, there will be labour market data (on Tuesday) and inflation numbers (on Wednesday) for the monetary policy committee (MPC) to crunch.

Under normal circumstances, said AJ Bell analysts, an environment where UK GDP growth is expected to reach at least 6% in 2021 and 2022, where inflation is running way ahead of the 2% target and where unemployment is just 4.3% an interest rate of 0.1% “would make no sense whatsoever”.

But distortions to the data caused the pandemic, lockdowns and their ongoing effects upon consumer and corporate behaviour are making it harder for the Bank of England to get a true picture of the economy.

The MPC, say the AJ Bell analysts, seems more concerned about the danger posed by unemployment than it does about the danger posed by inflation.

On Tuesday, the expectations are that unemployment will slip to 4.2% for October from 4.3%a month earlier. Last month’s numbers showed the employment rate was a historically high 75.1%, while wage growth was 5.8% including bonuses and 4.4% without.

The overall claimant count was high at 2.1mln, however, which compares to 1.25mln in January 2020.

Ocado updates – but probably more important for M&S

Ocado Group PLC (LSE:OCDO) issues a trading statement for its 50-50 UK online grocery joint venture with Marks and Spencer Group PLC (LSE:MKS) for its fourth quarter to the end of November.

Back in September the pair warned that additional costs for hiring van drivers and the recovery from the fire at its Erith fulfilment centre will add £5mln extra costs to this year’s results.

The fire has also cost £10mln in lost orders, with stock and asset write-offs a further £10mln, though after insurance the net cost is £10mln.

Sales at the Ocado Retail joint venture fell 10.6% in the quarter ending 19 August, compared with growth of 54% a year ago, reflecting disruption from the fire and people starting going back to bricks and mortar shops again.

The latest ‘Plan B’ restrictions – not to say potential ‘Plan C’ – may be good news for the business but are not going to have any affect on the latest quarter, when it will be up against 20% growth in the fourth quarter last year.

Purplebricks not in a purple patch

Purplebricks Group PLC last updated the market in early November, warning that new instructions has slowed “significantly” and blaming an imbalance in housing supply and demand.

The online estate agent warned of downgraded expectations for the full year, saying not enough houses were coming to market.

With homes listed for sale on Rightmove down around 45% compared to a year ago, analysts at Peel Hunt expect the challenging trading conditions to have continued.

“On a more positive note we should get a useful update on the changes to the company model (the money back guarantee and move to fully employed), and corresponding impact on conversion rates and market share.”

The shares have suffered on the back of the recent warning, and are down 64% in the past six months and at around 31p, are trading for just over 0.4 times sales.

Wednesday 15 December

Currys in favour?

Currys PLC, the electricals and warranties seller, reports half-year results on Wednesday having recently gone through its umpteenth name change.

The company formerly known as Dixons Carphone said back in June that it continues to see evidence that its markets will be structurally larger post-pandemic, “and that not all last year’s growth was pulled forward”.

In other words, while the group’s revenue was up 2% year-on-year in the year to 1 May, management thinks not all of this growth was a result of people making purchases they were unable to make during the lockdown.

Quite who these people are who are only able to make purchases in store rather than online is a mystery but they must exist; in the UK and Ireland Dixons – sorry, Currys – says around half of its sales have been through its stores.

The company recently resumed dividend payments and shareholders might have been hoping for a special divi to make up for the time when payments were suspended but the rapid spread of the Omicron variant of the Covid-19 has probably put the kybosh on that idea.

Not much protection for Avon

Expectations will be low as Avon Protection PLC (LSE:AVON) reports on Wednesday, after August’s profit warning and the company last month delayed its results in order to carry out a strategic review following testing failures for the US Army body armour plates.

Following a contract with the US Defense Logistics Agency, the defence industry supplier formerly known as Avon Rubber saw its shares plunge drop to a four-year low as it said its vital torso protection (VTP) body armour plates had “encountered a failure” in testing, with a delay to likely approval for the product.

Following this major setback, Avon said the board has launched a strategic review of the body armour business, which had been expected to contribute US$40mln of revenue in the current financial year.

This followed August’s summer warning that it had seen an increasing impact from order delays, supply chain disruption and a “tight” US labour market.

Receipt of US$165mln of expected orders has been delayed, including a significant M50 gas mask order, with slow supply of components also hindering the shipment of another US$6mln of deliveries under existing orders.

Revenue expectations were at that point set at US$245-260mln (around £178-188mln).

Central bank bonanza begins

The recent Federal Reserve minutes showed that some officials are becoming increasingly anxious about rising prices and their effect on the US economy, which will be ramped up by another strong inflation print at the end of the week before the December meeting.

The Federal Open Markets Committee (FOMC) is therefore quite likely to announce it will wrap up bond purchases sooner than expected at its meeting next week.

With the latest US inflation report showing consumer prices up at their highest level since 1982, the fact that dollar sold off and stock index futures rose in the immediate aftermath of the report “suggests investors were relieved” prices ‘only’ rose 0.8% on the month, said analyst Fawad Razaqzada at ThinkMarkets.

“This does little to change the outlook for interest rates in the US and it is the last major release for the FOMC to take into account before their meeting next week. In that meeting, the Fed is widely to announce the end of its asset purchases by March. This would then open the door to a rate rise around the middle of the year.

“Today’s CPI data has cemented expectations that the Fed will indeed wrap up its bond purchases in the next couple of months, before raising interest rates in the first half of 2022.”

One effect of the Fed speeding up the pace of its taper while most other major central banks are relatively less hawkish, is likely to be that the dollar index maintains its stronger trend for a little longer, Razaqzada added.

Thursday 16 December

Petrofac

Commodity prices, expectations for oil and gas spending, and the implications of the emerging ‘energy transition’ will all be among the key talking points when Petrofac reports on Thursday.

Investors will also have a keen eye on the group’s commentary around its £77mln penalty, announced in October, in relation to seven historic offences of failing to prevent former Petrofac Group employees from offering or making illegal payments in a number of Middle East countries.

Payment of the penalty “draws a line under a regrettable period of our history,” Petrofac said in early October – so, perhaps it won’t be the biggest talking point put forward by the company.

Not Going-Ahead

Go-Ahead Group PLC was scheduled to publish results on Thursday but warned in the past week that its shares are likely to be suspended from 4 January as it cannot get its accounts done on time.

The group, which admitted it breached the terms of its London & South Eastern Railway franchise contract with the Department for Transport, and faces a possible fine as a result, said trading in its shares will be temporarily suspended until publication of the FY21 results.

This follows consultation with the Financial Conduct Authority.

BoE selection

The Bank of England takes its turn on Thursday, sharing the spotlight with the European Central Bank and Swiss National Bank.

While the BoE is the only one where the market is even sniffing a potential rate hike, with virus cases rising and Downing Street instituting ‘Plan B’ measures to restrict gatherings, analyst Marshall Gittler at BDSwiss said “it just wouldn’t do for the Bank to pile on the pressure right now” with even a small interest rate hike.

The Plan B work-from-home guidance will deal yet another blow to central city businesses and weaken the already-softening growth.

Gittler said we can look for precedence to the experience of other central banks, such as the Reserve Bank of New Zealand and the Reserve Bank of Australia, which have had had to temporarily shelve their normalization plans in response to similar actions by their governments.

Its even more complicated for the ECB, with the recent sharp increase in COVID-19 cases in several EU countries adding uncertainty.

“Even Portugal, which has one of the highest vaccination rates in the world (87%), is seeing an increasing number of cases,” notes Gittler.

“As a result, some countries in the Eurozone are introducing restrictions that will probably act as a brake on business during the crucial run-up to Christmas. That makes the decision to withdraw stimulus more difficult.”

Complicating the ECB’s decision further is that up to now, the impact of the virus has been largely to slow economic activity, which would normally inspire a natural central bank response of increasing support for the economy.

“Now however further waves of the virus may also have the effect of increasing inflationary pressures by exacerbating strains on the supply chain. That changes how the central bank should respond to further waves.”

Major announcements expected 13-17 December

Monday 13 December

Trading update: SThree PLC (LSE:STEM)

AGMs: Time Out Group PLC (AIM:TMO), Tristel PLC (AIM:TSTL), John Lewis of Hungerford PLC (AIM:JLH)

Economic announcements: Bank of England Financial Stability Report

Tuesday 14 December

Trading statements: Joules Group PLC (AIM:JOUL), Ocado Group PLC

Interims: Begbies Traynor (AIM:BEG) Group PLC, Bmo Global Smaller Companies PLC, Goodwin PLC (LSE:GDWN), Purplebricks Group PLC, Watches of Switzerland Group PLC (LSE:WOSG)

Finals: Chemring Group (LSE:CHG) PLC, Driver Group (AIM:DRV) PLC, RWS Holdings (AIM:RWS) PLC

AGMs: Aeorema Communications (AIM:AEO) PLC, Greatland Gold PLC (AIM:GGP, OTC:GRLGF), Kin and Carta PLC, Target Healthcare REIT (LSE:THRL) Ltd

Economic announcements: Unemployment (UK), Wage Growth (UK), Producer Price Index (US)

Wednesday 15 December

Interims: Baltic Classifieds Group PLC (LSE:BCG), Currys PLC, Hipgnosis Songs Fund Ltd, In The Style Group PLC (AIM:ITS)

Finals: Avon Protection PLC, Character Group (AIM:CCT) PLC, Hollywood Bowl Group PLC (LSE:BOWL)

AGMs: Asia Dragon Trust PLC, DX PLC, GCP Student Living, Softcat (LSE:SCT) PLC

Economic announcements: Consumer Price Inflation (UK), House Price Index (UK), Federal Reserve policy decision (US), Retail Sales (US), Import/Export Prices Index (US)

Thursday 16 December

Trading announcements: Hyve Group PLC (LSE:HYVE), ITM Power PLC (AIM:ITM), Petrofac PLC

Finals: Go-Ahead Group PLC, Integrafin Holdings Plc

AGMs: Arc Minerals Ltd, AVI Global Trust plc, Baillie Gifford Japan Trust plc, Netcall, Sareum Holdings PLC (AIM:SAR), Schroder Income Growth Fund plc, Seeing Machines Ltd (AIM:SEE, OTC:SEEMF)

Economic announcements: Bank of England policy decision (UK), Flash Services PMI (UK), Flash Manufacturing PMI (UK), Building Permits (US), Housing Starts (US), Initial Jobless Claims (US), Philadelphia Fed Index (US), Retail Sales (US), Flash Services PMI (US), Flash Manufacturing PMI (US)

Friday 17 December

AGMs: Focusrite PLC (AIM:TUNE), James Halstead PLC (AIM:JHD), Marwyn Acquisition Company PLC (AIM:MACP), Petroneft Resources, Renalytix plc, Zanaga Iron Ore Company Ltd

Economic announcements: GfK consumer confidence (UK), retail sales (UK)



Source link

Leave A Reply

Your email address will not be published.