EZ/US inflation/UK lending data
It's set to be a fairly light week for data with the latest inflation data from the EU and US likely to be key drivers over the next few days.
The recent Trump-inspired sell off in the US dollar may have caused the euro to move higher in the last few days, as traders mull the implications of political interference in the US Fed decision making process. It would be surprising if these comments were to distract from the economic fundamentals which this week are likely to see US PCE remain near 2%, while the latest EU measure of core CPI remains anchored down at 1.1%.
Strong US personal spending data is also likely to reinforce another strong quarter for the US economy, which is likely to translate into expectations of a +3.5% GDP number in Q3.
UK lending data on the other hand is likely to point to a UK consumer that remains cautious in the face of firmer inflation.
German IFO (Aug) – 27/08
The recent concerns about rising trade tensions between the EU and the US may have taken a back seat after European Commission President Jean Claude Juncker’s trip to the White House last month, however a slowdown in China, and sanctions on Russia and Turkey in recent weeks could well have an impact in German business confidence, given that German exporters do a lot of business in these markets. This week’s number could well see further weakness after the peaks seen at the beginning of the year.
US Q2 GDP – 29/08
The first preliminary reading of US Q2 GDP showed an economy surging ahead with an expansion of 4.1%, juiced to some extent by the tax cuts that were announced at the beginning of the year. The rise was primarily driven by personal consumption which rose by 4%, well above expectations. The Q1 number was revised higher to 2.2%, reinforcing the narrative of a US economy, which is running quite hot. This week’s revision shouldn’t change the outlook too much but markets will be looking for evidence of increased inflationary pressures from the inflation numbers, which come out later in the week.
Bunzl (LON:BNZL) H1 – 28/08
Business suppliers group Bunzl managed to post a 13% rise in profits in its last financial year, helped by its US business which was helped by the acquisition of Diversified Distribution Services.
The company has been on an acquisition spree in the last few years and this has weighed on its profit margins in recent updates.
The strength of the US economy is expected to help boost its first half results when it reports later this week, however the rate at which the company has expanded does raise concerns that it may be over reaching itself. Acquisitions are all well and good but they need to be done with a view to maintaining or increasing profit margins, not reducing them. The recent acquisition of US based Monte Package Company and Netherlands based QS Nederland are all well and good in the context of increasing revenues, but it does appear to be at the expense of margins, which are showing signs of coming in lower. This may not be a worry when the pound is weak, but it will need to be addressed at some point, or the shares could well start to run into trouble.
Restaurant Group – H1 – 31/08
It’s been a difficult backdrop for UK retail this year, not only are traditional retailers under pressure due to rising costs, in the form of higher taxes, in the form of business rates, the minimum wage, work place pension contributions and the apprenticeship levy, but the leisure industry as a whole is also finding life difficult.
High profile job losses from chains like Gaucho, Prezzo, Byron and Jamie’s Italian restaurants have been hit by the proliferation of on-line delivery alternatives like Deliveroo and Just Eat (LON:JE), and Frankie and Benny owner the Restaurant Group (LON:RTN) is no different.
In May the company reported a 1.8% drop in like for like sales and is in the process of closing 33 under-performing outlets, as it reported a loss of £39.5m loss in March. Despite this drop in sales management stated that they remained optimistic that they would meet full year profit expectations. The decline in the share price since that announcement in May suggests investors are sceptical about that.
This week we’ll find out how far along the company is in meeting its profit targets and whether it remains on course in its restructuring plans.
Old Mutual – H1 - 31/08
At its last full year results in May Old Mutual (LON:OMU) saw profits rise by 40%, helped in no small part by its wealth business which contributed about £84m to the gross numbers. The wealth business, now known as Quilter (LON:QLT) split off at the beginning of July and as such is no longer part of the business, which means that the core business will now be more susceptible to the ebb and flow of the South African economy, which has come under pressure in recent months as a result of recent currency movements in the rand, as well as the political changes at the top of government, with the swearing in of new President Cyril Ramaphosa.
This week’s first half trading update should tell us how much recent events have affected business confidence.
Best Buy (NYSE:BBY) Q2 – 28/08
Having been in decline since an ill-fated venture into the UK market, the US’s largest electrical retailer has seen a turnaround in the last two years that has been down to a management that realised that the old business was a recipe for failure, in an age where Amazon (NASDAQ:AMZN) has redrawn the retail map.
The 'Renew Blue' program saw the company shut stores, exit the UK, and focus on the customer experience, with respect to the products it sells. It has also partnered with Amazon in selling new TV’s powered by Amazon Fire TV’s operating system. The more positive retail environment is also helping with decent growth in both on-line as well as same store sales this year, and this week’s trading update is expect to continue to reflect that after Q4 saw the company post its best holiday quarter since 2003.
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