US non-farm payrolls/wages – 01/06
Last weeks Fed minutes have reinforced the expectation that the US central bank will raise interest rates when it meets later in June.
The latest US payroll numbers aren’t expected to alter the calculus behind that expectation despite a weaker than expected headline number in April of 164k. This surprisingly low number could merely be the result of a tighter labour market given that unemployment is now at 3.9%. Expectations for May are for a 190k number, however even if that number comes in on the low side markets aren’t expected to be concerned about miss on the low side.
What is surprising is that since the beginning of the year wage growth has slowed from 2.9% to 2.6% and remained at this level. Rising cost price inflation doesn’t, as yet appear to be translating into higher wage growth, and the latest May numbers are only expected to see a modest increase to 2.7%. This is still way below where it needs to be, however a strong number here could well spark further speculation that the Fed might look at the possibility of four rate rises this year, despite the recent minutes suggesting that they might be prepared to tolerate a higher level of inflation before becoming concerned about prices running away from them.
EU CPI (May) – 31/05
One of the main puzzles of recent months has been how benign EU inflation has been with core prices just above a record low at 0.7% in April. Against this backdrop ECB officials would have us believe that the central bank remains on course to curtail its asset purchase program by the end of this year. Even the headline numbers are near one year lows of 1.2% despite recent sharp rises in oil prices of over 60% in the past 9 months. Unless we see some evidence that other measures of inflation start to trickle down into the headline numbers then it will become increasingly difficult for the bank to justify any sort of modification to its currently loose policy settings.
Manufacturing PMIs (May) – 01/06
After a strong end to last year economic activity in the manufacturing sector got off to a slightly softer start at the beginning of this year across the board. In some of the recent April data there is evidence that this softness has evened out a little and started to stabilise. In Europe activity was able to rebound a little in part, while in the US we also saw increasing evidence of rising prices with prices paid at 7 year highs. In the UK we also saw a decent rebound after a soft March number, which may well have been weather related. Activity in May is expected to have built on some of the modest rebound seen in the April numbers with particular attention likely to be on cost price inflation which still looks fairly robust. This will present problems in terms of company ability to pass these prices on down the supply chain.
Dick’s Sporting Goods (NYSE:DKS) Q1 19. – 30/5
Competition in the US sports retail sector has been particularly tough in recent months and looks set to get even tougher. The recent trend has been one of falling sales and revenues and the recent acquisition of The Finish Line (NASDAQ:FINL) by UK based JD Sports (LON:JD) is only going to pressure margins further. At its last trading update the company reported same store sales below expectations after a poor Christmas period. Management will be hoping that the recent rebound in US retail sales will see a slightly better quarter, as the company looks to open 19 new stores this year.
FirstGroup FY18 - 31/05
It’s been a tough few months for FirstGroup (LON:FGP) after senior management saw activist investor Apollo pull out of a recent bid for the struggling transport operator. The company which runs the US greyhound bus service as well as a number of UK transport franchises for rail and bus services has been struggling for a while, and is coming under increasing pressure from other major shareholders to consider significant restructuring of the business to increase value.
Its recent win of the South Western rail franchise with Chinese operator MTR has been met with some scepticism for its optimistic passenger growth targets. There is also concern that industrial action by the RMT could also hinder its ability to hit its targets as they start to get a taste of what Southern rail passengers have had to put up with as they start to roll out DOO trains.
Abercrombie & Fitch (NYSE:ANF) Q1 19 – 01/06
Has managed to enjoy a decent rebound in the last 12 months, helped in no small part by the turnaround plans of new CEO Fran Horowitz who appears to be targeting a slightly older demographic. The A&F and Hollister brands had been traditionally geared to a more teenage and early 20’s demographic. Profits have stabilised and revenues have rebounded, however there is a risk that most of the good news may well be mostly priced in now.
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