ECB rate meeting and flash PMI
This week’s ECB rate meeting isn’t likely to offer much in the way of clues as to whether the European Central Bank will be ending its program of asset purchases in September as expected, or whether they will finish at the end of this year.
Policymakers are likely to be concerned that inflationary pressure within the euro area remains benign at a time when the best part of the recent economic growth story appears to be in the rear view mirror.
Recent PMI data from Germany and France has been trending lower since the end of last year and this week’s April flash data is unlikely to be much different, which is likely to mean that President Draghi will probably be cautious about the prospect of giving too much away when it comes to being overly hawkish. There does appear to be some evidence that wages might be on the rise however the evidence isn’t particularly tangible at this point in time. This is likely to be a 'wait and see' meeting.
UK Q1 GDP – 27th April
It has become clear in recent weeks that we’ve seen a bit of a slowdown in some of the most recent data in the first months of 2018. The weather has certainly played a part in some of the data, while the collapse in Carillion (LON:CLLN) at the start of the quarter has seen the construction sector hit quite hard.
Manufacturing has managed to hold up fairly well with strong growth across the whole quarter, while services saw a bit of a slump in March, as the cold weather kept people indoors. In the last two years Q1 has tended to be the weakest link where the UK economy is concerned with a slow start being followed by a pickup in subsequent quarters. This trend looks set to be repeated after weak retail sales in March wiped out the gains seen in January and February, and with sterling under pressure as a result of Governor Carney’s recent intervention any more poor data could well see the pound fall back below $1.4000 against the US dollar. This would in term alleviate the downward pressure currently being exerted on headline inflation. With that in mind it’s difficult to understand the rationale behind this latest intervention.
UK banks Q1 trading update – Lloyds 25/4, Barclays 26/4, and RBS 27/4
Earlier this year Royal Bank of Scotland (LON:RBS) was able to post its first profit in a decade albeit a small one of £752m. This was largely down to the fact that management didn’t set aside a bigger provision for its still unresolved issue with the US Department of Justice the costs of which could be as high as $10bn. The bank did set aside another £764m in respect of litigation provision in Q4, with $650m of that going towards the DOJ case, taking the overall provision so far for that case to $4.4bn, still leaving it well short of what the total bill might be. On the underlying business that has continued to perform fairly well.
As far as Lloyds (LON:LLOY) and Barclays (LON:BARC) are concerned it’s been a more mixed picture with both posting decent profits last year.
Lloyds managed to post record profits of £5.3bn but is still making provisions for PPI, while its exposure to the UK economy means it could well be susceptible to the slightly weaker economy in Q1.
As far as Barclays is concerned, now that CEO Jes Staley has avoided more serious censure by the FCA, he can now focus his attention on its investment bank, which has been a weak spot and could well be again despite recent market volatility. Further underperformance here could add fire to recent reports that activist investor Edward Bramson, who owns a 5% stake through Sherborne Investors, is heading for a showdown with Barclays management with a view to pushing for a selling off this part of the business.
Whitbread (LON:WTB) FY18 – 25/4
This week’s full year results could paint a familiar picture of a strong performance from the Premier Inn side of the business, while the Costa Coffee business remains a source of uncertainty.
For a while now some investors have made the case for splitting the business, selling off the underperforming Costa brand. Now that activist investor Paul Singer of Elliott Advisors has built up its stake to more than 6%, joining another activist investor Sachem Head, this speculation is likely to increase once again when the company releases its full year numbers.
At the company’s last trading update in January the company said that footfall had slowed in both its businesses as consumer spending slowed down. It is hard to imagine that this will have improved in recent months given the weaker than expected services activity seen in March, and recent data from Visa that showed lower consumer spending in Q1. With new Chairman Adam Crozier only two months into his new role this is one topic that is likely to be near the top of his in-tray.
Facebook Q1 trading update – 25/4
Facebook (NASDAQ:FB) shares have been in the news for all the wrong reasons so far this year with all the negative headlines around Cambridge Analytica and data leaks. This week’s Q1 trading update may well give us an indication as to how much damage this has done to the company’s advertising revenues in the wake of the #DeleteFacebook campaign on social media. The damage could well be fairly limited in the short term, however longer term risks to the valuation could come from increased regulation around the management of user data.
Microsoft Q1 trading update – 26/4
Cloud services have been a significant growth area for Microsoft (NASDAQ:MSFT) in recent months, with its Office 365 being one of its major earners, helping offset a slowdown in its personal computing division. The recent US tax changes should also benefit the company, given that Microsoft was one of the companies that had significant amounts of US dollars held in overseas accounts.
US Q1 GDP 27/4
After a strong performance in 2017 the US economy looks set to get off to a slow start in the first quarter. Historically Q1 tends to be on the weaker side however expectations are likely to be fairly low given recent weakness in consumer spending as well as the fact that retail sales have declined three months in a row. Higher interest rate expectations could be weighing on consumer spending given the recent US rate rise in March.
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