08.07.16 Friday Afternoon

All eyes will be on the Bank of England this week, with the first rate vote since the Brexit referendum result all set for Thursday!

UK
Last week was another rocky one for the FTSE and the pound. While the latter continued to prove its (multinational-aided) resilience, never falling too far from 6550 having crossed 6600 on Monday, sterling suffered a far greater fall, plunging to $1.29 against the dollar and, at one point, falling below €1.16 against the euro (a 2 and a half year low). The main thrust of this fall came from the property, with Standard Life and Aviva, and then a whole host of other firms, suspending redemptions on their property funds due to a rush of withdrawals. This only exacerbated the already wince-worthy declines seen in the property stocks, joined by a further fall from the UK banks most exposed to the sector.

This week could be even hairier for the pound. The inflation report hearings on Tuesday, the credit conditions survey on Wednesday and the Chinese GDP and industrial production figures on Friday could all cause some movement; however the undoubted focus of the week is on Thursday, with the Bank of England rate vote. Opinion is split on whether Carney and co. should cut rates to fresh historic lows, a move that would likely cause another wave of selling around sterling. Markets are currently pricing in a 78% chance of a cut, which may damage limitation for the pound, though cable could still be in for another round of new 31 year nadirs.

Earnings-wise the amount of UK companies set to face the post-Brexit fray only increases. Film studio Pinewood Group reveals its full year figures on Monday, followed by a Premier Oil update and Galliford Try annual statement on Tuesday. Wednesday then sees a first quarter catch-up from the struggling Burberry (see below) and the Q4 update from pro-Brexit Wetherspoons, before SuperGroup reveals its full year figures and a miserable Moneysupermarket.com posts its latest statement on Thursday.

US
While it has by and large followed the broader movements of the European markets, the Dow Jones has managed to keep some distance between it and the post-Brexit chaos, spending much of last week within touching distance of 18000. The US also saw another mixed non-farm jobs report; the headline figure far surpassed expectations, at 287k against the downwards revised 11k seen the month before, but with the unemployment rate creeping back to 4.9% and wage growth slipping to 0.1%.

This week is one of those post-non-farm data dumps that sees the US opting for quantity over quality. The JOLTS job openings on Tuesday is followed by the import prices on Wednesday and the PPI and jobless claims on Thursday. Friday is the real meat, however; in one afternoon investors get to digest the latest inflation, retail sales, Empire Statement manufacturing index, capacity utilization rate, industrial production and prelim UoM consumer sentiment readings. It’s such an overwhelming amount of data that the markets may struggle to react with any nuance, though inflation and consumer sentiment look set to be the standouts.

It’s also a busy week for US second quarter earnings. Taco Bell, KFC and Pizza Hut operator Yum! Brands updates on Wednesday, before things heat up on Thursday and Friday with JPMorgan Chase, BlackRock, Citigroup and Wells Fargo all providing a timely glimpse into the US banking sector.

Eurozone
Like the US the Eurozone indices were largely dictated by the UK movements last week, but with the region far more shackled to the FTSE and pound than the Dow Jones (and impacted by troubles in the Italian banking sector). It’s hard to see that changing this week, with a paltry selection of data including German and Eurozone-wide inflation figures on Tuesday and Friday respectively, alongside the region-wide industrial production reading on Wednesday. If anything the Eurogroup meeting on Monday could be the most interesting thing the region has to offer, even if it just produces more Brexit grumblings from the finance ministers.

Stock of the week: Burberry Group PLC – Q1 2017 Trading Update
After a string of disappointing updates Burberry’s mid-May full year statement was the sour icing on a rotting cake. The company stated that it expected the ‘challenging environment for the luxury sector’ as it revealed a 6.5% plunge in pre-tax profits to £415.6, led lower by a 1% drop in group revenue to £2.5 billion. Hong Kong (and, similarly, Macau) remained Burberry’s main issue; in fact the company’s 1% slide in like-for-like sales turns into a 3% rise when those regions are stripped out.

This only piled on the pressure for Burberry’s stock price, culminating in a 44 month low of £10.40 by mid-June. Yet since then things have begun to improve for the luxury brand, even with the post-Brexit mayhem briefly seeing the stock touch the £10 mark. The reason behind the company’s rise seems to be the sterling’s precipitous decline, with analysts at UBS confident that the ‘weak pound more than offsets weak sector trading’, even if it expects a 5% drop in Burberry’s like-for-like sales in Thursday’s Q1 2017 report.

 

(Source: IT-Finance.com 08/07/2016)