17.06.16 Friday Morning

Well, it’s finally here. After weeks, nay months, of fretting the UK EU referendum arrives on Thursday in an event sure to define not only June, but potentially 2016 as a whole.

UK
Unsurprisingly last week was an incredibly choppy one for the FTSE. A strong jobs report, which saw unemployment fall to 5.0% for the first time in 8 years, and solid retail sales were joined by a miraculously unchanged inflation reading. Yet the UK index wasn’t interested in data-nuance; instead the FTSE spent the week plunging to, and bouncing back from, 5900 (a 4 month low) as the Brexit-fears truly took hold.

Those scenes are likely to continue this week, with Thursday’s referendum casting a shadow on whatever paltry data (namely the public sector net borrowing figure on Tuesday) the UK throws up. The majority of recent polls have had Vote Leave taking a healthy lead, though Spreadex has seen clients largely putting their money behind remaining in the EU. Of course that latter point is no guarantee that Britain will still be in the EU come Friday 24th June, just as the former is no guarantee we will leave. However, in the run up to the general election last year Spreadex’s clients consistently backed a Conservative majority even as the polls predicted the tightest race in decades, so it isn’t hard to imagine a similar outcome this time around.

Beyond what is sure to be a Brexit-laden week of rocky trading the UK still has a few companies brave enough to post their latest updates. Monday sees Majestic Wine reveal its full year figures, while Costa and Premier Inn-owner Whitbread (see below) posts its Q1 trading statement on Tuesday. High street mainstay Debenhams then reveals its own trading update on Wednesday, before packaging firm DS Smith and film/TV studio Pinewood Group report on Thursday.

Eurozone
Trading lock-step with the FTSE the Eurozone indices suffered the same fate as their UK peer last week, the DAX and CAC consistently slipping to, and lifting away from, 2 month lows. It is hard to see that trend changing this week, when the market’s referendum worries begin to intensify as the event grows in proximity.

The region will try and provide some distraction, however. The latest German PPI reading is released on Monday, before the German and Eurozone-wide ZEW economic sentiment figures are revealed on Tuesday. Thursday then sees a wave of flash manufacturing and services PMIs compete with any referendum updates, before the German Ifo business climate and Italian retail sales numbers pop up on Friday.

US
While it avoided the more indulgent losses seen in Europe the Dow Jones still spent last week struggling with the same issues as the FTSE, DAX and CAC. It also had its own headache, with Wednesday’s Fed statement seeing the central bank point to a ‘slower path’ for any future rate hikes. Although one would imagine the Dow was happy about this delay, the reasons given by Yellen, namely the potential ramifications of a Brexit and the underlying weaknesses of the US economy, likely tempered any celebrations.

Like the Eurozone the US provides plenty of distraction this week, though whether the markets are interested is another matter entirely. Investors will get a bit more insight into the mind of the Federal Reserve as Janet Yellen testifies on Tuesday and Wednesday, while Thursday sees the usual jobless claims joined by the flash manufacturing PMI and new home sales figure, before Friday updates on the durable goods orders and revised UoM consumer sentiment readings.

Stock of the week: Whitbread PLC – Q1 2016 Trading Statement
Things looked fairly mixed back for Whitbread back in March. Costa’s fourth quarter like-for-like sales edged up by a mere 0.5% against the 3% expected, while Premier Inn’s like-for-like sales jumped 2.2% against the 3% forecast for the same period. Whitbread’s headline brands did better across the year as a whole with Costa and Premier Inn managed 3% and 4.4% like-for-like sales growth respectively; the group, meanwhile, saw sales rise by 3.2%.

There was an improvement at the end of April, as Whitbread released stellar set of full year figures including a 5% jump in pre-tax profits to £487.3 million and a 12% increase in group revenue to £2.92 billion. However, the £44 peak struck in the aftermath of that update wasn’t to last for long, and the increasing intensity of the pre-referendum jitters have since severely eroded Whitbread’s gains.

In terms of the company’s first quarter statement on Tuesday the main focus will be on new-ish CEO Alison Brittain’s strategy for Whitbread going forwards, though investors may end up finding it difficult to look past their Brexit fears given the proximity of the referendum.

(Source: IT-Finance.com 17/06/2016)