Fed rate decision – 26/09
No surprises expected here with a 25 point rise in the Fed Funds rate expected from US policymakers. At the last Fed meeting US policymakers upgraded their outlook for the US economy but they did warn about downside risks to their assessment of the economy. The narrative continued to be one of further gradual increases in the target rate, as long as the economy remained on track to grow at an above trend pace. What is likely to be of greater interest is if Fed policymakers resile from the prospect that a rise in December has become less likely? Given some more recent comment that doesn’t look likely, but markets doe appear to be starting to price in slightly more two way price action when it comes to the likelihood of a move in December. If policymakers show signs of caution in this regard yields could fall back from their current peaks.
US Q2 GDP final – 27/09
At its most recent reading US Q2 GDP came in at 4.2% while Q1 was also upgraded, despite the cold snap that clobbered much of the economy in the first quarter. This week’s final estimate is expected confirm the strong recovery in Q2, so we don’t expect too many surprises here. The Q3 numbers are also looking solid with personal spending and income for August, due on 28/09 set to show that the US consumer remains on course for a continuation of what we saw in Q2.
Germany business confidence has taken a hit in recent months on the back of the threats being made by the US with respect to tariffs on EU exports to the US. Despite these concerns we did see a pick up in the August numbers, to a five month high, probably as a result of the recent meeting between President’s Juncker and Trump in Washington, which in the main had a cordial outcome. While this may have offered a temporary respite, the recent threats by President Trump to slap a 25% tariff on all EU auto imports serves to show that any lull in trade tensions is likely to be temporary.
The UK economy appears to have recovered from its Q1 slump, with a decent rebound in Q2, helped in no small part by a rebound in the construction sector, as well as a UK consumer starting to see evidence of rising wages. The final revision is expected to see UK GDP confirmed at 0.4%, with a small chance of an upward revision to 0.5%, while the latest Q3 data would appear to suggest that the bounce back in Q2 could well have been sustained into Q3.
EZ CPI flash estimate (Sep) - 28/09
Despite rising evidence that wages are rising headline inflation continues to remain stubbornly low with headline prices slipping back to 2% in August, with core prices all the way down at 1%. The recent ECB meeting showed that policymakers remained determined to end the bond buying program by the end of this year, with the bar to not doing so relatively high. As such further weakness in the headline inflation numbers is unlikely to move the bar that much. Nonetheless a weak reading could well delay market expectations of the timing of when rates might start to go up, and push them further out into Q4 2019.
Next PLC (LON:NXT) – H1 – 25/09
There’s been no shortage of negative headlines surrounding UK retail in recent weeks with the woes of the sector extending to stalwarts like John Lewis. Earlier this year Next warned that trading conditions were the toughest they had been for 25 years, after the company warned that margins could come under further pressure in the upcoming fiscal year. With the increasing prevalence of consumers to shop at Primark on the budget side, as well as on line with more fashionable retailers like Boohoo, Asos and Zara, traditional brands like Next appear to have fallen through the cracks. In the first quarter of this year there were signs that revenue was starting to pick up with its on-line operation picking up the pace. The big question is whether the extended warm weather spell this summer has helped it maintain the pace set in Q1 or whether turnover has slowed down ahead of the autumn.
Boohoo.com plc (LON:BOOH) H1 – 26/09
One of the major beneficiaries of the move to online shopping Boohoo.com has had an up and down few years since its IPO in 2014. Peaking at over 260p a share a year ago the shares crashed spectacularly over concerns about shrinking margins, before finding a base just below 150p earlier this year. Twelve months ago the company posted half year pre-tax profits of £20.3m on revenues of £262.9m, and while the performance since then has continued to improve, investors have steered clear despite profits for the full year in March rising 40% on the previous year to £43.3m. In the first quarter of this year this trend continued across its brands, which included Pretty Little Thing with sales up 53% across the brands. Despite this continued growth in sales and revenues, investors have stayed remarkably cool towards the stock. In an attempt to reinvigorate investor confidence in its expansion plan the company announced it had poached Primark’s COO John Lyttle to be its new CEO from March next year, as it embarks on an ambitious overseas expansion plan.
The US sportswear giant has seen its shares consistently put in record highs this year despite a slow start this year in the US in terms of sales. Its other big market is China where sales have been on a tear this year, rising 24% in Q3, and 35% in Q4, while a recovery in its US market helped drive its Q4 numbers. The recent controversy around Colin Kaepernick raised its profile in the wider media, however it is unlikely to affect its numbers that much. What might is the recent escalation in the trade rhetoric between the US and China, particularly if tariffs get applied to goods that the company sells in one of its biggest markets in the coming months.
With the Bank of Canada widely expected to raise rates at its next meeting in October the strength of the Canadian economy will be front of mind for Canadian dollar traders this week. The monthly GDP numbers are likely to be less important than how markets look at the background with respect to NAFTA progress and the recent imposition of those aluminium and steel tariffs. The latest manufacturing prices index which is likely to show how much the recent tariff increases could exert upward pressure on inflation.
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