UK inflation and Q1 GDP – 23/05
Recent wages data was a bit of a mixed bag but the trend that has been in place over the last few months still appears to show that wage growth remains fairly decent, as excluding bonuses we saw a rise of 2.9% which means that after over a year prices are now rising at a slower pace than wages, albeit only when compared to the headline CPI measure.
At its recent inflation report the Bank of England came across as rather dovish about the prospects for both wages and inflation downgrading its forecasts for both. It is true that CPI has fallen from 3.1% to levels of 2.5% in the latest March numbers, but it still seems rather early to predict that the recent upward pressure on prices is likely to ebb given that we in the April numbers alone we’ve seen council tax go up, pension contributions increase on an annualised basis, while petrol prices have risen from £1.20 a litre at the beginning of the year to about £1.25 now, and oil prices are within touching distance of $80 a barrel.
This week’s April inflation numbers could well reinforce the Bank of England’s view that prices might fall further, but in the long term it is hard to see how the bank can be anything but wrong in its view that CPI can fall back to target in the manner they think it will. We could also see a recovery in April retail sales after a weak March performance of -0.5% that was heavily weather related. We also have the first revision of Q1 GDP which could get revised up modestly from 0.1% to 0.2%.
France and Germany manufacturing and services flash PMI’s – 23/5
There has been some concern that the slowdown in some of the more recent data at the beginning of this year could be a harbinger of further weakness in the months ahead.
Recent weak inflation data does appear to show that demand pressures remain on the weak side, though we did see a pickup in French manufacturing PMI’s in April, after a weak March number. While some of the recent slowdown can be attributed to the cold weather there is a worry that something else could be happening and that we could see further softness in this week’s May flash numbers from Germany and France. Recent business surveys have pointed to concern about the outlook in both sectors however this is probably overdone given that this week’s numbers are still expected to show activity well into the mid 50’s. The recent weakness in the euro is also likely to act as a tailwind in this regard.
FOMC minutes – 23/5
There was little in the way of surprises at this month’s Federal Reserve rate meeting, though there was some minor tweaks to the language with respect to inflation. This was changed to reflect the much firmer headline numbers seen at the end of last month, with 'run below' changed to “moved close to 2%”, while the reference to “monitoring inflation developments” was removed completely, as was the reference to the economic outlook strengthening in recent months.
The Fed’s outlook on the economy was surprisingly ambivalent suggesting some concern about a possible slowdown later on in the year. This week’s minutes should give us a greater insight into whether policymakers do have concerns about the recent slowdown in the US economy and whether the recent rises in oil prices are giving them any concerns about consumer spending.
Marks and Spencer (LON:MKS) FY18
It’s been a tough start to the year for a lot of UK retailers, with the cold weather, as well as rising prices prompting a slowdown in consumer spending in both food and the general retail parts of the market. M&S is in a particularly difficult position squeezed as it is between the presence of Zara (LON:0QWI) and the recovery of Next (LON:NXT) in general merchandise, while also feeling the pressure from its food peers Waitrose and Tesco (LON:TSCO).
Having refused to partake in last year's end of year discounting the company had a disappointing Christmas period. The company’s Achilles heel remains in general merchandise which has seen several attempts to re-energise the business with little success. The hiring of Archie Norman is the latest attempt by CEO Steve Rowe to reinvigorate this area of the business, along with several management changes at board level. These changes are likely to take a while to bed down, however we should get clearer idea of management thinking with respect to overall commercial strategy when this week’s numbers are released. Management have already announced the closure of 14 stores this year along with the distribution centre in Warrington, as it looks to cut costs as part of a five year turnaround plan.
TalkTalk FY18 - 24/05
Earlier this year Talk Talk (LON:TALK) shares dived sharply to a record low after the company warned that profits would be much lower than expected for the current fiscal year. Management downgraded expectations for profits to £235m from £280m, cutting the dividend, while also announcing plans to raise £200m by way of a share placement in order to help its balance sheet. As one of the smaller players in the competitive UK broadband market the last few years have been difficult ones for TalkTalk as it looks to restructure itself to better compete with SKY (LON:SKYB), BT (LON:BT) and Virgin Media.
Since those February lows the shares have slowly clawed their way back as the company looks to invest in a fibre network that will supply high-speed broadband to up to 3 million homes and businesses. It has already formed a joint venture with Infracapital, while it is also reported to be working on a deal with Virgin Media to share the cost of new ultrafast broadband networks, thus increasing the pressure on BT.
Foot Locker (NYSE:FL) Q1 19 – 25/05
US apparel retailers have been undergoing the same competition pressures as UK retailers, as falling sales weigh on the sector’s profitability. Sector peer Under Armour's (NYSE:UA) troubles have been well documented, while Foot Locker is also struggling with declining sales. At its last quarterly update in March the shares dropped sharply after management announced a third consecutive drop in like for like sales during Q4.
The company also fell into a loss of $49m, due to recent tax changes, while also announcing that sales were likely to remain weak into the first half of this year. The company announced that it would close more than 100 US stores this year but it also said it was opening 40 new ones which will focus more on the customer experience. This week’s update should give an indication as to how much progress is being made here.
DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.
No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.