Sign up United Kingdom
Proactive Investors - Run By Investors For Investors

Inflation numbers from UK and US to be eyed closely in coming week amid rate hike fears

Week ahead includes the latest UK and US consumer price indexes, plus corporate updates from RELX PLC, Coca Cola HBC PLC, Shire PLC and ConvaTec PLC
Inflation arrow
The UK consumer price inflation fell to 3.0% in December from a five-year high of 3.1% in November but it remains well above the central bank’s 2.0% target

Given the recent rout in global stock markets amid worries that the pace of interest rate hikes could pick up in the face of inflation concerns, the latest consumer price indexes for both the UK and the US will be the dominant features over the coming week.

The Bank of England has hinted that the pace of interest rate hikes could accelerate as it comes under pressure to tackle high inflation.

The UK consumer price inflation fell to 3.0% in December from a five-year high of 3.1% in November but it remains well above the central bank’s 2.0% target. Core inflation, which strips out volatile fuel and food price, was 2.5% in December, down from 2.7% the previous month.

The latest UK CPI figures will be released on Tuesday and some economists expect inflation to ease over the coming year as the effects of the weak pound following the Brexit vote begin to fade.

“Recent inflation rises have been primarily driven by currency effects, and with sterling on the up, the rate of inflation will continue its slowdown,” said Nancy Curtin, chief investment officer at Close Brothers Asset Management.

Stubbornly high inflation coupled with the BoE’s view that slack in the UK economy has reduced, led policymakers to say at the latest meeting that interest rates may need to rise sooner than expected.

“The outlook for growth and inflation [is] likely to require some ongoing withdrawal of monetary stimulus,” the MPC said.

US inflation concerns

Across the pond, the US will release its inflation figures for January on Wednesday, with headline CPI in December having fallen to 2.1% from 2.2% in November as gasoline prices fell. 

Core CPI in the last reading rose to 1.8% from 1.7% on the back of strong gains in the cost of rental accommodation and healthcare.

“Following recent falls in stock markets over fears that US interest rates may be forced to rise faster and higher than previously expected, even more attention than normal will be paid to the data on US inflation,” said Graham Spooner, investment research analyst at The Share Centre.

The Fed, which is targeting 2% inflation, expects three rate hikes this year.

Low-grade corporate news

The corporate news due in the coming week is fairly low grade, although a number of FTSE 100 companies feature on the diary.

Electronic databases specialist RELX Group PLC (LON:REL) is expected to report another year of underlying revenue, profit and earnings growth on Thursday.

Revenue growth on the Scientific, Technical & Medical side and in the Legal business is expected to be modest, having been up 2% year-on-year in the first nine months of the financial year.

The sexy numbers should be provided by the Risk & Business Analytics (R&BA) division, which has seen strong revenue growth across all segments of the division.

The R&BA division saw underlying revenue growth of 8%, which topped the 5% growth seen in the Exhibitions business.

More fizz for Coca-Cola HBC

Full-year results from bottling company Coca-Cola HBC AG (LON:CCH) on Wednesday will be the first trading update since Zoran Bogdanovic became chief executive officer (CEO). He took the helm in December after the death of previous CEO Dimitris Lois on October 2.

As a regional director responsible for operations in 12 countries and a member of Coca-Cola HBC’s operating committee since 2013 Bogdanovic should be regarded as a safe pair of hands and it will be interesting to see whether he announces any changes in strategy.

The FTSE 100 listed firm’s November trading update revealed the company to be in decent shape, with third-quarter volumes up 3.4% year-on-year.

The developing markets segment was powering much of that growth with particularly strong performances in Hungary and the Czech Republic while Poland, which had lost some of its fizz, stabilised.

The established markets division returned to year-on-year growth in the third quarter, helped by warm summer weather in Italy and Greece; summer is very definitely over, however, so shareholders will be keen to see whether this momentum has been maintained.

The UK is set to introduce a sugar tax on soft drinks in April so there may be some commentary on that.

Baxalta to boost Shire’s full-year numbers

Blue chip drugs giant Shire Plc (LON:SHP) disappointed investors back in January when it backtracked on its promise to deliver revenues of US$20bn by 2020.

Investors will be hoping for something a little better when it reports its final results on Wednesday, and the first full contribution of Baxalta, which Shire bought back in 2016 for US$32bn, should boost the numbers.

That could mask issues the druggie faces from generic competitors, with its ulcerative colitis drug Lialda and hereditary angioedema treatments expected to come under pressure in the near future.

The focus will, therefore, be on progress in the pipeline, while investors will also be keen to see more integration synergies from the addition of Baxalta.

Shire recently said it was mulling spinning off its neuroscience business – home to its ADHD blockbuster  - so keep an eye out for any extra details there

Margins under pressure ConvaTec

Colostomy bag maker ConvaTec Group PLC’s (LON:CTEC) first full year after its IPO has proven to be something of a disappointment.

Product supply in wound care and ostomy has been hampered by the implementation of the gross margin improvement plan, although margins are still likely to have slipped last year.

Results for the 12 months to December 31 are due on Thursday, and the FTSE 250 group is expected to deliver sales growth of 1.5% to US$1.75bn, according to City broker Numis.

But the gross margin is tipped to fall to 61% which means underlying earnings are forecast to dip to US$451mln (2016: US$472.2mln), while adjusted earnings per share is seen as slipping to US$0.165 (2016: US$0.183).

“Assuming no further fall in cash conversion (75% in H1, 80% in FY16), the focus should be on the outlook for FY18, where we forecast 2.4% organic growth on constant currency (consensus c.2-3%), flat gross margins (FX headwinds) and increased opex (NSe 37% of sales),” said Numis analyst Paul Cuddon.

Cuddon reckons sales and marketing and R&D investment will rise this year as ConvaTec battles its way through a “harsher competitive environment”, while the analyst is also looking for guidance on the implications from the recently-introduced US tax cuts.

Significant events expected:

Monday February 12:

Trading updates: Nothing

Finals: Nothing

Economic data: Nothing

Tuesday February 13:

Interims: A&J Mucklow Group PLC (LON:MKLW), Animalcare PLC (LON:ANCR), Hargreaves Services PLC (LON:HDP), Oncimmune Holdings PLC (LON:ONC), Pan-African Resources PLC (LON:PAF)

Trading update: TUI AG (Q1), RWS Holdings PLC (LON:RWS)

Economic data: UK CPI, RPI, PPI HPI inflation; UK construction output

Wednesday February 14:

Finals: Shire Plc (LON:SHP); Coca-Cola HBC AG (Q4) (LON:CCH), Plus 500 Limited (LON:PLUS)

Interims: Galliford Try plc (LON:GFRD)

Economic data: US CPI; US retail sales

Thursday February 15:

Finals: RELX PLC (LON:REL), ConvaTec PLC (LON:CTEC), Indivior PLC (LON:INDV), Lancashire Holdings PLC (LON:LRE), Primary Health Properties PLC (LON:PHP)

Interims: InnovaDerma PLC (LON:IDP)

Trading update: Aveva Group PLC (LON:AVV)

Ex-dividends: To knock 24.4 points off FTSE 100: AstraZeneca PLC (LON:AZN), BP PLC (LON:BP.), Hargreaves Lansdown PLC (LON:HL.), Royal Dutch Shell PLC (LON:RDSA) (LON:RDSB), Unilever plc (LON:ULVR)

Economic data: EU preliminary GDP; US weekly jobless; US industrial production; US forward PPI; Philly Fed business outlook; Empire State manufacturing survey

Friday February 16:

Finals: Segro PLC (LON:SGRO)

Economic data: UK retail sales; US housing starts; University of Michigan consumer sentiment

No investment advice

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable or advisable for any specific person. You further understand that none of the information providers or their affiliates will advise you personally concerning the nature, potential, advisability, value or suitability of any particular security, portfolio of securities, transaction, investment strategy, or other matter.

You understand that the Site may contain opinions from time to time with regard to securities mentioned in other products, including company related products, and that those opinions may be different from those obtained by using another product related to the Company. You understand and agree that contributors may write about securities in which they or their firms have a position, and that they may trade such securities for their own account. In cases where the position is held at the time of publication and such position is known to the Company, appropriate disclosure is made. However, you understand and agree that at the time of any transaction that you make, one or more contributors may have a position in the securities written about. You understand that price and other data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that neither such data nor such calculations are guaranteed by these sources, the Company, the information providers or any other person or entity, and may not be complete or accurate.

From time to time, reference may be made in our marketing materials to prior articles and opinions we have published. These references may be selective, may reference only a portion of an article or recommendation, and are likely not to be current. As markets change continuously, previously published information and data may not be current and should not be relied upon.

© Proactive Investors 2018

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use