The Federal Reserve will be scrutinising official monthly US jobs data on Friday for signs the labour market has improved enough to warrant an interest rate hike in December.
A strong US jobs report is likely to lend support to bets the central bank will raise interest rates in December. The Fed last raised the target range of the federal funds rate in June to between 1% and 1.25% from 0.75% to 1.00%.
The non-farm payrolls report is expected to show US employers added 198,000 jobs in November following 261,000 adds a month earlier while the unemployment rate is forecast to remain at 4.1%.
October’s non-farms came in well below analysts’ expectations of 310,000 after hurricanes disrupted business operations in the southern states but the previous two months were revised higher and analysts were quick to point out the labour market had improved overall.
“There will come a point when there is insufficient slack in the labour market for non-farm payrolls to rise any further,” said Graham Spooner, investment research analyst at The Share Centre.
“Indeed, US unemployment is already below the level the Fed had previously considered to be the equilibrium level.”
He added that the purchasing managers’ index on manufacturing and services activity has pointed to continued growth while November “may well have been another month for significant growth in non-farm payrolls, and maybe US unemployment will fall to the psychologically significant 4.0%, if not in November, then soon”.
Effect of recent government rail plans in focus for Stagecoach
It’s been a challenging period for Stagecoach Group PLC (LON:SGC), which is due to report its half-year results next Wednesday.
The buses and trains operator, however, was given a recent boost after the government unveiled a raft of measures designed to improve and extend the UK’s rail network.
One of those plans is to replace Stagecoach’s loss-making East Coast franchise – which has weighed on the group for a while – earlier than expected in 2020, with the two parties looking to renegotiate the terms of the current onerous contract until then.
Analysts reckon there’s almost no way the new, short-term contract can be worse than the current one, so look out for some more detail and guidance with the results.
Last year Stagecoach benefitted from an unexpectedly low tax rate, which isn’t expected to carry over into this year and could be another burden on profitability, so traders will no doubt earmark that for closer inspection as well.
Keep an eye out for rising wage costs too, which US bank JP Morgan highlighted back in October when its analysts chopped back their price target for Stagecoach.
US front and centre now for Ferguson
Wolseley’s name change in July to Ferguson Plc (LON:FERG) reflected the fact that the plumbing supplies group‘s US business accounts for the lion’s share of its revenues and profits.
The FTSE 100 listed firm’s recent disposal of Nordic building materials business Stark Group means that will be even truer when it issues a trading update on Tuesday.
Recent statistics suggest conditions in the US construction market remain favourable, particularly in the residential and commercial sectors that account for 85% of Ferguson’s sales, and Hargreaves Lansdown equity analyst George Salmon believes that should feed through to profits.
The €1bn Stark deal, together with a healthy underlying performance, should leave the group with net cash on the balance sheet at the end of the year, and although management have already said they’ll wait until the deal completes before updating the market on plans for any surplus, M&A and share buybacks both look to be on the table, Salmon said.
Stellar year to continue for DS Smith
Packaging group DS Smith PLC (LOON:SMDS) has enjoyed a stellar year, which has been topped off by its promotion to the FTSE 100, confirmed last Wednesday.
Investors will be hoping this recent momentum continues in its half year results, due on Thursday , with the signs looking good in October’s pre-close update, although the mid cap firm didn’t give much away in.
However, all of this, along with a recent broker upgrade, has raised expectations which may be hard to beat, according to Graham Spooner, investment research analyst at The Share Centre.
He said there will also be interest in how the group’s recent US acquisition, Interstate Resources is performing.
London-focus provides uncertainty for Berkeley Group
Like most of its housebuilding peers, Berkeley Group PLC (LON:BKG) has done well since the 2016 EU Brexit referendum with home sales and prices holding up relatively well, as last updated to the market in September.
However, the London housing market has been more pressed than the rest of the country and given the group’s premium focus on the UK capital, it is less likely to reap the benefits of the changes to stamp duty made in the recent budget, so Friday’s first half results will be scrutinised closely.
In a note on the sector, analysts at Deutsche Bank said recent weakness in housebuilding stocks offered a buying opportunity, but it downgraded its rating for Berkeley Group to ‘hold’ from ‘buy’ reflecting a more conservative view on London as well as a strong relative share price performance.
IG looking to build on flying start despite placid markets
Tuesday’s pre-close trading update from IG Group Holdings PLC (LON:IGG) will reveal whether spread betting firm has continued to thrive despite relatively quiet financial markets.
The three months to the end of August – the first quarter of the group’s current financial year – was a record quarter for IG, with revenue up 21% year-on-year.
Investors will be keeping an eye out for a range of key performance indicators, including number of active clients and revenue per client.
In the first quarter the number of clients was up 9% year-on-year to 124,900 and the revenue per client was up 11%, so those are the run-rates the group will be looking to maintain or improve.
The group may comment on the regulatory threat that the sector is facing, particularly in Europe (including the UK).
In September, IG said: “Although none of the recently announced regulatory changes have adversely impacted the business to date, as previously noted, the nature and timing of potential regulatory changes in the UK and some other key markets for the group remain uncertain. It is therefore difficult to predict what impact, if any, regulatory change may have on the group this financial year and beyond.”
A test of Character after recent profit warning
Christmas is coming and it can’t come fast enough for The Character Group PLC (LON:CCT), the struggling toy maker.
Last month the company revealed its markets remained challenging, though the home market was holding up well.
But it’s a different story overseas, where the collapse of Toys R Us in the US and Canada has put a dent in sales.
In the circumstances, the company could be excused a profit warning relating to its full year performance, but shareholders will be hoping for some news of the company’s mitigation efforts when it reports on Monday.
Much will doubtless be made of “the exceptionally exciting new products” that the group intends to introduce next year, many of which have been developed in-house (and therefore sold at a higher margin).
The board reassured in the recent profit warning that a progressive dividend policy and share buyback programme would still be pursued “as and when considered appropriate”, but analysts are expecting the pay-out to be reduced from 15p to 13p.
Significant events expected:
Monday December 4
Trading update: McColl’s Retail Group PLC (LON:MCLS)
Interims: RhythmOne PLC (LON:RTHM)
Finals: Character Group PLC (LON:CCT), MCX Capital PLC (LON:MXCP)
Economic data: UK construction PMI; US factory orders
Tuesday December 5
Trading updates: Ferguson Plc (LON:FERG), IG Group Holdings PLC (LON:IGG)
Interims: Collagen Solutions PLC (LON:COS), Consort Medical PLC (LON:CSRT), Iomart Group PLC (LON:IOM), Tatton Asset Management Plc (LON:TAM), Vianet Group PLC (LON:VNET), WYG PLC (LON:WYG)
Economic data: UK services PMI; US international trade; US non-manufacturing ISM
Wednesday December 6
Interims: Mercia Technologies PLC (LON:MERC), Mulberry Group PLC (LON:MUL), Plastics Capital Plc (LON:PLA), Stagecoach Group PLC (LON:SGC), SysGroup PLC (LON:SYS), Tricorn Group PLC (LON:TCN)
Finals: easyHotel PLC (LON:EZH), Numis Corporation PLC (LON:NUM), Oxford Metrics PLC (LON:OMG), Redhall Group PLC (LON:RHL), RWS Holdings PLC (LON:RWS)
Economic data: BRC shop price index; US ADP employment report
Thursday December 7
Interims: Clipper Logistics PLC (LON:CLG), DS Smith PLC (LON:SMDS)
Finals: CareTech Holdings PLC (LON:CTH)
Economic data: US weekly jobless claims; US Challenger jobs report; US consumer credit
Ex-dividends: To clip 0.46 points off FTSE 100 - Babcock International Group PLC (LON:BAB), Mediclinic International Plc (LON:MDC), Next Plc (LON:NXT)
Friday December 8
Interims: Berkeley Group PLC (LON:BKG)
Economic data: UK trade; UK industrial, manufacturing production; UK construction output; US non-farm payrolls, unemployment rate; University of Michigan consumer confidence