The last monthly UK inflation number of 2017 will be eyed closely on Tuesday, with the consumer prices index having hit a six year high of 3.1% in November, forcing Bank of England governor Mark Carney to pull out his pen and write a letter to the Chancellor as it surpassed 3%.
Economists don’t expect him to have to explain himself once again, with December's reading seen slipping back to 3% as a slightly stronger pound, coupled with November’s modest UK interest rate hike should see inflation start to be reined in.
Food prices, however, are likely to be sharply higher than they were last year, although it was actually air fares that were mostly to blame for the jump past 3% last time around.
But should inflation stay the same or actually rise, the pound could move higher as speculation will start to mount that the BoE could be forced to raise interest rates once again, although Carney will be hoping that isn’t case.
With inflation awaited, and official retail sales data due at the end of this week, more Christmas trading statements from the high street will continue to dominate on the corporate front, with Dunelm PLC (LON:DNLM), Greggs plc (LON:GRG) and JD Sports Fashion PLC (LON:JD.) all due to update today.
Tougher comparatives for Dunelm
After a strong first quarter performance, home furnishings retailer Dunelm faces much tougher comparatives for its second quarter update having recovered after a poor start to full year 2017 to record a solid Christmas trading result last year.
The firm – which in December unveiled the appointment of Nick Wilkinson, the former boss of Evans Cycles as its new chief executive officer with effect from February 1 – reported total like-for-like sales (LFLs) growth of 9.3% for the first quarter, with total group sales leaping by 24.8%..
That was a marked acceleration from the 3.8% growth reported for the previous quarter, clearly benefiting from the heatwave in August/September 2016 which saw LFLs then decline by 3.8%.
Given that surprise swing, analysts at Numis Securities expect Dunelm’s second quarter LFLs to trend back towards their full year LFL assumption of 2.3%, and they forecast growth at 2.5%.
In a preview, the Numis analysts said: “We retain our positive stance on Dunelm, believing the solid fundamentals, improving trading trend in the core business, the recovery from one-offs in FY17, and the potential afforded by the Worldstores acquisition, merit a higher multiple than the 13x cal-18 PE on which it currently trades.”
Batteries not included for Johnson Matthey
The focus from an expected trading update for blue chip speciality chemicals group Johnson Matthey PLC (LON:JMAT) will be on its plans to develop an electric car battery business.
Back in September, the FTSE 100 listed firm, which has been focused on making catalytic convertors for petrol and diesel cars, announced that it would invest £200mln into the development of high energy battery material in 2018.
In a note to clients on Monday, German broker Berenberg upgraded its rating for Johnson Matthey to ‘buy’ from ‘hold’ saying it believes the stock offers an electric car battery “opportunity for free”.
Berenberg’s analysts said Johnson Matthey’s “recently announced share gains in European autocatalysts should facilitate a return to high-single-digit earnings growth, and we believe it is more than credible in batteries.”
The analysts added: “We do not believe that JMAT, the largest single spender on R&D in UK chemicals, is the kind of company to make exaggerated technological claims about eLNO (enhanced Lithium Nickel Oxide) cathodes in the hopes of constructing an equity story that later proves baseless.“
They said: “We have attempted to verify the claims about eLNO and believe it could capture 10% of the EV cathode market by 2025, worth GBP600m (c10% of market cap)”.
Significant events expected on Tuesday January 16:
Trading updates: Ashmore group PLC (LON:ASHM), Dunelm PLC (LON:DNLM), Greggs plc (LON:GRG), JD Sports Fashion PLC (LON:JD.), Johnson Matthey PLC (LON:JMAT), The Gym Group Plc (LON:GYM), Ophir Energy Plc (LON:OPHR), Premier Foods PLC (LON:PFD)
Interims: K3 Capital Group Plc (LON:K3C), NCC Group PLC (LON:NCC), 1PM PLC (LON:OPM)
Economic data: UK CPI, RPI, PPI, HPI inflation; US Empire State manufacturing survey