Wednesday will be mostly dominated by the financial sector with interim results from Lloyd’s expected before eyes shift across the Atlantic to the US for the Federal Reserve's interest rate decision.
Though the tariff tantrum has ramped up a bit since the last Federal Reserve policy meeting, the core of the FOMC is so far unconvinced that this warrants any material shift in the outlook.
Indeed, Fed chairman Jerome Powell was relatively sanguine on the tariff question in his recent semi-annual testimony to the US Congress.
The economists at RBC expect the August FOMC meeting and press statement to come and go with very little fanfare.
In a preview, they said: “For one, it is quite rare to see significant tweaks in a meeting that is not accompanied by a press conference.
“But more importantly, things have not shifted significantly enough to warrant any notable alterations. Indeed, the idea that economic activity remains “solid” and that inflation is at/near the 2% target remains true.”
Lloyds still cleaning up PPI mess and HBOS scandals
Lloyds Banking Group PLC‘s (LON:LLOY) will report its interims on Wednesday, which come as the lender continues to mop up the mess of its past misconduct despite having had a successful post-financial crisis turnaround under chief executive Antonio Horta-Osorio.
The bank has set aside £100mln to compensate victims of fraud at its HBOS unit in Reading.
It also faces further claims for the payment protection insurance mis-selling scandal ahead of the Financial Conduct Authority’s August 2019 deadline. Lloyds has so far paid out £18.8bn in PPI claims.
Analysts at UBS expect Lloyds to report a statutory pre-tax profit of £887mln for the second quarter, including £410mln for PPI provisions, £262mln in restructuring costs and a £110mln loss on the disposal of its Irish residential mortgage portfolio.
Come Brexit, Lloyds is reportedly planning to operate three sUBSidiaries in continental Europe to ensure it can continue operating across the European Union. The bank has declined to comment on the reports so the market will also be looking out for any remarks on the matter.
Flat earnings seen for BAE Systems
Half-year results from defence company BAE Systems PLC (LON:BAE) are likely to see the company’s wheels spinning just to stand still.
At its annual general meeting in May, the company reiterated its forecasts for flat earnings over the full-year, since when it has announced a couple of big contract wins – one for £20bn with the Australian navy and one for £2.4bn from the UK.
Meanwhile, a soap opera that appears to have run longer than “The Archers” - negotiations with Saudi Arabia over the terms of its intention to buy 48 Typhoon fighter jets – drags on but shareholders live in hope of a breakthrough.
Deutsche Bank has forecast half-year revenues of £8.6bn, which would account for 47% of its full-year expectation; last year, 49% of BAE’s revenues came in the first half.
The bank has predicted underlying earnings (EBITA) of £860mln, which implies a margin of 10%.
“Finally, turning to cash, due to the usual seasonality around working capital, together with the reversal of some of the late 2017 inflows flagged by BAE, which boosted last year's FCF [free cash-flow] (£100m VAT receipt and £300m advance for Saudi support), and with new advances linked to potential Saudi & Qatari Typhoon contracts unlikely until 2H, we forecast a small FCF outflow (£76m) in 1H18,” Deutsche Bank said.
Hot weather good for Next?
Once again, the latest trading news from clothing and homewares retailer Next Plc (LON:NXT) is expected to show continued strength online offsetting further declines in its store sales, although it will be interesting to see what the firm has to say about the impact of the recent very warm weather.
Back in May, Next raised its full-year profit forecast after a bout of sunny weather led to better-than-expected first quarter sales.
The FTSE 100-listed firm saw its full price sales in the 14 weeks to May 7 rise by 6% as an 18.1% increase in online sales offset a 4.8% decline at stores.
For the second quarter, analysts at UBS are forecasting Next to report a 6.5% drop in Retail like-for-like (LFL) sales, but expect a 12.5% jump in Online full price sales, which would give total full price sales up 2.8% in the period.
Over the first-half, UBS forecasts Retail LFL sales falling by 6.0%, with Online full price sales up 15.5% giving total full price sales growth of 4.1%.
Next lifted its central guidance for annual pre-tax profit to £717mln in May, up from a previous estimate of £705mln, which represents a 1.3% decline on the prior year, and the analysts expect this to be maintained.
Significant announcements expected:
Wednesday, August 1:
Federal Reserve US rate decision
Trading update: Next Plc (LON:NXT)
Interims: Lloyds Banking Group PLC (LON:LLOY), BAE Systems PLC (LON:BA.), Rio Tinto PLC (LON:RIO), St James’s Place PLC (LON:STJ), Smurfit Kappa PLC (LON:SMFT), Direct Line Insurance Group PLC (LON:DLG), Aggreko PLC (LON:AGK), Capita PLC (LON:CPI), Man Group PLC (LON:EMG), BBA Aviation PLC (LON:BBA), Dignity PLC (LON:DTY), Getbusy PLC (LON:GETB), StatPro Group PLC (LON:SOG)
Finals: Hargreaves Services PLC (LON:HSP)
Economic data: BRC shop price index; UK manufacturing PMI; US ISM manufacturing; US manufacturing PMI; US construction spending; ADP employment report