All eyes will be on the latest financial results from Lloyds Banking Group PLC (LON:LLOY), Debenhams PLC (LON:DEB) and WPP PLC (LON:WPP) on Thursday.
Lloyds reports its third quarter results with analysts at UBS expecting an “uneventful set of numbers”.
UBS predicts pre-tax profit of £1.96bn, including remediation costs of £100mln, compared to a profit of £2.08bn last year. Lloyds is expected to generate total income of £4.68bn for the period, up from £4.62bn last year.
A key issue will be margins due to the pressures of tough competition in the mortgages market and low interest rates.
Other areas investors are likely to be looking at include any further provisions to compensate victims of the payment protection insurance (PPI) scandal, costs, loan losses and capital generation.
In the first half, Lloyds took a fresh £460mln provision for its compensation scheme for the payment protection insurance (PPI) mis-selling scandal but pre-tax profit still increased 23% to £3.1bn on the back of higher income and lower costs.
“LBG is, in our view, an undervalued, strongly capital generative bank, operating with a cost advantage in a competitive market and with decent medium-term growth opportunities in lending, savings, investments and general insurance," UBS said.
Dividends under threat Debenhams
Debenhams PLC (LON:DEB), which is to report its full year results, has issued four profit warnings and lost two-thirds of its share price since the start of the year amid a high street downturn.
In an effort to cut costs, it is now reportedly considering axing dividends and closing up to a third of its 166 stores, on top of the 10 closures already announced.
The department store chain and other high street retailers have struggled as more consumers switch to online shopping and hunt for discounts.
The company has so far avoided an insolvency process, known as a company voluntary arrangement, that a number of retailers including New Look, Carpetright, House of Fraser and Mothercare have agreed with creditors this year to allow for store closures and reduced rents on remaining sites.
But Debenhams has been under pressure to turn around the business and avoid the same fate as main rival House of Fraser, which was rescued by Sports Direct International PLC (LON:SPD) in August.
In a trading update in June, Debenhams said it expects to report full year profit before tax of £35mln to £40mln, well below previous market expectations.
Debenhams is trying to revamp stores with a new “social shopping” experience in an attempt to improve footfall but the company is running up capital expenditure to carry out the plan.
“It’s still early days, and there’s still lots of investment in the store estate to come. But wider market conditions means the pressure’s on to show signs of progress,” said Nicholas Hyett, equity analyst at Hargreaves Lansdown.
WPP's new boss in the spotlight
WPP’s third-quarter trading update will be the first opportunity for investors to gauge the early impact of new boss Mark Read.
Read officially took up the job in early September, replacing the ad giant’s founder Martin Sorrell who left under a cloud back in April.
It’s been a tricky start for the long-time WPP employee, who is having to deal with falling margins, industry pressures and the recent loss of a major contract with Ford.
“We will look for… [a] general refresh on client confidence, marketing spend trends, competitive pricing pressure and management’s thoughts on the federal investigation into industry-wide media buying practices that was recently launched in the US,” said City broker Shore Capital.
Any news on Read’s restructuring plans, due before the end of the year, will also be eyed.
ECB's response to Italy debt concerns in focus
Away from company news, the European Central Bank releases its latest policy decision with the focus on its response to concerns about a debt crisis in Italy.
The European Commission has told Italy to revisit its budget over worries about the impact of higher spending on already high levels of debt in the eurozone’s third biggest economy.
Italy has three weeks to submit a new, draft budget to Brussels.
“What will the president of the European Central Bank, Mario Draghi, say about Italy? This is the question which many are asking,” said Naeem Aslam of Think Markets.
“Under the current proposed budget, the country's economy will suffocate, pushing the third biggest economy of the eurozone in recession. The gravity of economic reality will likely trigger another major crisis for the eurozone. This is at stake and I believe this is the major agenda for the president of the ECB. His views on Italy will be scrutinised by currency and bond traders. “
Aslam believes Draghi will say he doesn’t see any risk of contagion due to the Italian drama and that the ECB will continue its path on monetary policy normalisation. The ECB is plans to end its quantitative easing programme at the end of this year. Aslam said the ECB’s upcoming decision could impact the Italian bond market.
“The ECB would have to decide on its asset purchases as they become due at the end of the year. Italian bonds may have the most to lose, especially when they are the biggest beneficiaries of the ECB's decision. The bank could choose a longer timescale over which it must reinvest maturing debt, and or alter the length of maturities it holds.”
Significant announcements due:
Trading updates:Lloyds Banking Group PLC (LON:LLOY), WPP PLC (LON:WPP), Hastings Group PLC (LON:HSTG), RELX PLC (LON:REL), KAZ Minerals PLC (Q3) (LON:KAZ), Aveva Group PLC (LON:AVV)
Interims: Air Partner PLC (LON:AIR)
Finals: RDI REIT PLC (LON:RDI)
Ex-dividends to clip 1.3 points off FTSE 100 index: Ferguson Plc (LON:FERG), ITV plc (LON:ITV)
Economic data: ECB policy meeting, CBI UK distributive trades survey; US weekly jobless claims; US durable goods orders; US pending home sales, international trade in goods