High street updates, US jobs, UK PMIs to provide focus after New Year holidays

There will be some key data from the US and UK at the start of the new year, and Christmas retail trading news will be a dominant focus notably from Next PLC

Next store
Next's last comments were that they expected less stock into the post-Christmas Sale than last year

Next PLC (LON:NXT) will, as traditional, lead the way in the Christmas trading update season in the coming foreshortened trading week, with its peak period sales report scheduled to be released on 3 January although investors will also be keeping an eye out for any unscheduled retail updates amid worries about troubled times on the UK High Street.

Lee Wild, head of equity strategy, interactive investor, commented: “Already struggling to grow sales in the run-up to Christmas, a profit warning from ASOS PLC (LON:ASC) has dealt a massive blow to both online and high street fashion retailers.

“Next is not immune, already warning in September that the UK retail market remains volatile and is subject to ‘powerful structural and cyclical changes’.”

He added: “Next shares have lost almost a quarter of their value since the end of November, and now look cheap assuming sales do keep growing.

“Forecasts are for annual mid-single-digit profit growth over the next five years, which is hardly aggressive, but fear is that near-term headwinds could threaten full-year sales and profit guidance.”

Next sales growth forecast of 1%

In a note at the beginning of December, analysts at UBS said they believe Next’s full-year pre-tax profit guidance is unlikely to change much from the £727mln consensus if its full price sales forecast for 1% growth in Next Brand sales for the fourth quarter is met.

That is in line with company guidance made on 1 November, although temperatures since then have probably been a little milder than apparel retailers would prefer, and the British Retail Consortium’s apparel category in November was relatively weak.

However, against this, the UBS analysts added, online apparel sales was one of the fastest growing categories, with estimated year-on-year growth of around 7% last month.

Next's last comments were that they expected less stock into the post-Christmas Sale than last year, which could also help clearance rates, the analysts added.

US jobs growth trend your friend

On the macro front, the first Friday of January will bring the latest US jobs report, with the pace of payroll growth unlikely to deviate much from the recent trends.

Economists at RBC Capital are expecting December’s report to show an increase of 190,000 in both headline and private non-farm payrolls.

In a preview, they also said: “We think the likelihood of an upward revision to November seems elevated given the soft retail hiring print that was at odds with much stronger hiring announcements and robust retail sales activity.”

The economists are also pencilling in a slight improvement in the US unemployment rate to 3.6% from 3.7%.

Brexit loom overs UK PMIs

On the domestic data front, with just over three months left until the UK exits the EU and no withdrawal deal in place, the uncertainty is taking its toll on economic activity.

Last month the UK services purchasing managers index (PMI) fell to just 50.4 as “subdued business and consumer spending” held back growth.

With the incoming business sub-index also falling, the prospects for the sector continue to look weak and RBC’s economists expect the latest services PMI reading – due on Friday 4 January  - to drop further to 50.2 this month.

Even the surprise improvement in the manufacturing PMI report last month was tempered by reporting from complier IHS/Markit that there was some evidence that firms were stock-building to guard against the possibility of supply chain disruption in the event of a cliff-edge Brexit.

RBC’s economists said the prospects for the latest UK manufacturing PMI reading – due on Wednesday 2 January - are, therefore, a little more difficult to judge, though their central scenario is for a deterioration to 52.5.

Significant announcements expected for the week ending January 4:

Monday December 31:

New Year’s Eve half-day

AGMs: Genedrive PLC (LON:GDR)

Tuesday January 1:

New Year’s Day

Wednesday January 2:

Economic data: UK manufacturing PMI

Thursday January 3:

Trading update: Next PLC (LON:Q4), Staffline Group PLC (LON:STAF)

AGMs: PCG Entertainment PLC (LON:PCGE), Wishbone Gold PLC (LON:WSBN)

Ex-dividends to clip 0.7 points off FTSE 100 index: Auto Trader PLC (LON:AUTO), British Land Company PLC (LON:BLND), Experian PLC (LON:EXPN)

Economic data: UK construction PMI; US weekly jobless claims

Friday January 4:

Trading updates: Johnson Service Group PLC (LON:JSG)

Economic data: UK services PMI; US non-farm payrolls

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