The coming week is forecast to bring some sunny days and high temperatures as July gets underway just as the corporate diary begins to cool off a little, though updates from blue-chips J Sainsbury PLC (LON:SBRY) and Primark owner Associated British Foods plc (LON:ABF) should provide some excitement.
Aside from the company news, the market thermometer could also be pushed higher by the always important US non-farm payrolls report at the end of the week as traders seek signs regarding a potential Federal Reserve rate cut in the coming month.
Tough comparatives set to weight on Sainsbury’s Q1
After the Competition and Markets Authority scuppered plans for a £7bn merger with Wal-Mart Inc (NYSE:WMT) owned Asda earlier this year, the performance of Sainsbury’s core grocery business will be in focus in Wednesday’s trading update.
Boss Mike Coupe had pinned his hopes on the merger to drive growth and improve margins, but he will now have to come up with ways to do this organically.
That’s not an easy task in the current retail climate, with discounters Aldi and Lidl relentlessly chipping away at the Big Four’s market share.
Unfortunately for Sainsbury’s shareholders, analysts expect first-quarter sales to have fallen slightly, given the tough comparatives this time last year.
“With Q1 last year boosted by the football World Cup and a Royal Wedding, Sainsbury is up against a tough comparison – and that’s before we think about how the miserable weather has dampened sales,” said Hargreaves Lansdown equity analyst George Salmon.
Has poor weather knocked sales at Primark?
Meanwhile, Associated British Foods plc (LON:ABF) is due to update on its current performance on Thursday.
So far this year, low sugar prices have taken the shine off what has been a relatively stable showing from its star asset, discount clothing retailer Primark, which continues to outperform most of its peers.
Still, European sugar prices are slowly recovering, and AB Foods expects profits to rebound towards levels comparable with last year.
The plunge in sugar profits has put the onus very much on Primark in recent years and the cheap clothes seller now accounts for around two-thirds of group operating profits.
New store openings have kept headline sales moving forward, and Hargreaves Lansdown analysts reckon “hopes for further top-line growth aren’t unreasonable”.
That said, it will be interesting to see what impact the recent poor weather has had on sales.
Quality improvements key for Persimmon
Also among the blue-chips, a half-year update is due on Thursday from housebuilder Persimmon PLC (LON:PSN), which has seen its shares fall more than 13% since May Day trading news to hit a little above a two-year low.
For the first four months of the year, Persimmon’s sales rate dropped 5% and forward-sales revenue by 3.6% as it attempted to improve customer relations after complaints about its poor build quality, punitive leasehold terms and excessive executive bonus scheme.
While the FTSE 100-listed firm maintained that the new-build housing market was proving “resilient” and current forward sales position were “strong”, it was having to make a “more targeted approach” to site sales and was investing in the customer care team, operations and technology.
Analysts at UBS expect Persimmon’s first-half housing completions to be flat at 8,072 and average selling prices to be up 1.3%, resulting in total revenue growth of 1.3% to £1.77bn.
While Persimmon does not report margins with its trading update, UBS expects first half operating margins to be up slightly before making a sharper decline in the second half due to the increased customer services investment.
Purplebricks looking to prevent more subsidence
Online estate agency Purplebricks Group PLC (LON:PURP) will be hoping to give investors at least something positive in its final results on Wednesday after a torrid year that saw the AIM-listed firm give the boot to its founder and chief executive Michael Bruce as well as UK CEO Lee Wainwright and US CEO Eric Eckardt.
It now falls to its interim boss, ex-Moneysupermarket.com managing director Vic Darvey, to try and shore up the firm and prevent any more subsidence in the shares, which have dropped by 70% over the past 12 months.
Investors will also be awaiting an update on the status of the group’s US business, which has been placed under strategic review, as well as the company’s ongoing exit from the Australian market.
In a trading update in May, Purplebricks said its revenues for the year ended 30 April would be between £130-140mln with a cash balance of around £60mln. With a potential restructuring ahead investors will be hoping the firm has enough firepower to back its plans.
Development updates eyed from St.Modwen Properties
With its shares trading close to a one-year high, investors in FTSE 250 brownfield site developer St. Modwen Properties PLC (LON:SMP) will be hoping for some info on the sector’s development when the company reports its interims on Tuesday.
Brexit, as usual, is continuing to prove a weight on the property sector’s performance, while there may also be an update on the next phase of the group’s development strategy as it looks to build a high-quality industrial and logistics business as well as leveraging their regeneration reputation to grow residential and housebuilding activity.
Analysts at Peel Hunt are expecting St. Modwen to deliver a 20% increase in profit to around £42.3mln on an adjusted pre-tax basis.
Europe a focus for SIG
A half-year trading update from SIG PLC (LON:SHI) on Friday will be closely eyed after the first four months of the year saw mixed trading, with Europe up 2.7% and the UK down 9.2% for a total group like-for-like decline of 2.6%.
Having tackled problems at its UK distribution arm first, SIG’s German and French units are now in focus, with a review on the Air Handling arm also ongoing.
Analysts at Jefferies forecast that the FTSE 250-listed firm’s sales will continue to contract into May and June and so see the full interim results - at a date yet to be confirmed - “as a bigger potential catalyst for the share price, as this is when it will be seen if management’s expectation of a strong profit uptick in 1H19 has materialised”.
They noted that investors are still likely to seek reassurance that SIG’s operations in France are normalising after a ransomware attack in April, and that there are no signs of significant deterioration in any of the group's markets.
“Given the step-up in UK political uncertainty in recent weeks and weaker data (e.g. construction PMI), we see scope for a more cautious tone towards the UK, but expect the outlook towards Europe to remain sanguine,” the Jefferies analysts said.
US payrolls key as rate cut expected
On the macro front, a poor reading from the next US non-farm payrolls report on Friday is likely to support expectations that the Federal Reserve will cut interest rates in July.
Economists at ING expect US job creation to remain below the 2018 monthly average of 223,000 in the data for June.
Non-farm payrolls rose 75,000 in May, the weakest rise since the end of the recession in mid-2009, although the jobless rate held at 3.6%.
The Federal Reserve decided to keep rates on hold in June despite the slowdown in the number of jobs added to the economy. However, the central bank said uncertainties about the economic outlook have increased and it would “act as appropriate to sustain the expansion”.
The Fed is widely expected to cut rates next month so markets will be assessing the jobs report to see whether looser monetary policy is justified to bolster the economy.
Economists at RBC Capital Markets think that even if you take the May payroll number at face value and think it represents a turning point toward a much lower trend for job growth, this is not inconsistent with Fed thinking.
“The Fed explicitly has an expectation for slowing payroll growth in its baseline forecast,” it said.
The Fed has sub-100,000 pace for payroll growth baked into its multi-year forecast.
UK PMIs eyed for second-quarter economic outlook
Purchasing managers surveys for May pointed to weakness in the UK economy for the second quarter following Britain’s delayed exit from the European Union.
The IHS Markit purchasing managers’ index (PMI) for the dominant services sector showed further expansion in activity for the month, but the manufacturing and construction indexes both contracted.
June’s surveys will be released in the week ahead but are unlikely to change the outlook for second quarter economic growth, according to the economists at RBC Capital.
“June IHS/Markit PMIs will leave us with a full three months’ PMI data for the second quarter, but we do not think that this month’s results will significantly alter the growth message from the April and May surveys,” they said.
“For some time now, the PMIs have been pointing to UK GDP growth coming to a standstill.”
RBC expects UK economic growth to slow in the second quarter after rising 0.5% in the first three months of the year.
Significant announcements expected for week ending July 5:
Monday July 1:
AGMs: Boston International Holdings PLC (LON:BIH)
Economic data: UK manufacturing PMI; UK mortgage approvals; US ISM manufacturing; US construction spending; US manufacturing PMI
Tuesday July 2:
Interims: St Modwen Properties PLC (LON:SMP)
Finals: Cohort PLC, HML Holdings plc (LON:HMLH), Solid State PLC (LON:SOLI)
Economic data: UK construction PMI; US factory orders
Wednesday July 3:
Trading update: J Sainsbury PLC (LON:SBRY), Electrocomponents PLC (LON:ECM), Topps Tiles PLC (LON:TPT)
Finals: Purplebricks PLC (LON:PURP)
Economic data: UK services PMI; US ISM non-manufacturing; US services PMI
Thursday July 4:
Trading updates: Associated British Foods plc (LON:ABF), Persimmon PLC (LON:PSN), MJ Gleeson PLC (LON:GLEE), 3i Infrastructure PLC (LON:3IN)
Ex-dividends to knock 5.3 points off FTSE 100: Aveva PLC (LON:AVV), Coca-Cola HBC PLC (LON:CCH), International Consolidated Airlines Group PLC (LON:IAG), Next PLC (LON:NXT)
Economic data: UK Halifax house prices; US balance of trade; US weekly jobless claims
Friday July 5:
Trading updates: SIG PLC (LON:SHI), Ferrexpo PLC (LON:FXPO)
Traffic figures: International Consolidated Airlines Group PLC (LON:IAG)
Economic data: US non-farm payrolls, average hourly earnings