Thursday is going to be a big day for markets, with reaction at the start to the US Federal Reserve policy statement, released Wednesday night, then to Christine Lagarde chairing her first European Central Bank meeting, and finally with the UK holding its breath over the outcome of polling in the general election.
No large and immediate policy changes are expected from the Fed or Lagarde, as the US central bank has stressed that it is “on hold” while the ECB's last meeting delivered a comprehensive package of measures.
Lagarde will be closely watched, however, for indications as to whether she represents continuity from the Draghi era as most market participants have assumed, according to analysts at RBC Capital Markets, who suspect that her message “will not differ substantially from her predecessor”.
But one burning question is whether Lagarde will bring her own version of the “Draghi tie” indicator, which, according to Finance Twitter, the former head used to hint at policy outcomes based on the colour of his necktie.
Ties or scarves aside, economists at Berenberg admitted they were “excited” about the historical precedents of the event, even though the meeting is likely to be “tame”.
Market watchers will be looking to the Largarde's first Q&A session for “more colour about what could come during her tenure”, Berenberg's economists believe, with an outside possibility that the ECB could also announce the starting date in early 2020 of the first review of its monetary policy strategy since 2003.
“The new ECB staff projections for inflation in 2022 could shape market expectations for the ECB’s future exit from its current ultra-loose stance.”
Back in Blighty, Conservatives may spend the day sweating after the latest polls showed prime minister Boris Johnson has been losing ground, although the odds still point to a Tory win albeit with a small majority.
An updated 'MRP' projection by YouGov published on Tuesday showed a 28-seat majority for the Conservatives, shrinking from 68 two weeks ago and suggesting a hung Parliament cannot be ruled out. This used the same projection methodology that correctly predicted a hung parliament in the 2017 election.
Polling booths close at 10pm on Thursday, when an exit poll will be published, but the vote count will not be completed until past midnight and the result perhaps not clear until mid-morning the day after.
Serco to buck UK outsourcing declines
There are political angles for Serco PLC (LON:SRP) as it releases a trading statement on Thursday, which will reveal how the contractor is feeling about UK public services as sector rivals have struggled to keep things moving.
Its shares have cruised up 43% this year, helped by the firm’s acquisition of US defence contractor Naval Systems Business Unit which pushes the company further into the high-margin region.
Tough times for outsourcers saw Mitie’s and Babcock’s order books staying flat in their first-half results, but Serco has managed so far to outstrip its rivals with growth for the last 12 months and a strong order book.
The FTSE 250 company, which provides public services ranging from running prisons to operating ferries, as well as managing some NHS activities, said back in July that underlying trading profits had risen by 35% to £50.6mln, thanks to strong sales in North America, but ignoring a £19.2mln fine from the UK's Serious Fraud Office in July for false accounting over its electronic tagging service.
In recent years Serco has switched its focus abroad and cut costs to offset lower public outsourcing in Britain, which accounts for around 40% of its revenues.
“Among the contractors we believe that Serco provides positive momentum and growth,” said Liberum last month, though the broker warned that since the company is the biggest beneficiary of outsourcing among British contractors, its profits could be threatened if a Labour government takes power in the general election.
“There is a risk that Corbyn will look to restrict UK outsourcing, under the plan, contracts that deal with people deemed to be ‘at risk’, and contracts that infringe on human rights or entail the use of ‘coercive powers’ cannot be outsourced,” analysts said.
Ocado looks to keep investors on side following fundraise plans
The upcoming update may allow the firm the opportunity to address any questions about the gap between its insipid financial performance and sky-high valuation.
While the online grocery company’s shares have rocketed around 400% in the past two and half years since it started a winning run of overseas contracts for its technology, many see the stock yet to prove the economics of its core business.
Investors will be also be hoping to avoid any nasty surprises in full-year guidance for the firm’s joint venture with Marks & Spencer Group PLC (LON:MKS), which is expected to deliver full-year revenue growth of between 10% and 15%.
Last week the FTSE 100 company said the Ocado Retail JV’s revenue growth had softened to between 10% and 11% in the 13 weeks to 1 December from the 11.4% in the 13 weeks to 1 September.
One potential brighter spot is the company’s new one-hour delivery service, Ocado Zoom, which is expected to outperform retail revenue.
Superdry to update on Dunkerton's reset
Investors will be eager to get more details on how Superdry PLC (LON:SDRY) plans to recover from massive mid-year losses in its interims after the company's returning founder Julian Dunkerton announced a two-to-three year reset to get “full control” of product and costs in November.
This year, Superdry posted an £85.4mln loss in the 12 months to the end of April, compared with a profit of £65.3mln a year earlier.
The shares, which lost around three quarters of their value in 2018, climbed away from their lows in January but gone roughly sideways since.
A half-year update revealed it was the plan to keep price tags intact that hit half-year group revenue, with an 11% year-on-year drop to £368mln, although this led to store gross profit margins gaining 320 basis points to 71%.
Analysts at Liberum said in a note that half-year loss should not detract from the forecast recovery beginning from the second half onwards, with potential to double profit over the next two years.
"H1 is a 'clean-up' period as historic strategic mis-steps are addressed and there is no change to our forecast of an H1 underlying PBT loss of circa £7m," said the broker.
Nevertheless, shareholders will be holding their breath hoping that the company’s “cautious” outlook in November on challenging market conditions over the peak trading period, was overplayed.
Significant announcements expected for Thursday December 12:
UK general election
ECB interest rate decision
Interims: Superdry PLC (LON:SDRY), Dixons Carphone PLC (LON:DC.), Purplebricks Group PLC (LON:PURP), Fuller Smith & Turner PLC (LON:FSTA), Polar Capital Technology Trust PLC (LON:PCT), Versarien PLC (LON:VRS), Vianet Group PLC (LON:VNET)
Finals: Caretech Holdings PLC (LON:CTH)
AGMs: Bacanora Lithium PLC (LON:BCN)
Economic data: US jobless claims