It’s set to be a busy Wednesday this week with a flurry of macroeconomic data alongside update from key names in the London market, such as builder Barratt Developments PLC (LSE:BDEV) and boozer Marston’s PLC (AIM:MARS).
The UK is due to release the official GDP print and associated industrial and trade numbers, while on the other side of the Atlantic investors are awaiting US price data.
August’s CPI 5.2% higher than the year before, though the Federal Reserve’s preferred measure is the Personal Consumption Expenditures index, which was last seen rising at its fastest rate of increase in 30 years.
Both measures are well ahead of the US central bank’s 2% inflation target, leading Fed chair Jerome Powell to acknowledge that inflation is running hotter for longer than he anticipated, though the Fed’s position is that this is “largely reflecting transitory factors”.
However, as many economists note, energy prices are threatening to extend how long inflation lingers and presenting central banks with the conundrum of abandoning their inflation targets to help economies cope with the pandemic recovery, or try to curb inflation and risk snuffing out the recovery.
Markets first assumption about higher inflation is that it will be met with higher interest rates, says market analysts Marshall Gittler at BDSwiss, but when higher inflation is being caused by supply bottlenecks a hike in interest rates “won’t suddenly create more gas wells nor container ships nor semiconductors”.
“The bottom line is, we will have to wait to see how central banks respond to this unusual round of higher inflation driven by supply issues. It could well be that they stick to their ‘transitory’ view, although the Bank of England is already beginning to waver… If they do stick to their ‘transitory’ thesis, then we could see real rates fall and some currencies weaken – notably the dollar.”
Is Britain’s house price boom over?
It’s lasted about half a century so it is unlikely that Barratt Developments will declare an end to the happy times for housebuilders at its annual general meeting on Wednesday.
The government’s free gift to an industry rolling in cash, i.e. the stamp duty cut, only ended at the beginning of the month but as house buyers have been able to see that coming some way off, Barratt might have some meaningful data on how the housing market has been doing in the second half of 2021.
Chief executive officer David Thomas might also have some comments to make about raw material prices and supply chain constraints.
“Barratt’s revenue was slightly above pre-pandemic levels at the full year, thanks to a higher number of completions and rising property prices. Despite this, operating profits were still 10% lower than before the crisis, reflecting legacy property costs and coronavirus loan repayments. These problems should be temporary though, and we could find out if these unhelpful trends have started to unwind in next week’s trading statement,” said Laura Hoy, an equity analyst at Hargreaves Lansdown.
“We’ll be looking for comment on inflation as well—management has previously called it out as a headwind, but it was more than offset by the rising house prices. Now that the post-pandemic rush has started to subside, house prices could start to plateau. We’d like management’s take on whether inflation is expected to affect this year’s results. The other figure to keep an eye on is forward sales. Comparisons are getting more difficult as demand over the past year has been unprecedented. With that in mind, even a slim margin of growth would be impressive,” she added.
UBS noted that Barratt only recently updated the market so it is unlikely to make any change to guidance but the Swiss bank will be looking for reassurance that the housebuilder is on track to meet guidance for 17,000 -17,250 completions in 2021.
Marston’s investors to finally raise a glass
Marston’s is due to update investors on Wednesday. The market may raise a glass to summer trading, when the lifting of COVID-19 restrictions helped a rebound in the hospitality sector.
The publican saw sales dropping 8% over the 10 weeks to 24 July, so we shall see whether the most recent performance has managed to offset the poor results earlier this year.
Analysts at house broker Peel Hunt reckon they will upgrade their forecasts, however this uptick may just be in the short term as next year’s results are likely going to be affected by river and fuel shortages in the wider economy.
“We believe our assumption that net debt falls by only £20m in the second half of 2021 is cautious given the cash flow benefits of the VAT cut and no dividend currently being in place. Any extra debt reduction should flow through and create equity value,” they noted.
Significant announcements expected for Wednesday 13 October:
Finals: Applied Graphene Materials PLC (AIM:AGM, OTCQB:APGMF)
Interims: Angling Direct PLC (AIM:ANG), Sanderson Design Group PLC
Trading announcements: Barratt Developments PLC, PageGroup (LSE:PAGE) plc, Marston’s plc
Economic data: UK manufacturing/industrial production, UK GDP, UK balance of trade, US mortgage applications, US consumer price index, US crude oil inventories, FOMC minutes