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The Markets
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Chemicals

Day ahead: Has inflation peaked and will Redrow and Dunelm both warn on profits?

Due to arrangements for the Queen's funeral and period of mourning, some planned events might be subject to change

Wednesday's new agenda in London will be dominated by the start of the Queen's lying in state at Westminster Hall, but for the City there should be an almost full schedule of events, including UK inflation data and company news.

Currently standing at a 40-year high of 10.1% and expected to keep rising, inflation will be a big story.

The Bank of England has forecast the consumer prices index (CPI) will peak at 13% in the fourth quarter of 2022, with some economists having also predicted CPI could then rise to an eventual peak of 18% or 20% early next year.

However, those predictions were made based on energy price cap before new prime minister Liz Truss froze energy bills at £2,500.

As such, economists say inflation is likely to reach a lower peak, with some such as Barclays saying it may have peaked already.

This could help the economy avoid a long recession but is not anticipated to avert more potential interest rate rises in the coming year or two as it is predicted to make it difficult for inflation to return to normal.

CPI is for August is estimated to have remained 10.1% higher than a year ago, with a 0.6% monthly rise since July.

Some economist think it will have fallen to around 9.9% as the petrol prices contribution dropped, only partially by a further rise in food prices.

Core CPI inflation, which excludes food and fuel, is expected to have remained steady at 6.2% or maybe crept up to 6.3% depending on who collected the data.

Producer prices will also be scrutinised for future movements of CPI, with input prices predicted to have risen 0.3% month-on-month and output prices 0.9%. Official house price inflation will also be released by the Office for National Statistics.

In company news, there are updates pencilled in from housebuilder Redrow PLC (LSE:RDW) and retail chain Dunelm Group PLC.

For Redrow, from which we have not heard since it warned investors in April that it was making an additional provision of £164mln for cladding repairs, analysts are expecting 5,747 home completions for the year to end-June.

Average selling prices are predicted to have risen almost 8% to £364k, giving total sales of £2.1bn.

The focus for investors and analysts will be on demand trends since June, the outlook for the new year and the impact of planning delays, said UBS, which is expecting the sales rate is likely to be down in the new year due to a lack of available stock and normalisation of trading (in line with peers).

"We expect a slowdown moving forward and cost inflation to remain elevated."

Dunelm has already reported its year-end trading update, therefore the key numbers of sales and pre-tax profits should not be too much of a surprise, said UBS.

The main things analysts will be looking for are operating cost inflation in the past year and any guidance on the new year, as well as overall guidance for the coming year on top line and profit margins, as well as "any colour on current trading and any other challenges on the horizon".

UBS added: "We think the market is pricing in a significant drop-off in volumes, as industry commentary continues to sound weak on furniture. We believe that Dunelm has a strong product offering across multiple price points, innovative price architecture and seasonal products that can help top line throughout the year."

Significant announcements scheduled for Wednesday

Interims: Advanced Medical Solutions Group, Artisanal Spirits Company PLC, Blackbird PLC, Central Asia Metals PLC, Epwin Group PLC, Glenveagh Properties PLC, Itaconix PLC, Tullow Oil PLC

Finals: Diurnal Group PLC, Dunelm Group PLC, ITM Power PLC, Redrow PLC

AGMs: Augmentum Fintech PLC, B90 Holdings PLC, Best of the Best PLC, Dev Clever Holdings PLC, Fulcrum Utility Services Limited, Grafenia Plc, Hornby PLC, Lansdowne Oil & Gas, Marlowe PLC, Purplebricks Group PLC, Sutton Harbour Group PLC

Economic updates: Consumer Price Index (UK), Producer Price Index (UK), Retail Price Index (UK), MBA Mortgage Applications (US), Producer Price Index (US), Crude Oil Inventories (US)

US earnings: BRP Inc, Li-Cycle Holdings Corp

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