Tuesday preview: Public deficit due, results from Persimmon, BHP, Cairn
The UK's public deficit gets its monthly update on Tuesday, along with the CBI's industrial trends survey and results from the likes of BHP Billiton, Cairn Energy, Persimmon and Wood Group.
July's deficit comes a month after the government’s fiscal plans took a bit of a blow as the public sector net borrowing requirement jumped to £6.9bn, up from May's £6.7bn and £2bn more than in June last year.
Economists had expected monthly deficit would shrink to £4.7bn.
Borrowing of £22.8bn since the start of the financial year in April was £1.9bn higher than in the same period in the previous financial year.
The deficit in first three months of the fiscal year therefore "suggest that the downward trend in public borrowing could be over," said HSBC. June’s PSNBx, which excludes government interventions such as bank bailouts, was increased partly due to higher inflation raising interest payments on inflation linked bonds and also due to slower economic growth hurting tax receipts, the bank sugested.
The consensus forecast is for July's PSNBx borrowing to dip to £1bn versus the £0.4bn last year, with the PSNB figure at £0.4bn.
HSBC forecast it will be nearer £1.4bn, while Barclays expected £2.2bn. If realised, Barclays estimate would leave the year-to-date deficit £0.7bn better off than last year at £20.6bn.
For some central bank rate cut action, currency traders might look to Indonesia. While the consensus forecast is for the Bank Indonesia to hold rates at 4.75%, HSBC thinks there is likely to be a cut to the 7-day reverse repo rate of 25 basis points, taking the policy rate to 4.50%.
With GDP growth in the second quarter below trend at 5.0%, disappointing government and consensus expectations, coupled with a down-trend in inflation, BI officials and Governor Agus Martowardojo have sounded dovish recently.
HSBC believes there is "further room for easing" and Barclays believes the balance of risks also now tilted towards a 25bp rate cut at the August monetary policy meeting.
Earlier in August, Cairn Energy announced the results of its five-well drilling programme offshore Senegal, confirming that the well encountered oil and gas in the primary objective and oil in the deeper secondary objective. The FTSE 250 firm said further work was being undertaken to establish the potential commerciality of the discovery, and to integrate the results with the block-wide data gathered to date.
Following that update, analysts at Deutsche Bank expect Cairn to deliver an upgraded resource report and development plan for the SNE field alongside results. "In our view, progress towards FID is more significant than barrel additions to the already commercial resource base and remains a key driver of our investment case," they wrote, noting that with only one week of oil production in the first half of the year, the financials are of little concern.
Broker Numis said with Cairn's 2017 drilling program now complete, it believes the project partners could choose to proceed to a phase 1 development program. "We see the potential for well results gathered to date to de-risk the project, and potentially underpin an increase in resource estimates," analysts said, adding that an update on the Catcher field development may need to wait for operator Premier Oil to report its results on 24 August.
Housebuilder Persimmon is due to publish half year results to flesh out a pre-close statement last month that showed it had completed the sale of 7,794 homes, 8% more than the first half last year, at an average selling price up 3.5% to around £213,000.
There have been a string of positive updates from sector peers in recent months, so expectations will be high, as shown by the shares hitting an all-time high this month.
If there is to be a spanner thrown into the works, said analyst Nicholas Hyett at Hargreaves Lansdown, it will likely come from the group’s comment around current conditions, which "are looking slightly more precarious", pointing to surveys from The Royal Institution of Chartered Surveyors, Nationwide and Halifax that have painted a gloomier picture for UK house price growth.
"However, it must be said that the areas that seem to be creaking are at the very top end of the market, particularly in the South East. As a nationwide builder with an average selling price of under £230,000, Persimmon has limited exposure to these type of properties. Add in the fact that a significant portion of demand comes from buyers using Help To Buy support, hopes will be high that demand for Persimmon’s new homes remains strong," he said.
Mining giant BHP Billiton also will deliver it's half-term report for a period that has seen it continue to take action to support its balance sheet after the commodity price slide that hit last year.
Unlike rival Rio Tinto, BHP has a sizeable oil & gas portfolio that has triggered activist investor Elliott International into calling for the division to be sold off, among other changes.
BHP is looking to sell parts of the US onshore oil business and is investing in more promising portions of the portfolio, said Hyett, who feels success here will be a key measure for management, along with cutting production costs and increasing productivity.
Graham Spooner at The Share Centre added interest will be paid to management's comments on further restructuring plans and the dividend policy, especially given that BHP's rivals have been improving their payouts.
Interims are also due from Wood Group, which painted a cautious picture for the year so far with its latest trading update, and is awaiting the final approvals for its acquisition Amec Foster Wheeler, which the UK competition regulator recently expressed approval in principle with a final decision expected on 12 October.
The consensus forecast is for Wood to produce earnings before interest, tax and amortisation of $138m, down from $166.4m in the first half of last year, and a dividend of 11 cents per share.
Numis analysts currently forecast $142m, which represents a fall of 14%, and said the key event remains Amec acquisition but it does not expect any further updates from management regarding potential Amec cost cutting, and does not think that management will be able to say anything further regarding the ongoing Serious Fraud Office investigation into Amec either.
Tuesday August 22
INTERNATIONAL ECONOMIC ANNOUNCEMENTS
House Price Index (US) (14:00)
U. of Michigan Confidence (US) (15:00)
UK ECONOMIC ANNOUNCEMENTS
UK Public Sector Borrowing (09:30)
CBI Industrial Trends Surveys (11:00)
AFI Development, Antofagasta, Cairn Energy, Cape, Empresaria Group, Hostelworld Group , Inspired Energy, Kenmare Resources, Ossiam Lux Ossiam ETF Shiller Barclays Cape EU-EUR, Persimmon, Quantum Pharma, Wood Group (John)
INTERIM DIVIDEND PAYMENT DATE
Albion Enterprise VCT, Puma VCT 10 , Puma VCT 9