Wednesday preview: Will UK GDP seal the deal for Bank rate hike?
Wednesday's business diary is front-ended with results from FTSE 100 giants including Antofagasta, GSK and Lloyds, plus the third quarter reading of UK GDP, the index of services and mortgage data to boot.
The Bank of Canada has an interest rate decision to make, but after hiking in July and September there is a low chance that rates will be lifted from the current 1%.
An imminent UK rate hike remains a live issues, however, with GDP figures being one of the final pieces of economic data ahead of the next meeting of the Bank of England's Monetary Policy Committee on 2 November.
After inflation reached 3% last month, there is a feeling among some economists that the UK gross domestic product update could seal the deal for a rate hike in November, despite the mixed signals from MPC members and other economic gauges.
After GDP slid to 0.3% quarter-on-quarter at the start of 2017 it has remained at this subdued level rate for the rest of the year and another 0.3% quarter is expected to be confirmed by the Office of National Statistics at 0930 BST, taking year-on-year growth to 1.4%, the weakest rate since the first half of 2012.
Economists at HSBC recently downgraded their Q3 growth forecast from 0.5% to 0.3% primarily due to the 0.2% monthly decline in services output in July, alongside a slight downward revision to June growth to 0.3% and a sharp fall in construction output in July.
"This wobbly start to Q3 means that even with a growth recovery in all major sectors in August and September, another sub-par outturn is very much possible."
While weak, a 0.3% GDP outturn is unlikely to derail the rate hike, said Investec economist Victoria Clarke.
Indeed it "should seal the deal", said Capital Economics' chief economist Jonathan Loynes.
Over a decade since the BoE last increased rates, investors are 80% confident of a move from 0.25% to 0.50% at the Monetary Policy Committee’s meeting on 2 November.
Loynes agreed that recent data have been consistent with the MPC's condition that the economy continues to “follow a path consistent with the prospect of a continued erosion of slack and a gradual rise in underlying inflationary pressure”, with CPI reaching 3% and the unemployment rate below the estimated equilibrium rate.
Loynes and co are a lot more hawkish than most of their peers, it should be noted, expecting three further 25bp increases in rates in 2018, while markets remain sceptical that the Bank will embark on a sustained tightening in policy.
Barclays, for example, said while current data support a November hike, "further hikes are difficult to justify".
COMPANY RESULTS
Lloyds Banking Group is due to publish its own Q3 update, with interest also of great relevance as anticipation around this area has contributed to improved sector sentiment.
In the first half of the year, Lloyds' first results since returning to full private ownership, underlying first-half profits were ahead of forecasts and the dividend and margin guidance were both hiked.
Total income in the first six months of the year of £9.3bn was up 4% year on year, with net interest income of up 2% to £5.9bn at an improved net interim margin of 2.82% up from 2.8% in the first quarter and 2.74% a year before.
There are hopes Lloyds will raise its full year dividend too, so investors will be focused on income, costs and more importantly the group’s views on the UK economy and consumer confidence, said analysts at the Share Centre.
Analyst Nicholas Hyett at Hargreaves Lansdown was not expecting any surprises from Lloyds this quarter, predicting steady income growth, but aware that "a couple of banana skins" could trip the bank up, such as an unexpected rise in bad loans in the notoriously volatile credit card sector, or another dose of conduct costs.
"Core banking operations aside, Lloyds recently announced that its Scottish Widows pensions and savings business has agreed to acquire Zurich’s £19bn workplace saving operation. It’s an interesting strategic move by a historically unloved division. Look out for any additional commentary about the bank’s plans in this sphere."
For the quarter, UBS forecasts adjusted profit before tax of £2.16bn versus company consensus at £2.1bn.
Analysts think Lloyds "should be able to deliver a stable open mortgage book and increased net interest margin" in the quarter with expectations of rate hikes in November and May 2018 "helps reduce downside risks on NIM and should be immaterial to loan losses".
A third quarter from GlaxoSmithKline follows first-half results when the drugs giant cut its full year guidance for earnings per share to 3-5% at constant exchange rates from the previous 5-7% after sales growth slowed in the second quarter, while a new strategic rejig will see a flat dividend next year.
GSK stock has stuttered since, with some analysts citing concerns over the strategic update, especially anxiety around dividend sustainability, meaning this topic will remain under the spotlight, with speculation also around GSK's consumer healthcare franchise.
After taking £1.2bn of accounting charges due to increases in the valuations of liabilities for the HIV and consumer businesses, GSK reported a second-quarter loss per share of 3.7p compared with a 9p loss in the same quarter last year, up 59% or 29% at CER.
For the third quarter UBS estimates sales of £7.86bn, core operating profit of £2.4bn and core EPS of 32p.
Hargreaves' Hyett will be paying particular attention to the consumer healthcare division after lacklustre results from the sector this month.
"As the former head of the consumer division, GSK’s new CEO, Emma Walmsley, has a particular interest in the division’s fortunes. A solid performance this quarter would not only bode well for the strength of the current brands, but might also open speculation GSK will go looking to pick up unwanted assets from rivals," he said.
Elsewhere in the business, GSK will be seeking to deliver continued growth from new respiratory products to offset declines in the Advair/Seretide, as well as hoping for another healthy performance from HIV treatments Tivicay and Triumeq.
Antofagasta report will focus on production in its third quarter.
UBS estimated total copper production will be down 2% on the quarter to 170kt, with copper output from key operating mines Los Pelambres and Centinela expected up 3% down 16% respectively at 84kt and 51.6kt.
Molybdenum output is also expected to be down 8% at 2kt.
Wednesday October 25
INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Crude Oil Inventories (US) (15:30)
Durable Goods Orders (US) (13:30)
House Price Index (US) (14:00)
IFO Business Climate (GER) (09:00)
IFO Current Assessment (GER) (09:00)
IFO Expectations (GER) (09:00)
MBA Mortgage Applications (US) (12:00)
New Homes Sales (US) (15:00)
UK ECONOMIC ANNOUNCEMENTS
BBA Mortgage Lending Figures (09:30)
GDP (Preliminary) (09:30)
Index of Services (09:30)
INTERIMS
Lombard Risk Management
INTERIM DIVIDEND PAYMENT DATE
BBGI SICAV S.A. (DI)
QUARTERLY PAYMENT DATE
General Electric Co
TRADING ANNOUNCEMENTS
Antofagasta, Centaur Media, Cobham, GlaxoSmithKline, Metro Bank
ANNUAL REPORT
Tlou Energy Limited (DI)
IMSS
Lloyds Banking Group
AGMS
GCP Student Living, Photo-Me International, Redde, Tlou Energy Limited (DI)
FINAL DIVIDEND PAYMENT DATE
Renishaw