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Trump mid-term test and US rate decision to give week ahead a Trans-Atlantic twist

Aside from the US elections and Fed policy meeting, updates from UK blue-chip retailers J Sainsbury, Wm Morrison Supermarkets and Marks & Spencer should draw the most attention in the coming week

Donald Trump
The mid-term elections on Tuesday offers the opportunity to give an assessment on the first two years of Donald Trump’s presidency

Trans-Atlantic factors will be the main focus in the coming week with US mid-term elections and the latest Federal Reserve policy decision set to trump another big flow of UK blue chip results, even though J Sainsbury plc (LON:SBRY), Wm Morrison Supermarkets PLC (LON:MRW) and Marks & Spencer PLC (LON:MKS) will be top of the corporate ballot.

The mid-term elections on Tuesday offers the US electorate the opportunity to give their assessment on the first two years of Donald Trump’s presidency.

Opinion polls continue to suggest the Republican majority is under pressure from the Democrats and any loss of Congressional control would make life increasingly difficult for President Trump and have major implications for economic and trade policy, setting the battleground for the 2020 presidential election.

Currently, the Republicans hold majorities in both the House of Representatives and the Senate, but Democrats will be looking to break this stranglehold.

All 435 House of Representative seats are up for grabs along with 35 of the 100 Senate seats

US FOMC meeting and interest rate decision.

Aside from the election, the Trans-Atlantic focus will also be on the latest Federal Reserve policy meeting, with an interest rate decision due on Wednesday.

Following a series of US rate hikes already this year - and with some pointing the finger at these for causing the latest turbulence in global stocks markets - it is highly likely that the Fed policymakers will stay on hold for now, taking a wait and see approach.

Investors will, however, be seeking comment to assess whether the Fed’s policymakers believe that consumer price inflation and wage inflation is not set to run too ahead of itself and that their rate rises so far has not derailed the strong US economic growth.

That is the view that most investors would like to hear, if we get that then a hike at the December meeting could definitely be on.

UK data deluge on Friday

On the domestic macro front, a host of data releases on Friday should give a much clearer picture of where the UK economy stands with the country on the brink of hopefully inking a Brexit deal.

The most important will be the first estimate of third-quarter GDP which is expected to show a modest improvement on the second quarter, with year-on-year growth of 1.3%.

The services sector drove the UK economy forward in the second quarter, while construction also made positive contributions, however, the industrial and manufacturing sectors acted as a drag.

So it will be interesting to see if these two sectors continue to act as a drag, chances are that they did according to economists, who expect September UK industrial and manufacturing productions numbers, released at the same time, to drop back significantly compared to August.  

Sainsbury’s can do better

The main corporate focus will be on updates from the second and third biggest UK food retail groups in the coming week, with Sainsbury’s and Morrison’s both set to issue third-quarter trading statements.

In a preview of Sainsbury’s numbers, Hargreaves Lansdown equity analyst, Sophie Lund-Yates noted that the firm’s operating profit has been lately moving in the wrong direction as the group tries to grapple with the disruption caused by German discounters Aldi and Lidl and the threat posed from online, notably after Amazon.com’s acquisition of Whole Foods.

Sainsbury brought high street catalogue retailer Argos last year to get more tills ringing and realise some cost savings, and the signs so far have been good, the analysts said.

The retailer is hoping 90 Argos units will be opened in stores this financial year, and Sainsbury’s third-quarter results should show it is s on track to deliver the £160mln of synergies predicted by next Spring.  

Of course, Lund-Yates added, the main event is Sainsbury’s potential merger with Wal-Mart Inc (NASDAQ:WMT) owned Asda, the fourth biggest UK supermarket chain.

“But,” the analyst said, “while it’s waiting for the thumbs up from regulators, we’re unlikely to hear much on this front. However, we’ll still be on the look-out for any details on what would become the UK’s largest food retailer.” 

More of the same from Morrison’s

The UK’s third biggest food retailer, Morrison’s has put in good operating performances in recent quarters, driven by a restructuring of its business driven through by chief executive David Potts

However, Graham Spooner, investment research analyst at The Share Centre thinks that unusual weather patterns over this year may have a knock on effect on the latest quarter on quarter performance figures.

The analyst thinks it may be difficult for Morrison’s to reproduce the 6.3% like-for-like sales growth it experienced in the second quarter which was helped by the warm weather, but says investors should be fairly happy with the third-quarter estimate of roughly 2.4% that research house Kantar has produced.

Spooner concluded: “While many will applaud what management have done, it is no doubt true that there remain many challenges, with the German discounters who have upped the ante by seeking further expansion, and a proposed Sainsbury Asda merger pose the biggest problems.”

M&S to come out of hiding

Elsewhere on the high street, it has been a while since we last heard from Marks & Spencer.

The retailer decided to scrap the usual trading statement at its annual general meeting in July, so M&S has flown under the radar (or at least tried to) since reporting its full-year results in May.

In the year to the end of March, pre-tax profit slumped by 62% to £66.8mln as the company took a one-off charge of £321.1mln for its restructuring. As part of the turnaround plan, M&S wants to shift about a third of its sales online and reduce the floor space devoted to its struggling clothing and home division. It plans to close 100 UK stores by 2022.

Investors will be paying close attention to any update M&S provides on its reorganisation when it reports its first-half results on Wednesday.

“The May results were overshadowed by the news of a major restructuring which involves the closure of 100 stores so any news on progress with that, and the costs associated, will also be of interest to investors,” said Graham Spooner, investment research analyst at The Share Centre.

“Marks is belatedly making strides into online and digital retailing, including a new in-store payment app, and the market will be interested in what proportion of sales now come from those areas.”

Primark always key for AB Foods

Meanwhile, Hargreaves Lansdown’s Lund-Yates, expects Primark-owner Associated British Foods plc (LON:ABF) to report strong performances from its Retail, Grocery, Agriculture and Ingredients divisions in third-quarter numbers on Tuesday, which should offset less sweet results from its sugar business.

The analyst said: “Low EU sugar prices have taken their toll, and it looks like sugar profits will be well down on last year. The group and investors alike are braced for this hit, but we’ll be looking out for any bigger-than-expected dents. “

She added: “ABF’s retail division should have better news, and given the tough high street climate, we’ll be keeping a close eye on this.”

Primark has already guided investors to expect full-year sales to be up 5.5%, as new sales space offsets declining like-for-likes.

Progress eyed for Burberry’s bid to become next Gucci 

Looking more upmarket, Burberry Group PLC' (LON:BRBY) has been trying to turn itself into a super-luxury brand, like Gucci and Dior, to boost profit margins amid a difficult retail environment.  

The market will be looking for signs of progress in the move to take the brand more upmarket when Burberry reports its interim results on Thursday.

In a trading update in July, the company posted flat revenue for the first quarter as growth in the Asia Pacific and Americas was offset by weaker tourism spending in the UK and Europe.

The group hopes to improve sales through its latest collection under designer Riccardo Tisci, who was poached from Givenchy in March and appointed chief creative officer.

Tisci unveiled his first collection for Burberry at London fashion week in September.

Burberry is also collaborating with Vivienne Westwood for a collection of re-imagined iconic styles to launch in select stores in December.

HSBC said it expects the first half results to confirm “relatively pedestrian” growth in sales and earnings that are “unlikely enough to generate much investor enthusiasm”.

For the year to March 2019, the bank estimates revenue falling to £2.71bn from £2.73bn last year and earnings (EBITDA) dropping to £575mln from £569mln.

SuperDry under pressure after co-founder threatens to return

SuperDry PLC’s (LON:SDRY) co-founder Julian Dunkerton told the Sunday Times in October that he could return to the fashion retailer because he “can’t sit back and watch 30 years of my life be gently eroded”.

His remarks came after the company warned that its full-year profits could be dragged about £10mln lower due to the impact of foreign exchange rates and unseasonably hot weather hurting demand for its autumn and winter products.

Dunkerton, who left in March, could step in to halt the group’s decline unless it shows vast improvements in its first-half trading update on Thursday.

In his comments to the newspaper, he slammed the retailer’s move to cut its product lines when many competitors were doing the opposite. He also said that he believes the retailer is on the “completely wrong path” after “probably the most disastrous eight months you could imagine”.

The company’s issues have been compounded by a downturn on the high street as more consumers opt to shop online.

AstraZenca into the MYSTIC

Away from retail, it wasn’t so long ago that AstraZeneca PLC’s (LON:AZN) drug pipeline was the laughing stock of the pharma world, with nothing coming through to replace its blockbusters whose patents were rapidly coming to an end.

That’s not the case anymore though, with the FTSE 100 firm making more breakthroughs with some of its cancer, diabetes and asthma treatments over the past few months.

Astra’s third-quarter update on Thursday should reflect this progress. After years of falling product sales, things have been picking up again of late and investors will be keen to see if full-year guidance of low single-digital product sales growth has been maintained.

Key to any growth will be its push into emerging markets, especially China, where sales have been soaring.

Overall survival results for the company’s highly-anticipated MYSTIC lung cancer trial are due at some point before the end of the year, so traders will be keeping their eyes peeled for any updates.

Pay row overshadows Persimmon numbers

Much of Persimmon PLC’s (LON:PSN) year has been dominated by chief executive Jeff Fairburn’s £128mln bonus and the sUBSequent resignation of company chairman Nicholas Wrigley, but away from all this, the housebuilder looks to be standing firm in its foundations.

Its half-year results at the end of August showed a 5% rise in revenue to £1.8bn which was helped along by, among other things, the government’s Help to Buy scheme.

Chancellor Philip Hammond recently announced that the scheme would be extended for two more years before finally closing in 2023, something analysts have seen as a “clear win” for Persimmon.

The FTSE 100 group’s lIMIted exposure to the struggling London property market has no doubt been a boon as well.

On top of the external tailwinds, Persimmon bosses have been working hard to increase operating margins to 29.7%, a figure which is well ahead of its peers and more of the same will be hoped from Wednesday’s trading update.

Industry trends far from encouraging for ITV

UBS is not expecting great things from ITV plc’s (LON:ITV) third-quarter trading update, also due on Wednesday.

The Swiss bank expects ITV to report third-quarter revenues of £670mln, little changed from last year, despite the Love Island-World Cup double-header at the start of the period.

It has predicted third-quarter advertising revenues will fall by 1% year-on-year, in contrast to the broadcaster’s guidance of flat advertising revenues.

UBS’s pessIMIsm is prompted by “weak TV viewing trends in September (ITV Family viewing minutes down -8%) and a bearish tone from media buyers”. In general, it reckons industry trends for old-school broadcasters are far from encouraging.

Tough times for Imperial Brands

Tobacco stocks have had a difficult year, coming under pressure following further comments from US regulator, the Food & Drug Administration (FDA) to reduce nicotine addiction.

Most recently this has focused on the marketing of e-cigarettes to young people, so investors will be interested in any comments from Imperial Brands PLC (LON:IMB) on this area, and more broadly on how sales of its next-generation products are going, when the Lambert & Butler, Winston and Gauloises cigarette maker reports full-year results on Tuesday.

As a stock of longstanding appeal to income-seekers, thanks to its strong dividend record, any comments on future dividends will be very much of interest as well.

Expansion needed as regulation bites for William Hill

Acquisitions will be on the mind of most investors in gambling firm William Hill plc (LON:WMH) when it releases a trading update on Tuesday, as the group tries to offset the impact of impending harsh regulation for the UK betting industry.

At the end of October, the company said it had made an offer of around 2.82bn Swedish Krona (£241.8mln) to buy digital gaming group Mr Green & Co AB.

This follows closely behind a big step into the US market in September when the firm announced a tie-up with Nasdaq-listed casino operator Eldorado Resorts Inc (NASDAQ:ERI).

Both moves are timely given the UK government move to limit the amount punters can gamble on fixed-odds betting terminals, the in-store gaming machines which have been dubbed the ‘crack cocaine of gambling’.

On top of that, Chancellor Philip Hammond confirmed in his recent Budget that offshore betting companies operating in the UK would be hit with a higher tax bill.

Glum times for Direct Line Insurance

FTSE 100 insurer Direct Line Insurance Group PLC (LON:DLG) will be hoping to make an improvement on its gloomy first half results when it releases a trading update on Tuesday.

In its first-half results in August the firm - whose brands include Churchill, Green Flag and Privilege – saw its operating profit fall by 15.7% to £303.1mln for the six months ended June, down from £359.7mln a year earlier.

The company posted £75mln of weather-related claims in the first half, mainly associated with the ‘Beast from the East’ tough winter in the first quarter.

There may also be concerns around the recent probe by the City regulator, the Financial Conduct Authority (FCA), into the pricing structures of motor and home insurance products.

Significant announcements expected week ending Nov 9:

Monday November 5:

Interims: Totally Plc (LON:TLY)

Trading update: Hiscox Limited (Q3) (LON:HSX)

EGM: Randgold Resources PLC (LON:RRS)

AGMs: Europa Metals Limited (LON:EUZ), Ncondezi Energy Limited (LON:NCCL)

Economic data: Halifax house prices report; UK services PMI report; US ISM non-manufacturing report; US Markit composite PMI

Tuesday November 6:

US mid-term elections

Trading updates: Wm Morrison Supermarkets PLC (LON:MRW), Sky PLC (Q1) (LON:SKY), Direct Line Insurance Group PLC (LON:DLG), William Hill plc (LON:WMH), Purplebricks PLC (LON:PURP), Weir PLC (LON:WEIR), Vesuvius Plc (LON:VSVS), Georgia Capital PLC (LON:CGEO)

Finals: Associated British Foods plc (LON:ABF), Imperial Brands PLC (LON:IMB), Connect Group PLC (LON:CNCT), Up Global Sourcing Holdings PLC (LON:UPGS)

Interims: Randgold Resources PLC (Q3) (LON:RRS), Castleton Technology PLC (LON:CTP), First Derivatives PLC (LON:FDP), Verona Pharma PLC (LON:VRP)

Traffic figures: International Consolidated Airlines Group PLC (LON:IAG)

Economic data: US JOLT job openings

Wednesday November 7:

Interims: Marks & Spencer Group PLC (LON:MKS), Dairy Crest PLC (LON:DCG), Sophos Group PLC (LON:SOPH), Wizz Air PLC (LON:WIZZ)

Trading updates: ITV plc (LON:ITV), Persimmon PLC (LON:PSN), G4S PLC (LON:GFS), JD Wetherspoon PLC (LON:JDW)

Economic data: US consumer credit numbers

Thursday November 8:

Federal Reserve rate decision

Interims: AstraZeneca PLC (Q3) (LON:AZN), Burberry PLC (LON:BRBY), National Grid PLC (LON:NG.), Inmarsat Plc (Q3) (LON:ISAT), Tate & Lyle PLC (LON:TATE), Auto Trader Group PLC (LON:TATE), Wincanton PLC (LON:WIN), 3i Infrastructure PLC (LON:3IN), Renewi PLC (LON:RWI), JZ Capital Partners Limited (LON:JZCP)

Finals: Gattacca PLC (LON:GATC), Tracsis PLC (LON:TRCS)

Trading updates: J Sainsbury plc (LON:SBRY), Superdry PLC (LON:SDRY), Coca-Cola HBC PLC (LON:CCH), esure Group PLC (LON:ESUR), IMI PLC (LON:IMI), Derwent London PLC (LON:DLN), Beazley PLC (LON:BZY), Howden Joinery PLC (LON:HWDN), OneSavings Bank PLC (LON:OSB), TI Fluid Systems PLC (LON:TIFS

Ex-dividends to knock 6.20 points off FTSE 100 index: BP PLC (LON:BP.), Whitbread plc (LON:WTB)

Economic data: US weekly jobless claims

Friday November 9:

Trading update: Informa PLC (LON:INF)

Finals: Diploma PLC (LON:DPLM)

Economic data: UK quarterly GDP first estimate; UK construction output; UK trade figures; US PPI; US Michigan consumer sentiment index; US wholesale inventories

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