Last week brought good news on the UK economy with lower borrowing, lower unemployment and a promising update from Lloyds, but it did little to convince markets that the UK was recovering. Gordon Brown will no doubt attempt to convince the electorate that the UK's situation is improving and markets may or may not believe the spin. There is plenty of domestic economic data this week that could support or undermine him.
The CPI and retail sales figures should provide some insight into the relative health of the UK economy. Inflation reached a nailbiting 3.5% in January from 2.9% in December. Mervyn King has so far been sanguine about the statistics saying that inflation is likely to dip in a few months’ time and the latest meeting minutes show the MPC unanimous on keeping interest rates at their current level. However, any significant rise in inflation or strong retail sales is likely to prompt market jitters about interest rate rises.
With retail sales in mind, a number of the big high street names have earnings announcements this week. Next, Ted Baker and B&Q-owner Kingfisher all report on Thursday. Next last updated the market in January, showing a robust Christmas season, but warned that 2010 still looked uncertain. The market is expecting a rise in pre-tax profits to £494m from £429m.
Kingfisher’s fourth quarter sales suffered in January’s bad weather, but the group said in February that pre-tax profits would exceed expectations on the back of improved margins. HSBC has just upgraded the shares from neutral to overweight so is anticipating good news. The market is expecting pre-tax profits of £543m.
Elsewhere, Wolseley reports on Monday. It surprised the market by raising its profits forecast in February. It said at the time that its improved position came from cost-cutting rather than any recovery in its markets, but the shares had been marked down so savagely that it didn’t take much good news to send them higher.
Carnival’s makes its first quarter earnings announcement on Wednesday. The group announced at the end of February that bookings were at "unprecedented levels" so far this year and it planned to put up prices. The shares have been steadily rising in expectation of an improvement in revenue and may see a setback if it doesn’t materialise.
Bellway also reports this week. The group criticised the banks in February for restricting mortgage availability and holding back the recovery for the housebuilders. That said, the market expects the group to return to profit.
Other major groups reporting this week include Regus, Cairn Energy, Legal & General and Eurasian Natural Resources.
Monday
All eyes will be on US Treasury secretary Tim Geithner’s speech. Markets will be hoping for some insight into the true state of the US economy, including any plans to address the deficit.
Tuesday
The UK inflation statistics are revealed. Markets are expecting a fall from 3.5% to 3.1% in CPI as the effect of the VAT rise dissipates. The British Bankers Association also issues its mortgage approvals data today. The market is expecting a small drop as the weather and other seasonal factors take their toll, but any sign of a more permanent slow-down in the housing market will not be well-received.
In the US, existing home sales data will be closely watched. This measures sales of existing residential properties. As with the UK, the market is expecting a small drop based on seasonal factors, but any hint that the recovery is stalling will be unsettling.
Wednesday
Today is likely to be dominated by the budget. It seems unlikely that Brown will do much beyond the nakedly political so close to an election, but there may be more bad news for the banks. Either way, markets are likely to be volatile until they have had time to digest the impact.
There are a wealth of Eurozone statistics, which will provide some insight into the strength or otherwise of the recovery in the region. At last count, Germany showed no growth in the last quarter of the year, though the French recovery remained in tact.
New homes and durable goods orders statistics from the US should build on the recovery picture.
Thursday
A big day all round with retail sales figures issued in the UK and some bellwether groups updating the market such as Next and Kingfisher. In the US, Federal Reserve chairman Ben Bernanke gives his verdict on the state of the US economy, while much-watched jobless data is also revealed.
Friday
By now markets should have built up a good picture of the relative strength of the US economy, so today’s GDP figures will be the icing on the cake rather than providing any new insight. The market is currently expecting growth of 5.9% quarter on quarter.
