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Market Update

What to Expect from the Week Ahead

As the U.S. debt debate debacle deadline approaches, investors will look for resolution and credit rating agency response, while Europe receives interest rate decisions, PMIs and earnings

Morningstar.co.uk Editors 29 July, 2011 | 7:20PM
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While there will be no shortage of macroeconomic and corporate announcements of note during the upcoming week, including interest rate decisions in the EU and labour data from the U.S., investors will likely remain fixated with the U.S. debt debate debacle.

Going into the weekend, the light at the end of the U.S. budget tunnel is considerably dim, particularly after House of Representatives Speaker John Boehner called off a vote on his plan to raise the debt ceiling on Thursday evening.

Many financial experts, including Morningstar’s own analysts, do not expect to see the world’s largest economy default on its sovereign debt. That said, both sides of the aisle have a lot to gain politically by waiting to the last minute and demonstrating to their respective electorates that they have done everything within their power to hold their ground in the nerve-wracking debt negotiations. As such, “there is still a decent chance that as we get closer to the deadline, a deal will fall into place,” says Jeremy Glaser, Morningstar’s markets editor.

What happens shortly before and immediately after the widely-cited August 2 deadline, however, is an issue with multiple uncertainties. If a debt ceiling deal is to be passed in the House of Representatives, be it in any of the forms currently on the table, it will still have to secure a vote in the Senate, the second chamber of the U.S. Congress, as well as from President Obama. It is a possible endeavour, but a notably difficult one.

In the absence of such an agreement, the U.S. Treasury might still be in a position to meet the interest payment on its foreign debt as well as other financial obligations scheduled shortly after August 2, such as Social Security payments, but it would have to prioritise to whom it writes cheques first. This is an option with considerable downsides, raging from the difficulty of deciding which public spending to cut first to potentially facing financial shortages in healthcare, defence or other sectors.

With or without a raised debt ceiling, a downgrade of U.S. sovereign debt is probable. Losing the AAA rating will eventually raise borrowing costs for the U.S. and trickle down to other parts of the U.S. public and private debt market.

With the stakes on the U.S. political scene so high, a number of important economic announcements from the Far East and the EU could remain in the shadow of Capitol Hill. Among them are the release of July’s PMI Surveys for the eurozone, the U.K. and China on Monday and Wednesday, German retail sales for June on Tuesday and the U.K. Producer Price Index for July on Friday. Meanwhile, both the Bank of England and the European Central Bank will disclose the outcomes of their latest interest rate deliberations on Thursday. No change to the status quo is expected this time around, with the sluggish economic recovery making an interest rate hike increasingly unpopular, particularly in the U.K.

And as if this amount of news was not enough, July’s reports on the U.S. labour market are also scheduled for next week, with the ADP Employment Report due on Wednesday and the Government’s figures due on Friday.

On the corporate announcements front, London-listed banks, insurers and heavyweight miners will come into the spotlight. All five of the FTSE 100’s big banks will release interim results next week, starting with HSBC (HSBA) on Monday, followed by Barclays (BARC) on Tuesday, Standard Chartered (STAN) on Wednesday, Lloyds Banking Group (LLOY) on Thursday and Royal Bank of Scotland (RBS) on Friday.

Following BHP Billiton’s (BLT) in-line results announcement this week, Fresnillo (FRES), Xstrata (XTA), Randgold Resources (RRS) and Rio Tinto (RIO) will disclose their quarterly performance in the upcoming week, with the first two reporting on Tuesday and the second two on Thursday. The impact of soaring precious metals prices as well as poor weather in Australia will be of interest in these announcements.

Monday
U.K. Corporate Announcements
Fidessa Group (FDSA) interims, Hammerson (HMSO) interims, HSBC Holdings interims, Intertek Group (ITRK) interims, Keller Group (KLR) interims, Senior (SNR) interims, Ultra Electronics Holdings (ULE) interims
U.K. Economic Announcements
PMI Manufacturing Survey for July, Halifax House Prices for July
International Economic Announcements
Eurozone: French, German and Eurozone PMI Manufacturing Survey for July, Eurozone Unemployment for June
U.S.: Construction Spending for June, ISM Manufacturing Survey for July

Tuesday
U.K. Corporate Announcements
Barclays interims, Capital Shopping Centres Group (CSCG) interims, Devro (DVO) interims, Drax Group (DRX) interims, Elementis (ELM) interims, Meggitt (MGGT) interims, Millennium & Copthorne Hotels (MLC) interims, Moneysupermarket.com Group (MONY) interims, Prudential (PRU) interims, Rotork (ROR) interims, SDL (SDL) interims, Tullett Prebon (TLPR) interims, Weir Group (WEIR) interims, Xstrata (XTA) interims
U.K. Economic Announcements
PMI Construction Survey for July
International Economic Announcements
Japan: Monetary Base for July
Eurozone: Eurozone PPI for June
U.S.: Personal Income for June

Wednesday
U.K. Corporate Announcements
Capital & Counties Properties (CAPC) interims, Ferrexpo (FXPO) interims, Fresnillo interims, GKN (GKN) interims, Legal & General Group (LGEN) interims, REXAM (REX) interims, Rightmove (RMV) interims, Taylor Wimpey (TW.) interims
U.K. Ex-dividend Date
FTSE 100: AstraZeneca (AZN), BG Group (BG.), BP (BP.), GlaxoSmithKline (GSK), Reckitt Benckiser Group (RB.), Reed Elsevier (REL), Royal Dutch Shell (RDSB), SABMiller (SAB)
FTSE 250: Beazley (BEZ), Charter International (CHTR), Domino's Pizza UK & IRL (DOM), Inchcape (INCH), QinetiQ Group (QQ.), The Rank Group (RNK), RPC Group (RPC), St James's Place (STJ)
U.K. Economic Announcements
BRC Shop Price Index for July, PMI Service Sector Survey for July
International Economic Announcements
Eurozone: French, German and eurozone PMI Service Sector Survey for July
U.S.: ADP Employment Change for July, ISM Non-Manufacturing Composite Index for July, Factory Orders for June

Thursday
U.K. Corporate Announcements
Aviva (AV.) interims, British Land Co (BLND) 1Q, Cobham (COB) interims, Cookson Group (CKSN) interims, Inmarsat (ISAT) interims, Ladbrokes (LAD) interims, Lloyds Banking Group interims, Randgold Resources interims, RSA Insurance Group (RSA) interims, Schroders (SDR) interims, Spirent Communications (SPT) interims, Standard Chartered interims, Unilever (ULVR) interims
U.K. Economic Announcements
Bank of England MPC Base Rate Decision and Asset Purchase Target
International Economic Announcements
Eurozone: ECB Base Rate Decision, German Factory Orders for June
U.S.: Weekly Jobless Claims

Friday
U.K. Corporate Announcements
BBA Aviation (BBA) interims, Logica (LOG) interims, Old Mutual (OML) interims, Premier Foods (PFD) interims, Rio Tinto interims, The Royal Bank of Scotland Group interims, Smith & Nephew (SN.) interims, William Hill (WMH) interims
U.K. Economic Announcements
PPI for July
International Economic Announcements
Japan: Bank of Japan Target Rate
Eurozone: French Trade Balance for June, German Industrial Production for June
U.S.: Change in Non-Farm Payroll and Unemployment Rate for July, Consumer Credit for June

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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