The week ahead: North Korea summit, Fed meeting, UK wages & unemployment data

Chief Market Analyst, Michael Hewson, provides his thoughts and analysis on this week's market events.

Crest Nicholson half-year results
Tuesday: Crest Nicholson shares have underperformed in the wider house-building sector over the last 12 months. It is true that some of the froth has been coming off the UK housing market, but that doesn’t explain the decline in the share price over the last few months. The appointment of a new CEO at the beginning of the year doesn’t appear to have helped. At its most recent update in January the company announced slowing sales in London as well as rising costs. This was reinforced last month when the company issued a profit warning, decreasing its full-year operating margin down to 18%, which is at the lower end of its recent forecast. Completions still look relatively healthy along with forward sales and selling prices; however, the current uncertainty around UK monetary policy may give some buyers pause for thought. Investors will be wary of further downgrades to the outlook given the recent declines in mortgage approvals.   

UK wages/unemployment/CPI (May)
Tuesday & Wednesday: The Bank of England recently downgraded its inflation target for this year to 2.5%, which in light of recent sharp rises in oil prices seems remarkably optimistic. For the most part, inflation has fallen back from peaks of 3.1% at the beginning of the year to 2.4%. However, there is no evidence that any of this reflects the recent surge in oil prices, which saw a sharp jump in EU CPI to one-year peaks in its most recent numbers. If this is translated into the UK numbers, we could see inflation tick higher. On the plus side, wage growth still seems to be holding up well at 2.9%, despite a sluggish economy, while unemployment remains at a 42-year low of 4.2%. As long as wage growth remains around the 3% level the outlook is likely to remain positive for sterling. 

Fed meeting
Wednesday: A rate rise this week isn’t really in doubt, however the narrative for the remainder of this year is what traders will be most likely to focus on. How the Fed views the US economy and what concerns they have about recent trade tensions will be in the spotlight, as well as the impact on investment decisions and expectations around the run rate for inflation, alongside their tolerance levels for a minor overshoot.

ECB rate meeting
Thursday: The recent rebound in the rate of inflation has once again raised expectations that the European Central Bank (ECB) might be forced to outline plans to further curtail its asset purchase program before the end of this year. Events in Italy could be in political flux as the new populist government looks to implement its new and controversial spending program, potentially putting itself on a collision course with EU budget rules. The timing of this week’s meeting is therefore likely to be problematic for the ECB president. He will be feeling pressure from hawks on the committee to look at reining back stimulus to prevent an inflation surge, at precisely the time Italian borrowing costs have spiked due to the political uncertainty caused by the new government. No changes are expected in policy, while the press conference is likely to be an exercise in verbal tightrope walking. 

China industrial production/retail sales (May)
Thursday: Recent PMI data appears to show that the Chinese economy is bouncing back from a little bit of a soft patch in and around Chinese New Year. Data from April showed that Chinese consumers weren’t in a hurry to open their wallets as retail sales dropped to a one-year low. Industrial production performed slightly better, showing a strong rebound from 6% to 7%. However, fixed asset investment year-to-date was also weaker, down from 7.5% to 7%, the lowest level since 1999. Markets will be looking for an improvement across the board on all three metrics, otherwise concerns about further economic weakness in the months ahead are likely to increase further. 

Majestic Wines full-year results 
Thursday: Oenophiles will be keeping a close eye and hopefully raising a glass to this week’s full-year trading update from Majestic Wines, the UK’s leading wine specialist. Having posted a decent first-half performance with a £6.7m rise in profits, the share price hit a little bit of turbulence in April. This was after CEO Rowan Gormley warned that profits would take a £3m hit due to the company’s additional investment in Naked Wines, its online wine business, which it bought for £70m in 2015. This additional spend is expected to pay dividends in future years, with the benefits projected to be most notable from 2021 onwards. It is anticipated revenue will rise slightly to £479.6m and EBITDA is expected to come in at £24.7m, an increase of 5.1%. 

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