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Market Update

What to Expect from the Week Ahead

Central bank announcements, EU industrial production and Chinese inflation data will put investors' early-September optimism to the test

Morningstar.co.uk Editors 2 September, 2011 | 6:10PM
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After global risk appetite chocked on downbeat economic news and growth fears in August, many investors may find themselves hoping that September will be easier to stomach.

Aside from more market participants returning from holidays, however, the end of the summer is hardly marking a change in the status quo, with economic growth scepticism, eurozone debt woes and political power struggles still very much on investors minds.

The good news going into next week, is that even after the market tantrums in August, the FTSE 100 managed to gain 3.2% in the short post-bank holiday week. The bad news is that the upward trend was fragile, as evidenced by how badly markets took sluggish U.S. employment data on Friday.

Against this background, a number of data points and policy announcements might impact investment appetite next week. Central banks in Tokyo, Sydney, London and Frankfurt will hold their rate-setting meetings for September, the first two on Tuesday and the latter two on Thursday.

While there are few expectations that policy will be shaken up on Threadneedle Street, quantitative easing advocates, in particular MPC member Adam Posen, have been using the recent economic softness to reiterate the need for more asset purchasing. This week, he wrote for Reuters that “G7 central banks should purchase more assets if we are to have any hope of our economies ever catching up.”

The team of G7 finance full ministers will have the chance to respond to Adam Posen’s and other demands during their upcoming meeting on September 9 and 10 in Marseille.

In London, current high levels of consumer price inflation as well as still significant long-term inflation risks are likely to persuade the MPC to stay away from more QE in September, commented Howard Archer, chief European and U.K. economist with IHS Global Insight. “We currently lean towards the view that further QE will only occur if the economy actually sees renewed contraction,” he said.

In other news, Monday and Tuesday will bring a torrent of purchasing managers surveys for the service sector for all Japan, China and the EU. Later in the week, July’s industrial production figures for the U.K. and Germany are due on Wednesday, followed by the import-export tally for the month of July in Germany, France and the U.S. on Thursday and the U.K. on Friday. A number of inflation points from Germany and the U.K. are also expected that day.

Friday will be a big day for Chinese economic indicators, with industrial production, consumer and producer prices and retail sales for August all to be released. Investors will be looking to see how Chinese inflation has been faring. While expectations are for an inflation moderation in August, even a scaling back to 6.0% from July’s 6.5% are way above the Chinese government’s annual target of 4% and thus further monetary tightening from the People’s Bank of China cannot be ruled out.

Aside from scheduled economic announcements, next week will see the first Republican U.S. presidential debate on Wednesday and President Obama’s key speech on the U.S. employment situation and economic recovery on Thursday Seeing as even the scheduling of these two events resulted in a political crossfire in Washington, questions can be asked as to whether or not the U.S. can rely on political cooperation following its debt ceiling fiasco and sovereign credit rating downgrade.

On the corporate news front, the week will be relatively quiet. A number of retailers are due to update the market, including SuperGroup (SGP) and Sports Direct International (SPD) on Wednesday, Wm Morrison Supermarkets (MRW) and Home Retail Group (HOME) on Thursday, and HMV (HMV) on Friday.

Morningstar analysts have been looking for an upswing in Morrisons performance following its investment in new stores in the previous fiscal half, but soft consumer demand in the U.K. might have counterbalanced the return on this investment. Morrisons is currently trading higher that our fair value estimate for the company. Premium users can read our full research into the firm here.

Monday
U.S. Markets Closed for Labour Day
U.K. Corporate Announcements
Kofax (KFX) preliminaries
U.K. Economic Announcements
Markit/CIPS Services PMI for August
International Economic Announcements
Japan: Markit Services and Composite PMI for August
China: HSBC Services and Composite PMI for August
Eurozone: Retail Sales for July, August’s Markit Services and Composite PMIs for France, Germany and the eurozone

Tuesday
U.K. Corporate Announcements
Genus (GNS) preliminaries
International Economic Announcements
Japan: Bank of Japan Announcement
Eurozone: 2Q GDP estimate, German Manufacturers’ Orders for July, German Construction PMI
U.S.: ISM Non-manufacturing Index for August

Wednesday
U.K. Corporate Announcements
Ashtead Group (AHT) preliminaries, SuperGroup trading update, Sports Direct International trading update
Ex-Divided Date
FTSE 100: ARM Holdings (ARM), BHP Billiton (BLT), Diageo (DGE), G4S (GFS), Hargreaves Lansdown (HL.), Resolution (RSL), REXAM (REX), Shire (SHP)
FTSE 250: Aegis Group (AGS), Amlin (AML), Aquarius Platinum (AQP), AZ Electronic Materials (AZEM), Carillion (CLLN), Elementis (ELM), Greggs (GRG), Hikma Pharmaceuticals (HIK), Melrose (MRO), Michael Page International (MPI), National Express Group (NEX), Phoenix Group Holdings (PHNX), Regus (RGU), Thomas Cook Group (TCG)
U.K. Economic Announcements
Industrial Production for July, KPMG/REC Report on Jobs for August
International Economic Announcements
Eurozone: German Industrial Production for July
U.S.: Weekly International Council of Shopping Centers-Goldman Sachs Store Sales

Thursday
U.K. Corporate Announcements
WS Atkins (ATK) trading update, Wm Morrison Supermarkets interims, Premier Farnell (PFL) interims, Redrow (RDW) preliminaries, Home Retail Group trading update
U.K. Economic Announcements
Bank of England Rate Announcement
International Economic Announcements
Eurozone: ECB Rate Announcement, German and French Trade Balance for July
U.S.: Trade Balance for July, Weekly jobless claims, Consumer Credit for July

Friday
U.K. Corporate Announcements
HMV Group trading update, JD Weterspoon trading update, SThree (STHR) trading update
U.K. Economic Announcements
Trade Balance for July, PPI for August
International Economic Announcements
China: Industrial Production for August (released overnight BST), CPI for August, PPI for August, Retail Sales for August
Eurozone: German CPI for August, Italian revised 2Q GDP, French Industrial Production for July
U.S.: Wholesale Trade for July

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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