Wednesday preview: Fed 'dovish undertones' debated, UK wages stagnating

Market Buzz

Wednesday preview: Fed 'dovish undertones' debated, UK wages stagnating

Tue, 13 June 2017
Article viewed 79 times
Wednesday preview: Fed 'dovish undertones' debated, UK wages stagnating

(ShareCast News) - Wednesday's US central bank announcement will be an event of global significance, though in the UK the scrutiny earlier in the day will be on wage and employment data amid the new four-year inflationary high.
Preceding the Federal Reserve decision we have US consumer prices and retail sales data, plus the UK hors d'oeuvres are trading updates from the likes of WH Smith and Bellway.

Stateside, the Federal Reserve's policy announcement is scheduled for 1900 BST London time.

The Federal Open Market Committee is widely expected to hike its main policy rate by 25 basis points to a range of between 1.0% and 1.25%.

However, contrary to US rate-setters' own forecasts for the rest of the year, financial markets were only pricing-in 50% odds of a third interest rate hike in 2017, in December.

Together with the recent ructions on Capitol Hill, that had led some, such as BofA Merrill Lynch, to expect the FOMC to also add some "dovish undertones" to the messaging but no change in the median of the dot-plot for further rises.

Merrill noted that rates markets suggested the Fed may have hard time delivering a 'dovish hike'.

"Subdued rate expectations suggest it may be challenging for the Fed to communicate a "dovish hike", given the recent shift in market pricing. This could raise policy mistake risks shown in the rates market and lower inflation breakevens. USD impact is expected to be muted, but a negative surprise could come from lower dots."

Barclays provided an alternative view. "Although some details may be lacking, we expect the message on balance sheet policy to be clear: consensus has been reached and runoff is likely to begin soon.

"Given our expectation of a rate hike in June and balance sheet runoff in September, we find it unlikely that the Fed will deliver a dovish message on the outlook."

At 0930 BST, the Office for National Statistics will unveil the latest UK labour market report, a day before the Bank of England announces its June policy decision.

As for US retail sales, after a 0.4% monthly rise last time, the consensus is for a 0.1% increase, or 0.2% excluding autos down from 0.3% last time.

US CPI for May is forecast to be flat on the month, down from 0.2%, while the headline yearly rate is seen easing to 1.9% from 2.2% a month ago.


Last month's labour market update revealed a strong jobs market but weak wage growth.

The unemployment rate, which in the three months to March fell to its lowest since 1975, is expected to remain at 4.6% which is just one basis point above the Bank of England's assessment of the equilibrium level.

Despite the tightness of the labour market, regular pay growth was unchanged at 2.1% excluding bonuses and 2.4% including bonuses.

For the three months to April, wages including bonuses are seen staying unchanged, with the ex-bonus figure forecast to moderate to 2.0%.

"This now familiar combination looks set to make another appearance in this release," said HSBC, forecasting unemployment to be unchanged but noting that the risk is for a further drop to 4.5%.

"Meanwhile, wage growth looks set to slip further thanks to base effects: the national living wage came in in April 2016, and although it rose from £7.20/hour to £7.50/hour in April of this year, last year's change was bigger."


WH Smith will publish a third-quarter update, following April's interim results where profit before tax was up 4% on like-for-like sales up 5% in the travel division or 10% in total including currencies and high street sales down 4%.

The company reported the new store pipeline was on plan and expecting around a 4% contribution during the second half.

Broker Numis noted LFL comparatives in both divisions weakened during the third quarter last year, while the currency tailwind will continue.

Bellway is due to report an IMS for the period since February, with analysts at UBS expecting the strong trading momentum to continue, with sales rate north of 0.9 reservations per outlet per week, ahead of last year's 0.82x, but sequentially down from an exceptionally strong start to the year at an estimated 1.07.

"We see upside risk to Bellway's outlook", UBS added, forecasting 5% volume growth given legal completions in the first half of 6.5% and net reservations 17% over the first six weeks of the second half.

There will also be maiden full year results from Biffa, where in March management confirmed the waste management group was trading was in-line with expectations at its pre-close update on 15-Mar, with three small acquisitions close to completion.

Numis expects strong organic revenue growth in industrial & commercial and municipal, offset by the continuing predictable decline in the energy business.

"We continue to believe that this is a key component of the equity story in the medium term, with the density benefits and rapid realisation of post-acquisition synergies giving material margin and returns uplift potential for I&C."

BP management will also present a "deep dive" on the downstream business, the first such event since 2011.

Wednesday June 14

Business Inventories (US) (15:00)
Consumer Price Index (GER) (07:00)
Consumer Price Index (US) (12:30)
Crude Oil Inventories (US) (15:30)
Industrial Production (EU) (11:00)
MBA Mortgage Applications (US) (12:00)
Retail Sales (US) (13:30)

Claimant Count Rate (09:30)

Biffa, Castings, Charles Stanley Group, Enteq Upstream, Mulberry Group, Norcros, Purplebricks, Severfield

Elegant Hotels Group, Caretech

Bellway, The Gym Group, WH Smith

Christie Group, Concepta, Futura Medical, Global Resources Investment Trust , HSS Hire Group , IGas Energy, International Consolidated Airlines Group, Iofina, Manx Telecom , Maven Income & Growth 2 VCT, NB Global Floating Rate Income Fund Ltd GBP, Steppe Cement Ltd, Tax Systems, Touchstar, Walcom Group (DI), Witan Pacific Inv Trust

Compagnie de St-Gobain SA, Share plc


Telefonica SA

NASDAQ 100 Top Risers

Name Last Chg.% Time
Liberty Interactive Corporation QVC Group 23.19 2.38 22:33
American Airlines Group 45.42 2.34 23:01
Viacom Inc. Class B 27.72 2.14 22:33
CSX Corp. 52.81 1.99 22:44
Henry Schein Inc. 80.39 1.58 23:03

NASDAQ 100 Top Fallers

Name Last Chg.% Time
Adobe Systems Inc. 149.96 -4.24 23:10
Skyworks Solutions Inc. 103.51 -4.10 23:04
Western Digital Corp. 86.37 -3.95 23:03
Microchip Technology Inc. 88.32 -2.92 22:33
Walgreens Boots Alliance, Inc. 78.84 -2.92 23:03