Wednesday preview: Will low unemployment begin to lift earnings?
(ShareCast News) - Unemployment and earnings figures will be in focus on Wednesday, as the continued constriction on British households was confirmed by ongoing high inflation the day before, while investors can peruse interim results from Admiral, Balfour Beatty and Lookers.
The Office for National Statistics will release the labour market data at 0930 BST on Wednesday.
After the unemployment in the three months to May fell to a 42-year low of 4.5% from 4.6% the month before, the market is expecting no change for June.
ONS data a month ago confirmed that the jobless total fell by 64,000 in the three month period, with the number of people in work rising 175,000 to push the employment rate to an all-time high of 74.9%.
Total average wage growth softened to 1.8% from 2.1%, however, though weekly average earnings excluding bonuses rose to 2.0% from 1.8% a month before.
Real pay growth has been negative for some months now, with pay increases still well below average CPI inflation of 2.6% over the same period.
Economists forecast average earnings including bonuses will remain at 1.8% and 2.0% excluding bonuses, though the market's predictions underestimated earnings ex-bonuses last month and have over-predicted the last two months' CPI readings.
As well as making life less comfortable for households, this puts the brakes on the UK's key growth engine in recent years and has led to GDP forecasts being repeatedly trimmed.
The lower than expected inflation rate for July adds to the belief that the majority of policymakers at the Bank of England will be more worried about economic growth that inflation in coming months, said economist Chris Williamson at IHS Markit.
"Risks remain biased towards the economy slowing further after a weak first half of 2017, with consumer spending dampened at the same time as business spending is hit by rising anxiety about Brexit."
He said real earnings are likely to continue falling for some time as inflation exceeds pay growth, with inflation expected to edge up further in coming months but little sign of pay growth accelerating meaningfully.
"Although recent surveys of recruitment agencies show that salaries negotiated by new staff are rising amid widespread skill shortages, overall pay growth appears to be being muted by low annual pay reviews for workers not changing jobs.
"Households are feeling the pinch more than any time in the past three years," he added, with a recent IHS survey showing household finances deteriorated last month at the sharpest rate since July 2014, linked to low earnings and rising debt, with higher prices piling additional pressure on to already-squeezed budgets."
Among the late sprinkling of interim numbers as results season tails off, Admiral is expected to post a strong set.
Revenues are forecast to be strong, with Morgan Stanley predicting an 18% rise due to the increases in motor insurance premium rates over the year as well as two increases in insurance premium tax, though investment income is seen as coming in 50% lower than last year, when the result was positively impacted by movements in accruals related to quota share reinsurance arrangements.
At full year results, management estimated a further £85m pre-tax negative impact over the next three to five years.
So analysts at the US bank will be looking out for any further commentary on the expected total impact of the change in Ogden discount rate on reserve releases and profit commissions, plus any comments on current claims inflation.
The dividend is also expect to be lower as last year's saw some excess capital returned.
Analysts at Numis forecast pre-tax profit of £189m down from £193m and noted that Admiral said that Q1 growth was subdued because it increased rates earlier than the market in response to Ogden, "so we think it is likely that H2 growth will be stronger than H1".
"As was the case with Direct Line there is significant scope for Admiral to deviate from forecasts if the company reassesses Ogden or other reserve assumptions."
Engineering and construction group Balfour Beatty returned the black in its March full year results, having completed the first phase of its turnaround plan, simplifying the business and improving the way it pitched for new projects.
Phase 2 is all about margins, said analysts at Hargreaves Lansdown as they previewed half-year results.
"The group's Investment business kept it afloat during the darkest days of the turnaround, and selective disposals look set to continue. However, while the timing of that process is subject to uncertainty, hopefully results won't throw up any unpleasant surprises.
"CEO Leo Quinn is something of a turnaround specialist, and Phase 1 at Balfour has further burnished his reputation. However, Carillion's recent profit warning is evidence of how tough the construction business can be. It's understandable if some investors are holding out for evidence that Phase 2 is also going to plan."
Numis sees the numbers as "a pivotal set of results" for Balfour's as profits are driven by services earnings and not PPP disposals for the first time since 2013.
The broker expects UK construction will move to a forecast £5m profit for the half, from a £69m of loss in the first half of 2016, while other services operations should also show good contributions.
"Aside from showing that recovery in line with stated 'industry standard' margins is on track, this will also illustrate that BBY faces no contagion from Carillion, and the expectation of average and H1 period end net cash in Balfour's balance sheet (coupled with ongoing growth in the DV on PPP assets) will further illustrate there is no comparison."
Gold miner Hochschild will report first-half results, following its pre-release of second-quarter production of 9.5Moz gold equivalent to take half yearly production to 17.9Moz, and reported first-half net debt of $160m.
Numis forecasts revenue of $313m, net income of $14.2m and 3 cents per share earnings.
The broker also ran the rule over Lookers, noting that new car data for May and June was negative and there have been reports of weaker trading during the second quarter from other auto dealers.
Lookers reported strong first-quarter trading in May, with gross profits in new cars up 9%, used car up 17% and aftersales up 9%, which was was topped up respectively to 17%, 23% and 18% by the net impact of dealership acquisitions and disposals.
With historic profit and loss numbers restated to exclude the parts division, "this suggests that Lookers should report a solid increase in interim PBT from continuing activities".
Wednesday August 16
INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Building Permits (US) (13:30)
Gross Domestic Product (EU) (10:00)
Housing Starts (US) (13:30)
MBA Mortgage Applications (US) (12:00)
UK ECONOMIC ANNOUNCEMENTS
Unemployment Rate (09:30)
Claimant Count Rate (09:30)
Average Earnings (09:30)
Admiral Group, Balfour Beatty, BGEO Group, CLS Holdings, Foresight Solar Fund Limited, Hochschild Mining, Lookers
John Laing Environmental Assets Group Limited , Lazard World Trust Fund, Reabold Resources
FINAL DIVIDEND PAYMENT DATE
Halma, Majestic Wine, National Grid
INTERIM DIVIDEND PAYMENT DATE