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Wednesday preview: WPP results under spotlight, while eurozone and US PMI eyed

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Wednesday preview: WPP results under spotlight, while eurozone and US PMI eyed

Tue, 22 August 2017
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Wednesday preview: WPP results under spotlight, while eurozone and US PMI eyed

(ShareCast News) - Wednesday offers a slight lull in the week, but there is still a barrage of services and manufacturing purchasing managers' index surveys across Europe and from the US, plus results from WPP and Premier Oil.
Ahead of the closely watched Jackson Hole symposium in the US that starts on Thursday, ECB president Mario Draghi is due to speak at an event in Germany on Wednesday.

July's eurozone surveys showed a slight loss of momentum, with the composite PMI survey easing slightly to 55.7 from 56.3 as the manufacturing index fell for the first time since August 2016.

The forward-looking components in both services and manufacturing PMIs from Markit pointed to softer activity.

The European Commission's business climate indicator also fell slightly in July, even if industrial confidence remained at its highest since April 2011.

The consensus is for August's 'flash' manufacturing PMI to ease to 56.3 from 56.6 and for the services survey to remains at 55.4, leaving the forecast for the composite to dip to 55.5. The eurozone surveys will be published at 0900 BST after individual country reports beforehand.

"Analysts are keen to see if the solid GDP growth recorded in the Eurozone during the second quarter has been sustained into the third quarter," said IHS Markit economist Bernard Aw, figuring that the flash August data will play a critical role in estimating the health of the economy and inflation trends in the three months to September.

"While a robust headline PMI reading will add to calls for the ECB to start tapering stimulus, the chance of the central bank raising interest rates are low for the time being. Not only does the ECB see a need for solid economic growth to be accompanied by signs of stronger inflationary pressures, the central bank is also worried about the recent strength of the euro," he said.

"As the stronger euro might start to weigh on eurozone exports, we expect the manufacturing and services indices to fall back slightly in August, to 56.2 and 55.2, respectively," said HSBC.

Later on, at 1345 BST, the US flash August PMI surveys are also due to provide market watchers with a leading indicator about third-quarter GDP.

Initial signs have been promising, noted Aw, such as the pick-up in retail sales.

"However, while IHS Markit's PMI numbers for July point to a good start to the second half of the year, the pace of expansion has remained only modest - and the weakness of exports (often blamed on the dollar strength) could weigh on manufacturing output growth," he said.

The consensus is for the manufacturing PMI to remain at 53.3, with the services number to strengthen moderately to 54.9 from 54.7.

COMPANIES

Media and advertising bellwether WPP reports interim results with its shares down 13% since the start of the year and 18% off a high in early March, following cautious comments earlier in the year and with markets showing caution about global advertising spending by consumer goods companies.

At that time the company cited "continued tepid economic growth", weaker new business trends as it set a budget for 2017 for like-for-like growth of 2% for both revenue and net sales, but with a headline operating margin target improvement on net sales of 0.3 margin points, in constant currency.

"The prospects in the UK are more mixed as the post-Brexit vote scenarios will play out over the next two years and uncertainties about the possible outcomes increase," WPP said.

But in June the company flagged reported and constant currency revenue gains of 15.9% and 3.4% for the first four months of the year, while net sales were up 4.0% on a constant currency basis and 0.7% LFL.

"These results will provide a valuable insight into trading and operational developments at a time when confidence in the outlook for advertising spend appears to be faltering," said analyst Roddy Davidson at Shore Capital.

He noted that WPP in June said that revenue, net sales and profits were described as "well above" budget and ahead of last year, which he said provided "a reminder of WPP's often resilient performance during times of market uncertainty".

The consensus for the first half points to revenue of £7.5bn, earnings per share of 45.7p and an interim dividend of 22p.

Morgan Stanley, in a recent 'buy' note based partly on its low p/e ratio and expectations of a stronger second half, was forecasting first-half organic net sales growth of 0.3% as May and June have tough comparatives.

Premier Oil will report interim results with after completing a refinancing in July and appointing a new chairman in the shape of Roy Franklin.

Premier will hope to focus the half yearly results on operational positives such as the recent Zama discovery, progress on the Tolmount pre-sanction asset and the North Sea's Catcher, said Deutsche Bank.

Cash flows from Catcher are "particularly key" in deleveraging the balance sheet by the end of next year.

"However, we retain our cautious stand owing to the refinancing terms in the form of deep discount warrants and convertibles, $50/bbl cash breakeven and high sensitivity to Brent," analysts said, anticipating a period of share price volatility as the complex hedging structures surrounding the refinancing instruments unwind over the summer.

Industrial property investor Hansteen will post half-year numbers following the formal completion of the €1.3bn sale of its German/Dutch portfolio in June and has completed the early settlement of its 2018 €100m convertible bond.

Broker Numis said management should be a position to put the proceeds of the portfolio sale to use and expects a capital return of at least £450m to shareholders at some point during the second half, "although we are slightly confused by the lack of clarity being given four months after the disposal was announced".

Operationally the focus will have returned to UK asset management and the recent IMPT acquisition "shows that activity continues and new opportunities continue to be sourced".

ON THIS DAY

Four hundred years ago to the day, 23 August was when the City of London's first one-way streets began to control traffic in order to regulate the disorderly conduct on narrow and congested lanes around Thames Street and Pudding Lane.

Other London events on this day in history included the hanging, drawing and quartering of William Wallace, the icon of Scottish independence, at the Elms at Smithfield Market in 1305.



Wednesday August 23

INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Crude Oil Inventories (US) (15:30)
MBA Mortgage Applications (US) (12:00)
New Homes Sales (US) (15:00)

FINALS
Ashley (Laura) Holding

INTERIMS
Anglo Pacific Group, Candover Investments, Carillion, Costain Group, Hansteen Holdings, WPP

Q1
Vedanta Resources

SPECIAL DIVIDEND PAYMENT DATE
System1 Group

AGMS
Bahamas Petroleum Co, Castleton Technology, Independent News & Media, Iomart Group, Latham (James), Triad Group

FINAL DIVIDEND PAYMENT DATE
Syncona Limited NPV, System1 Group, Vedanta Resources

INTERIM DIVIDEND PAYMENT DATE
Blackrock Throgmorton Trust

QUARTERLY PAYMENT DATE
Tetragon Financial Group Limited



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