Wednesday preview: Sainsbury's and Imperial report, FOMC likely to be 'boring'

Wednesday's main event will be the statement from the US Federal Reserve, while the undercard will include data on UK construction data and euro-zone gross domestic product, plus results from the likes of Sainsbury's and Imperial Brands.

Although a US rate rise is off the cards this month as far as the market is concerned, the Federal Reserve's policy decision and follow-up statement will be key for firming up the odds on a June hike, with April's initial jobless claims report ahead of Friday's non-farm payrolls.

The Federal Open Markets Committee is therefore expected to leave the target range for the federal funds rate unchanged at 0.75% to 1.00%.

"While a rate hike at the meeting tomorrow is all but priced out, the probability of one at the meeting in June is currently just shy of the 70% level that is widely seen as the threshold for such a move," said analyst Craig Erlam at Oanda.

He said the statement will therefore be very closely monitored in the absence of a press conference from Chair Janet Yellen, while there are not scheduled to be any new projections on the economic outlook.

The policy statement released after the meeting may take note of the apparent slowdown in household spending growth in the first quarter of this year, but HSBC said it expected the forward-looking portions of the statement to be broadly unchanged.

After minutes of the March FOMC meeting showed the FOMC had started to discuss its plans for the Fed's balance sheet, the May policy statement could reference these ongoing discussions, "but it is more likely that we will have to wait for the minutes of the May meeting to learn more about the FOMC's intentions", HSBC added.

RBC Capital Markets felt the this is likely to be "one of the more boring FOMC announcements", with very little in the way of market-moving developments.

"We think the next Fed hike comes in June, they take a pass in September to announce the balance sheet run-off and they hike again in December."

Eurozone labour data

Almost all euro area survey data has been strong so far in 2017, with composite purchasing managers' index surveys pointing to GDP growth of 0.5-0.6% in the first quarter.

"However, harder data has yet to reflect the improved sentiment; outside Germany, industrial production is likely to act as a drag on growth despite stronger manufacturing PMIs," RBC said.

HSBC added that inflation in February reached 2% y-o-y for the first time in over four years, "which may have also constrained consumption, a key driver of eurozone growth so far, although there is room for eurozone households to lower their savings rate".

The consensus forecast is for the annual growth to remain at 1.7%, but a 0.5% increase compared to the last quarter of 2016, up from 0.4%.

UK construction

The Markit construction PMI for April is expected to show activity expanding at the slowest rate since last August, but still remaining above the 50.0 level and so indicating growth.

The consensus is for the PMI to have fallen back to 52.0 in April from 52.2 in March, 52.5 in February and a peak of 54.2 in December 2016. IHS Markit itself sees a fall to 51.9.

The March purchasing managers’ survey was lacklustre overall and did not bode well for activity in April, IHS economist Howard Archer pointed out.

Slowing expansion was largely due to slower housebuilding growth, while new orders growth was only stable in March at the lowest level since last October, while input prices remained high.

"However, confidence in the sector is decent and actually improved in March."

Corporate announcements

Supermarket group Sainsbury's is due to announce full year results, with the market expecting profit before tax of £578m.

While believing the Argos acquisition will be a success and that the core business will not experience a major margin reset, Deutsche Bank said it expected "mild" earnings downgrades for 2017.

Deutsche forecast second half core retail operating profit margin excluding Argos to be down 30 basis points to 3.1%, resulting in a full year decline of 30bps to 3.0%, giving a retail EBIT of £581m.

For Argos the company gave guidance for £55-75m.

Tobacco giant Imperial Brands will report its interim results, with UBS estimating tobacco volumes will be down 4.7% in the half, compared to the underlying 5.7% last year.

"The weakness in returns is primarily due to a slowdown in industry volumes in key European markets as well as IMB's decision not to be as aggressive as competition on pricing in Ukraine."

The consensus for first-half earning per share is 120.9p, with the full year outturn expected at 277.5p.

UBS also previewed Sage, mulling over a first-quarter statement where, weak US payments and tougher comparisons impacted underlying revenue growth, which came-in at 5.1% and left management confident it still can reach the 6% growth target for the year and close to 6% in H1.

"Nonetheless, investors seem nervous that the weak trading in Payments will remain a drag. Management has indicated it is reviewing the wider Payments portfolio, and the US asset is under consideration for a sale," UBS said.

Wednesday 03 May

INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Crude Oil Inventories (US) (15:30)
ISM Non-Manufacturing (US) (15:00)
MBA Mortgage Applications (US) (12:00)
Gross domestic product (EU) (10:00)
Producer Price Index (EU) (10:00)

UK ECONOMIC ANNOUNCEMENTS
PMI Construction (09:30)

FINALS
Inspiration Healthcare Group, Osirium Technologies, Sainsbury (J)

INTERIMS
Focusrite, Imperial Brands, Sage Group

TRADING ANNOUNCEMENTS
Centamin (DI), Direct Line Insurance Group, Indivior, JD Wetherspoon, Livanova, Intu Properties, Paddy Power Betfair, Spirent

ANNUAL REPORT
Cambridge Cognition Holdings

AGMS
BlackRock Latin American Inv Trust, Dairy Farm International Holdings Ltd. (Singapore), Empresaria Group, Frenkel Topping Group, Hongkong Land Holding Ltd. (Sing.Reg), International Personal Finance, Intu Properties, Lancashire Holdings Limited, Mandarin Oriental International (Singapore), Ocado Group, Secure Trust Bank, Spirent Communications, Standard Chartered, The Renewables Infrastructure Group Limited, Virgin Money Holdings (UK)

FINAL DIVIDEND PAYMENT DATE
EMIS Group, Schroder Asian Total Return Investment Company