Wednesday preview: UK services PMI, FOMC minutes, Persimmon, Ocado

Following two disappointing UK purchasing managers' index readings at the start of the week, Wednesday's services PMI print offers they biggest potential to move markets this week, being as the sector represents more than three quarters of the economy.

A month ago, the services business activity index fell two points to 53.8 with respondents citing the general election, Brexit and weakening consumer demand as some of the reasons for the cautious stance.

"We also think a correction was warranted from inexplicably high levels," said economists at HSBC. "If anything, further correction is warranted, while the consumer squeeze and, in particular, political uncertainty probably intensified in June."

The consensus forecast is for a three basis points drop to 53.5.

Stateside, the minutes to the Federal Open Markets Committee’s June policy meeting will be released, putting flesh on the bone to the FOMC's decision to raise the federal funds rate by 25 basis points and lifting the target range up to 1.00%-1.25%.

The June policy statement noted that inflation had declined and said that the FOMC would be "monitoring inflation developments closely", with most of the policymakers continuing to project an additional rate hike would likely be appropriate by the end of this year.

"One question here is whether the Fed is becoming increasingly divided over the appropriate course for monetary policy ahead as the Fed edges further forward on its normalisation course," said Investec.

HSBC said the minutes should show some discussion on the recent low inflation readings, with some of the members likely to have pointed to idiosyncratic factors as holding back prices for cell phone plans and prescription drugs.

"The minutes will also reveal some more information relating to the FOMC's plans for its balance sheet. In June, Fed Chair Janet Yellen said that balance sheet disinvestment could commence 'relatively soon'. We expect the formal announcement of the policy change will be made in September," HSBC added.

FXTM chief market strategist Hussein Sayed pondered on the effects on the dollar, with currency markets having traded in a very narrow range on Tuesday due to the Independence Day holiday and with traders expected to remain on the sidelines until the US returns.

"Whether the spike in the US dollar is meant to continue or whether it is just a dead cat bounce depends on how fast other central banks across advanced economies converge into normalization. In the shorter run however, Wednesday’s FOMC’s minutes and Friday's jobs report will be the prime catalysts," he said.

COMPANY NEWS

Persimmon will put out a second-quarter trading update following an upbeat set of full year results from the FTSE 100 housebuilder in March.

The expectation would be that the latest quarterly update should continue to show that demand is robust for new homes with rising sales and rising average selling prices of each home, said analysts at the Share Centre.

"While it is expected that the order book will continue to build, it will be interesting to see if management sound a little more cautious after recent evidence of a pressurised UK consumer who is experiencing living costs rising faster than wages."

Ocado will report interim results for the 26 weeks to 28 May, following a 22-week update in mid-June to support a £250m bond offering.

UBS was looking for gross retail sales of £717m versus £583m, group EBITDA of £45.6m versus £40.4m and PBT of £4.6m versus £8.5m.

Deutsche Bank forecast retail sales growth of 15.6%, slightly ahead of +13.8% in the first quarter, with EBITDA of £52m versus £40m in the first half last year on a slightly improved margin and 26 weeks of trading versus 245 last time.

"We expect key topics at the presentation to be the recently announced first international licensing deal and whether Amazon's acquisition of Whole Foods is driving more interest from retailers in licensing the Ocado Smart Platform. We think the Amazon deal provides evidence that an existing supply chain and store network is a more efficient way to fulfill and deliver online grocery orders than building a new network of dedicated automated warehouses," Deutsche said.

Deutsche Bank also hiked their target price on SIG ahead of the company's trading update - the first covering the first six months of any year for the insulation supplier since 2014. That, they said, was part of new management's drive to provide greater detail and to update shareholders regularly.

Nevertheless, the company had already provided a fair bit of colour on recent trading in its most recent update on 11 May, so no big surprises were expected. In terms of the bigger picture, the dominant theme continued to be the potential for a turnaround in the longer-term under the new management team.

In April, retirement housebuilder McCarthy & Stone bumped up its interim dividend 80% as it reported a 42% slump in underlying profits for the first half of the year but reiterated its confidence in hitting full year targets.

UBS analysts said they expect commentary to be on higher margin new sites to increasingly contribute in the second half, "current trading conditions and how H217 will compensate for the 6% volume decline in H117, which has been the result of a lower forward order book brought into the year and lower number of sales releases".

Wednesday July 05

INTERNATIONAL ECONOMIC ANNOUNCEMENTS
BRC Shop Price Index (00:01)
Factory Orders (US) (15:00)
Retail Sales (EU) (11:00)

FINALS
Great Eastern Energy Corp Ltd. GDR

INTERIMS
Ocado Group

TRADING ANNOUNCEMENTS
Booker Group, Mattioli Woods, McCarthy & Stone, Persimmon, SIG, Topps Tiles

AGMS
Arricano Real Estate (DI), Booker Group, Challenger Acquisitions Limited , Dods Group, Gresham House Strategic , Martin Currie Asia Unconstrained Trust , Oxford Technology 2 VCT, Oxford Technology 3 VCT, Oxford Technology 4 Venture Capital Trust, Oxford Technology VCT, Sainsbury (J), Windar Photonics

FINAL DIVIDEND PAYMENT DATE
Air Partner, London Security