Europe and emerging markets are slowing to a snail’s pace. This means that deficits and overall debt compared to GDP are increasing steeply in many countries, and it appears only a matter of time before investors take fright at some of these numbers.
The UK – unlike countries in the Eurozone – has the sovereign ability to print money – and has embarked on a comprehensive quantitative easing programme to jump-start the economy. Nonetheless, chancellor George Osborne’s deficit reduction plans are well behind the original schedule, and figures released last week demonstrate that there is a structural overspending problem.
Politicians of all parties appear unable or unwilling to break it to the population that a “take all you can eat” welfare and health system is simply not sustainable when Britain has to compete on relative cost in a world market in which most countries offer a fraction of the benefits which must either be financed by the UK taxpayer (adding to company costs) or through borrowing.
The tipping point at which the market balks at providing additional funding is far from reached in the UK, but is approaching fast in certain Eurozone countries which suffer from analogous structural difficulties, exacerbated by a lower pace of growth. It was noticeable how, a couple of weeks ago, Greek bond yields spiked above 9%. They have since fallen back to 7.32%, though after the bank stress tests released today (which were failed by two Greek banks) they are likely to climb again.
In the UK, sales of high-end property are falling steeply, normally a lead indicator of a pullback in asset prices. According to the FT, estate agents Douglas & Gordon reckon that homeowners in the £2million+ bracket are reducing prices by up to 15% to achieve a sale. Further down the price-scale, another estate agents, Foxtons, warned on Thursday that the market is slowing rapidly. Other figures in retail (retail sales were down 0.3% in September compared to August) and manufacturing reinforced the impression that the economy – and price pressures – are easing back.
This week sees a series of important trading statements and interim results from the likes of BP, African Barrick Gold PLC, Lloyds Banking Group, Stagecoach and Standard Life, Royal Dutch Shell, Smith & Nephew, Euromoney Institutional Investor and Henderson Group among others.
We expect these to be a mixed bag, with the miners and commodity producers tending to suffer on weak pricing and slack demand. It will be interesting to see if Lloyds is able to indicate that it has won permission to pay its first dividend (which would not reach shareholders until 2015) since the taxpayer-funded rescue, or whether the regulatory authorities wish to see it strengthen its capital base further before a part of retained earnings is paid away.
While we expect most results to meet the lower end of expectations, the overall impression is likely to be slightly disappointing in the sense that the high expectations of early summer that the pace of economic growth could go on accelerating will fade further.
In our view it is only a matter of time before the market takes another major leg down as investors reduce their earnings expectations against the backdrop of a struggling Eurozone and more subdued Chinese growth.
Key statistics and events
Monday, October 27
UK corporate earnings announcements: Wolf Minerals Limited (WLFE) Interim Result, City of London Investment Group PLC (CLIG) AGM/EGM, Petra Diamonds Ltd (PDL) Trading Statement.
Tuesday, October 28
UK corporate earnings announcements: Marsh & McLennan (MHM) Interim Result, BP PLC (BP.) Interim Result, BG Group PLC (BG.) Interim Result, African Barrick Gold PLC (ABG) Interim Result, Epistem Holdings PLC (EHP)Final Result, Utilitywise (UTW) Final Result, Murgitroyd Group PLC (MUR) AGM/EGM, Octopus Titan VCT 1 Plc (OTV1) AGM/EGM,TUI Travel PLC (TT.) AGM/EGM, Indus Gas Ltd (INDI) AGM/EGM, Doriemus Plc Ord 0.001p (DOR) AGM/EGM, Fyffes PLC (FFY) AGM/EGM, Bellzone Mining PLC (BZM) AGM/EGM, Lloyds Banking Group PLC ORD (LLOY) Trading Statement.
Wednesday, October 29
UK corporate earnings announcements: JZ Capital Partners Ltd (JZCP) Interim Result, Tissue Regenix (TRX) Interim Result, Talvivaara Mining Company Ltd (TALV) Interim Result, CSR PLC (CSR) Interim Result, Braemar Shipping Services PLC (BMS) Interim Result, C&C Group PLC (CCR) Interim Result, Redefine International (RDI) Final Result, Ricardo PLC (RCDO)AGM/EGM,
Progility Plc Ord 10p (PGY) AGM/EGMGoldplat PLC (GDP) AGM/EGM, Stagecoach Group PLC (SGC) Trading Statement, Antofagasta PLC (ANTO) Trading Statement, Standard Life PLC (SL.) Trading Statement, Signet Jewelers Ltd (SIG) ex dividend.
Thursday, October 30
UK corporate earnings announcements: Royal Dutch Shell (RDSB) Interim Result, X5 Retail Group N.v (89VS) Interim Result, Eurasia Drilling Co Ltd (71FH) Interim Result, Smith & Nephew PLC (SN.) Interim Result, Royal Dutch Shell (RDSA) Interim Result, Millennium & Copthorne Hotels PLC (MLC) Interim Result, First Quantum Minerals LD (FQM) Interim Result, Megafon(ojsc) (17GK) Interim Result, BT Group PLC (BT.A) Interim Result, Kofax PLC (KFX) Interim Result, Samsung Electronics Co (BC94) Interim Result, Atlantis Japan (AJG) AGM/EGM, Datang Intl Power Generation Co Ld (DAT) AGM/EGM, Genesis Emerging Markets Fnd Ld (GSS) AGM/EGM, Clinigen Group (CLIN) AGM/EGM, Redde (REDD) AGM/EGM, Mnc Strategic Investments Plc Ord 0.1p (MNCS) AGM/EGM, RPS Group PLC (RPS) Trading Statement, Kazakhmys PLC (KAZ) Trading Statement, Aviva PLC (AV.) Trading Statement, Afren PLC (AFR) Trading Statement, Barclays PLC (BARC) Trading Statement, Euromoney Institutional Investor PLC (ERM) Trading Statement, Henderson Group PLC (HGG) Trading Statement, Countrywide Plc (CWD) Trading Statement, Provident Financial PLC (PFG) ex dividend, NWF Group PLC (NWF) ex dividend, Proven Growth & Income Vct Plc (PGOO) ex dividend, Moss Bros Group PLC (MOSB) ex dividend, Sabien Technology Group PLC (SNT) ex dividend, M&C Saatchi PLC (SAA) ex dividend, Lombard Risk Management PLC (LRM) ex dividend, Lookers PLC (LOOK) ex dividend, El Oro(ELX) ex dividend, Booker Group PLC (BOK) ex dividend, GLI Finance Ltd (GLIF) ex dividend, Go-Ahead Group (The) PLC (GOG) ex dividend, ITV PLC (ITV) ex dividend, Hilton Food Group PLC (HFG) ex dividend, AIREA PLC (AIEA) ex dividend.
Friday, October 31
UK corporate earnings announcements: International Consolidated Airlines Group (IAG) Interim Result, Royal Bank of Scotland Group (The) PLC (RBS) Interim Result, 1Spatial PLC (SPA) Interim Result, Ideagen (IDEA) AGM/EGM, Cientifica Plc Ord 0.5p (CTFA) AGM/EGM, Jupiter Second Split Trust (JSSZ) AGM/EGM, Weir Group PLC (WEIR) Trading Statement, Countrywide Plc (CWD) Trading Statement, Direct Line Insurance Group PLC (DLG) Trading Statement, Royal Bank of Scotland Group (The) PLC (RBS) Trading Statement, Berendsen Plc (BRSN) Trading Statement.
– Edited by Clare MacCarthy
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