Wednesday preview: Much anticipated unveiling from Bank of England and Sainsbury's

11th Nov 2014 15:25

Wednesday sees markets turn their attention on November's Inflation Report from the Bank of England, while on the corporate front sees Sainsbury's unveil first half results and its long-awaited strategic review. Released at 10:30 GMT, with Governor Mark Carney will also speak to reporters at a press conference, the quarterly report will set out the central bank's detailed analysis of the economy and the inflation projections on which its Monetary Policy Committee (MPC) have based their latest interest rate decision.The report is expected to shed some light on the MPC's recent decision to hold off from hiking rates, with the Bank providing a more detailed assessment of recent national account revisions from the Office for National Statistics and their impact on the measure of slack in the economy.Economists at Barclays predicted the Bank will maintain its growth outlook while it revises down its inflation and unemployment forecast.Sam Tombs at Capital Economics said he believed the report would confirm that the majority view on the MPC remains that the economy is still some months away from justifying higher interest rates and therefore strengthen expectations that a first rate rise will not come until "well into 2015"."The committee's forecasts for both GDP growth and inflation look set to be lowered - the latter perhaps quite considerably."In addition, we doubt that the faster fall in the unemployment rate than the MPC expected at the time of the last report in August will lead it to conclude that there is little slack left in the labour market."Given that wages have not picked up much in response to the decline in the jobless rate, Tombs expects the MPC will assume that the unemployment is lower than previously thought and that there remains plenty of slack in the labour market.Jameel Ahmad, market analyst at FXTM, said Carney could "really punish the pound" (GBP) if he suggests the potential spring 2015 UK rate rise is off the agenda."It is also worth noting that the BoE has always maintained strong views on weak price pressure (inflation) and Carney could weaken GBP investor appetite further if he downgrades future inflation expectations tomorrow in the wake of UK inflation falling to a five-year low."Sainsbury's strategic reviewAt Sainsbury's new chief executive Mike Coup will reveal his long-awaited strategic review along with results for the 28 weeks to 27th September.The supermarket, which has delivered falling sales over its last three quarterly results, on Sunday seemed to be managing expectations, with stories fed to the papers implying falling profits and that a trimmed dividend will be part of the review."It seems that despite Sainsbury's sales guidance for this year of a 2.8% LFL fall with 2% new space growth and a tight control on costs, we should also expect a cut in the £309m dividend payment equal to 17.3p per share," said analyst Mike Dennis at Cantor, meaning the grocer's 6.6% yield could fall to 4.5%.In addition, he pencilled in a 57 basis points drop in first-half trading margins to 2.9% and said if total sales come in marginally lower with gross margin is slightly higher and cost growth held at 2% despite new space growth, "then it seems Sainsbury's will need to cut costs significantly if it wants to invest more in price and reset base prices lower"."We believe the key to the value simplicity strategy is growing LFL customer numbers and retaining loyal larger basket shoppers. The recent fall in fresh produce deflation has obviously weighed on the whole industry and would have impacted Sainsbury's more given its larger fresh produce participation."The cut in the dividend would be a significant shift away from its previous strategy and reflect the view that Tesco will also, in our view, reset pricing and costs to a lower level to recover some of its lost market share."Morgan Stanley's Edouard Aubin provided a view on the store 'space race' ahead of possible comment on this subject from Coup, saying: "We expect Sainsbury's selling space growth to more or less halve in the next three years," he said."In recent years, both Tesco and Morrisons have gradually but consistently announced that they would slow down their selling space expansion - since 2012 in the case of Tesco and 2013 for Morrisons. Given industry pressure on profitability/balance sheet constraints, we expect Sainsbury to make a similar announcement this week."Other notable trading updates from the blue chips are due from Burberry and SSE, with the FTSE 250 reports coming from Barratt Development, Brit, Derwent, Interserve and Kier Wednesday 12 NovemberFINALSTracsisINTERIMSBurberry Group, Flybe Group, Heath (Samuel) & Sons, Sainsbury (J), SSE, Workspace GroupIMSSBarratt Developments, Brit , Derwent London, G4S, Interserve, Kier Group, SIGTRADING ANNOUNCEMENTSSafestore HoldingsQ3 UPDATESCSR, Damac Real Estate Development Limited GDR (Each Repr 3 Ord) (Reg S) , MirLand Development Corporation, Telecom Egypt SAE GDS (Regs), Telefonica SAUK ECONOMIC ANNOUNCEMENTSBoE Inflation Report (09:30)GDP (output, income & expenditure) (09:30)INTERIM DIVIDEND PAYMENT DATEBrainJuicer Group, Centrica, SpectrisINTERNATIONAL ECONOMIC ANNOUNCEMENTSIndustrial Production (EU) (10:00)MBA Mortgage Applications (US) (12:00)Wholesales Inventories (US) (15:00)AGMSAlternative Asset Opportunities PCC Ltd Red Ptg Prf Shs, Avingtrans, Barratt Developments, China Growth Opportunities Ltd, Digital Globe Services Ltd (DI), Hays, Henderson EuroTrust, Macau Property Opportunities Fund Ltd., Picton Property Income Ltd, Target Healthcare Reit LtdFINAL DIVIDEND PAYMENT DATEIdeagen, JPMorgan Mid Cap Inv Trust