Thursday preview: ECB, BoE, Morrisons, Whitbread

Central bank decisions will be in focus on Thursday with the announcement by the European Central Bank (ECB) more eagerly anticipated than the outcome of the Bank of England's Monetary Policy Committee (MPC) meeting.

Central bank decisions will be in focus on Thursday with the announcement by the European Central Bank (ECB) more eagerly anticipated than the outcome of the Bank of England's Monetary Policy Committee (MPC) meeting.

"We regard it as very unlikely that the ECB will announce a yield cap or a very detailed strategy for bond buying. After the recent improvement in market sentiment, we thus see the risk of some investors being disappointed, potentially triggering a bit of risk-off," said Luca Cazzulani of UniCredit at the end of last week.

Credit Suisse, meanwhile, said it expects the ECB will cut its key lending rate by a quarter of a point, although it expects markets will be more interested in details of the ECB's bond buying scheme - assuming it announces one. "We expect some clarifications, but there's a risk that markets are disappointed," the Swiss bank said, also last week.

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Of course, things have moved on since those pronouncements were made, and some news agencies are reporting that the ECB will announce unlimited, but counter-balanced, bond purchases. Other sources say German Chancellor Angela Merkel is implacably opposed to unlimited bond purchases. The head of Holland's central bank, for his part, is said to be asking for very stringent conditionality to be attached to any bond purchases.

Nancy Curtin, Chief Investment Officer at Close Brothers Asset Management, is expecting ECB Chairman Mario Draghi to announce the conditions under which a nation will qualify for the securities market programme.

Curtin thinks there is a chance that he could announce the size and duration of bond buying but she is not expecting him to announce a specific target rate or yield level for peripheral debt.

"However, while most investors have high expectations for the meeting tomorrow, the ECB may also be more vague in its commitments, awaiting further endorsement from Germany (the Constitutional Court will vote on whether Germany can commit to the ESM on September 12th). A no decision would be a shock to markets and potentially force the ECB to increase its bond buying commitments.

"What is clear is that markets have already run in anticipation of a degree of 'shock and awe' from the ECB tomorrow and failure to deliver against this promise of: 'whatever it takes' will cause a set back for markets," Curtin said.

Eurogroup chairman Jean-Claude Juncker will be attending Thursday's meeting of the European Central Bank. The Eurogroup chairman does not normally participate in the ECB monetary policy meeting.

The Bank of England's meeting offers the remote possibility of some drama. While the bank is odds-on to retain its key lending rate, minutes from the previous meeting of the Monetary Policy Committee indicated that there was some support for topping up the asset purchase (quantitative easing) pot, although the consensus was that the Bank should allow a bit more time to see how the recently introduced Funding for Lending Scheme pans out.

On the corporate front, supermarket chain Morrisons reports interim figures on Thursday, which broker Jefferies thinks "are likely to bear the scars of weather challenges".

Nevertheless, "self-help and ROCE [return on capital employed] discipline remain powerful attractions (the latter likely to lead to even greater capex [capital expenditure] scrutiny)," the broker suggests.

"We anticipate self-help to have allowed for broadly unchanged underlying EBIT [earnings before interest and tax] margin (or a slight decline including the dilution from petrol sales). Crucially, we still forecast 8% H1 EPS [first half earnings per share] growth as buyback activity starts to reward shareholders," Jefferies added.

"We expect Morrisons to outline good progress in its M-local trials and the preparation of a wider non-food online roll-out. Performance in the new fresh format is also likely to be reassuring in more affluent catchments. Despite this, we expect Morrisons' focus on maintaining industry-leading ROCE to likely result in reducing capital intensity (at this stage we estimate a £1.05bn peak in 2012/13), as the group balances a challenged trading backdrop with new growth opportunities, extending vertical integration and a stepped-up Southern expansion," Jefferies said.

Charles Stanley, meanwhile, has pencilled in £8.9bn for Morrisons' revenue, £455m for EBIT and £430m for headline profit before tax, and reckons the results will be "relatively subdued".

"Like-for-like sales excluding fuel and VAT are forecast to be down by c.1% during the period, a consequence of continued pressures on the consumer and the intense competitive environment," predicts Charles Stanley's Sam Hart.

"An update is expected to be provided on a range of strategic initiatives introduced since Dalton Philips took up the position of Chief Executive in March 2010. Stores are being reformatted, with an improved fresh food offer, more efficient use of space and improved service. The goal was to have c.48 stores (out of a total of 475) in the new format by the end of the first half," Hart notes.

Hotels and restaurants group Whitbread could not wait till Thursday's pre-close update to announce the poaching of Nicholas Cadbury from Premier Farnell to be its new finance director on Tuesday.

Credit Suisse thinks the recently Olympic Games in London will have had a limited but positive impact on revenue per available room (revPAR), the key metric in the hotels business, "given the skewed geographical exposure to softer regional UK RevPAR ... and capped rates on London hotels."

On the second quarter (Q2) like-for-like (LFL) sales front, Credit Suisse said: "We forecast flat Q2 LFL's (vs. +4.3% in Q1), implying a potential underperformance relative to weighted UK industry numbers (+1.9%).

"Whilst the wet UK summer may boost trading for Costa [Coffee], we forecast LFL's up just 3% (vs. +8.4% in Q1), as comps [comparative figures] are 5pp [percentage points] tougher than last year. Our restaurant forecasts decline to +1% vs. +2% in Q1 but the key focus remains on turning gross margin positive (-100bps [one percentage point] forecast for FY13 [full-year 2013]), and we look for an update on the volume vs. price strategy currently in place," Credit Suisse added.

Jefferies said Whitbread's trading in the second quarter is likely to have been more volatile, thanks to the timing of the Queen's Diamond Jubilee, the Euro2012 football tournament and the Olympic Games, not to mention the wet weather. It is predicting "flattish" LFL sales.

"Premier Inn could have had a relatively difficult Q[ quarter], as STR [industry] data shows that RevPAR in London and the provinces fell sharply in June and July ahead of the Olympics and as it is against 7% growth in Q2 last year. We would view positive L4L [LFL] sales as a very good performance," Jefferies said.

Consumer electronics retailer Dixons is expected by Panmure Gordon to have put in a decent performance in the first quarter of its new financial year.

"We look for Dixons' Q1 group like-for-like sales growth to be 4%, which compares with Q4 growth of 5%. We expect Q4 like-for-like sales growth in the UK of 5.5% (compared with 8% in Q4). We estimate that like-for-like sales growth in Northern Europe will be 10% (as achieved in Q4), while in Southern Europe we look for a decline of 10% (against -9% in Q4). Finally, at PIXmania, we look for like-for-like sales to be down by 5%, which is again in line with Q4. We expect a small decline in group gross margins, reflecting the poor Southern European markets, again in line with Q4," the broker said.


HydroDec Group, Morrison (Wm) Supermarkets, Randall & Quilter Investment Holdings, SQS Software Quality Systems AG, Valiant Petroleum


Domino's Pizza Group


Bloomberg Consumer Confidence (US) (14:45)

Continuing Claims (US) (13:30)

Crude Oil Inventories (US) (15:30)

ECB Interest Rate (EU) (12:45)

GDP (1st release) (EU) (10:00)

Initial Jobless Claims (US) (13:30)

ISM Non-Manufacturing (US) (15:00)

ISM Services (US) (15:00)

PMI Construction (GER) (08:55)


Toumaz Limited


CPL Resources, Go-Ahead Group


1Spatial, ACM Shipping Group, Carclo, Carpetright, Dart Group, Datatec Ltd. (DI), Dixons Retail , Energy Assets Group, Trakm8 Holdings


BoE Interest Rate Decision (12:00)

New Car Registrations (09:30)


Synergy Health, Victoria