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Thursday preview: What guidance will Bank of England give on rates?

By Oliver Haill

Date: Wednesday 07 Feb 2018

LONDON (ShareCast) - (ShareCast News) - The Bank of England's 'Super Thursday' is the main event of the week, while there are results and quarterly updates from the AA, Ashmore, Bellway, Compass, Smith & Nephew, Sophos, TalkTalk and Tate & Lyle.
While the Bank's monetary policy committee are not expected to loosen the monetary policy belt, the quarterly inflation report, the monetary policy committee's minutes and the press conference afterwards will face scrutiny over the guidance for the likely path for UK interest rates this year.

Furthermore, Governor Mark Carney will be publish an open letter explaining why consumer price inflation overshot the 2% target by more than one percentage point in November.

"Overall we expect the Bank to remain in wait-and-see mode after its November hike and refrain from revising its communication in the absence of relevant events or data since the last inflation report," said economists at Barclays.

"Emboldened by constructive sentiment and healthy Q4 growth, it might be open to discussing an alternative tightening path. However, we would see that as an unnecessary risk and instead we retain our call for a next hike in November 2018."

Investec was in line with most others in predicting a unanimous 9-0 MPC vote to hold Bank rate steady.

Following the BoE's small rate hike in November and the very gradual normalisation path it has indicated, one or two MPC members might judge it appropriate to raise rates at this time, said Investec economist Victoria Clarke.

The crucial issue for this Thursday, she said, is what guidance the BoE gives on the likely path for UK interest rates going forward. "In November, the Bank appeared broadly content with the market path for interest rates outlined in that report, namely around two hikes over 2018 and 2019. One question for next week is whether the BoE wishes to signal a slightly more aggressive pace of rate rises, perhaps signalling the possibility of three rate rises over this time."

Howard Archer, chief economic advisor to the EY Item Club said it was a close call, but the thinktank now expects the Bank to raise interest rates twice in 2018 rather than just once, with a a hike from 0.50% to 0.75% in May, followed by another November increase to 1.0%.

"With the economy now seemingly on a modestly firmer footing, the labour market tight, inflation above its target level and interest rates still at an 'emergency rate', there is a clear case for the Bank of England to move towards normalising monetary policy. At the same time, we expect the MPC to act gradually given the uncertainties still facing the economy and the likelihood that inflation will fall back during through 2018," he said, predicting one interest rate hike to 1.25% during 2019.


Ashmore has already announced assets under management of $69.5bn for the first half of the year.

The consensus is for net revenue of just over 128m, with profit before tax of 84.2m, diluted EPS of 9.5p and a dividend of 4.55p.

Broker Numis said it liked the long-term structural growth expected from Ashmore's emerging markets focus, "however we think there are too many short to medium term headwinds to be positive short term", including European regulation, cost pressure, ongoing revenue margin pressures and uncertain flow recovery.

UBS forecast net revenues of 128.8m, adjusted EBITDA of 78.5m and EPS of 9.74p. "With flow figures already disclosed, we expect the market to focus on product margins given the sharp decline to fee margins reported in H2 2017."

Catering group Compass is reporting on its first quarter, having guided for a slow start to the year which is expected to accelerate as the year progresses and contracts ramp up.

UBS forecast slightly less than 3% organic growth for Q1 with North America continuing to see the strongest growth followed by the res of the world.

Cyber security software company Sophos will be reporting on its third quarter, with the consensus forecast for billings up more than 20% to $200m and cash adjusted EBITDA of $60m.

UBS, having recently conducted its own survey on industry spending, suggested new data security regulations that come-in in May 2018 are likely to offer a "modest tailwind" for Sophos. "Perhaps more significant" is Sophos' Intercept X anti-ransomware offering, which is compatible with third party endpoint protection platforms.

Overall, UBS is looking for Q3 billings up 21% to $199m and EBITDA of $62m.

TalkTalk is also due to publish Q3 numbers with shares having suffered so far in 2018.

Deutsche Bank said the market remained sceptical on the company's growth strategy given "tough competition and market saturation", while the additional cut to EBITDA guidance at the interim results in order to pursue growth, has "further raised concerns as to dividend sustainability". In general, looking forward, tighter regulation of BT such as fibre wholesale cuts will help the shares in the next financial year.

RBC Capital Markets recently upgraded its rating on the telecom group, saying that while not without issues, they believed concerns over the firm's balance sheet seemed to be overdone. RBC stated that with TalkTalk's revenues on the mend thanks to an uptick in subscribers in the fourth-quarter due to a solid adoption rate of its fixed low-price plans (FLPP), the top-line growth should reach around 1.4% in 2019, before revenue began to accelerate at a rate of around 2.7% in its 2020 trading year.

Thursday February 08

Balance of Trade (GER) (07:00)
Continuing Claims (US) (13:30)
Current Account (GER) (07:00)
Initial Jobless Claims (US) (13:30)

BoE Interest Rate Decision (12:00)
RICS Housing Market Survey (00:01)

Beazley, Smith & Nephew

Ashmore Group

AA, Bellway, Compass Group, DFS Furniture, EI Group, IGas Energy, Maintel Holdings, Sophos Group, TalkTalk Telecom Group, Tate & Lyle, Thomas Cook Group

Aberforth Smaller Companies Trust, Best of the Best, Cambian Group

Petro Matad Ltd.

Compass Group, Dewhurst, Dunedin Smaller Companies Inv Trust, easyJet, On The Beach Group , Premier Asset Management Group, Thomas Cook Group, Urban&Civic

Tongaat-Hulett Ltd., Xafinity

Absrforth Split Level Income Trust , Daejan Holdings, Van Elle Holdings, Warehouse Reit

Chenavari Toro Income Fund Limited NPV, IBM Corp., Impact Healthcare Reit , Picton Property Income Ltd


Aberforth Smaller Companies Trust, Catco Reinsurance Opportunities Fund Ltd (DI), Impax Asset Management Group, JPMorgan Russian Securities, Nexus Infrastructre , Sage Group, Treatt