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Thursday preview: ECB, BoE monetary meetings; Aviva, G4S report results

By Oliver Haill

Date: Wednesday 07 Mar 2018

LONDON (ShareCast) - (ShareCast News) - The European Central Bank monetary policy meeting is the big event for Thursday, with financial results from Aviva, Domino's Pizza and G4S.
For more macroeconomic interest, there's the Bank of Japan meeting overnight, Chinese trade, German industrial production and UK housing market update from RICS.

But the ECB's statement and chief Mario Draghi's press conference will be scrutinised for any indications that the governing council will join the monetary tightening trend and end its stimulus later this year. Updated staff forecasts will also be published.

"While ECB President Mario Draghi insisted that the APP could be extended in size and duration beyond September if necessary, most analysts believe that the stimulus will end in the third quarter of this year," said currency analyst David Madden at GKFX.

Economists at HSBC noted that since the ECB last met in January, market volatility has returned, equities have fallen and bond yields have risen. "With the euro rising and market interest rates higher, we don't expect the ECB to change its language in March [...] We also expect Mr Draghi to reinforce the ECB's sequencing of exit - no rate rises until 'well past' the end of QE."

The bank expect the ECB's new forecasts to include lower inflation estimates due to a stronger euro and faster projected falls in oil prices, but for core inflation to be unchanged at 1.9% in 2020 "so as to not seem too dovish", while the euro's strength could also lead the ECB to nudge down its 2019 growth by 0.1pp to 1.8%.

In the likely absence of any clear reference to tightening in the ECB's statement, Draghi is bound to quizzed on this in his subsequent press conference, but will want to keep his options open, said Morrison.

"But other members of the Governing Council will be pushing for a normalisation of monetary policy after all these years of extraordinary stimulus. This would be a vote of confidence in the Euro zone project and follows on from news over the weekend that Germany's Chancellor Merkel finally has a workable coalition government," he said, noting that Italian voters' show of dissatisfaction with the EU and the euro throwing an extra spanner in the works.

"On top of this, any additional move to wind down the APP ahead of September can only put upside pressure on the euro - something the ECB and most of the EU are desperate to avoid."

Meanwhile, at the end of last week BoJ Governor Haruhiko Kuroda announced that the central bank would begin planning an exit from its monetary stimulus programme around April next year, with a possible policy change before its 2% inflation target was reached. Nevertheless, any remote hawkishness will still be a shock.


Thursday's results from Aviva will see a focus on director's comments on capital generation and what that means for the life insurer's much-admired dividend.

UBS said it will be looking for to an update on how Aviva will maintain EPS growth after recent disposals, the sustainability of Solvency II capital generation and more details on the capital return and redeployment strategy "to increase confidence on the sustainability and potential size of capital return on a multi-year basis".

"In addition, we look for further progress on the digital strategy through key metrics including direct sales, registrations and average products per customers," analysts said.

There will also be prelims from fellow FTSE 100 constituent G4S, which won back its spot on the top flight index in the summer, but has seen its shares shrink around 25% from those levels, after it reported slowing growth in early August.

In November, the company said trading in the first nine months of the year was in line with expectations, but its guidance for full-year organic revenue growth was scaled back.

January saw the shares get upgrades from the likes of Citi and UBS, which expect a "reassuring message" on 2018 growth prospects in these results.

For 2017, UBS sees sales growth at 3.6% and adjusted EBITA at 501m, in-line with current consensus estimates, with a material improvement in free cash flow performance expected in the second half over the first to help lower leverage towards 2.2x EBITDA.

"We expect G4S to guide towards 4-6% organic growth in 2018 with good profit progress which should reassure investors following the recent growth slow-down which we expect to trough in 1Q at circa 1%."

Estate agent Countrywide will report after CEO Alison Platt resigned in January, less than a week after the firm warned on profits, leading to chairman Peter Long taking an executive role.

Guidance given at the January trading update was for EBITDA of 65m and net debt of 193m.

"Looking forward to FY2018 we believe that the group started with a lower pipeline of sales than 2017 and the branch network requires some underlying investment in order to boost staff numbers/quality," said Numis.

Whilst management is focused on cash generation and Countrywide's lenders have agreed a "amendment letter" with its lenders whilst it invests to restore profitability in the business, Numis thinks financing risks remain until there is "clear evidence of positive underlying cash flow and an improvement in operational performance - which has been poor for several years with regard to both volumes and fees".

Numis also took a look at Domino's Pizza, which has already reported UK LFL sales growth at 4.8% for 2017 and a record 95 new store openings.

The broker said attention on the day will likely focus towards the balance sheet, overseas developments and current trading, with 3.9% LFL growth for the first nine weeks of 2017 which is not demanding. "We expect the mistakes of the last year's Winter Survival Deal have not been repeated and we are unaware of competition (Pizza Hut and Papa Johns) being as aggressive as they were last year."

Thursday March 08

Continuing Claims (US) (13:30)
ECB Interest Rate (EU) (12:45)
Factory Orders (GER) (07:00)
Initial Jobless Claims (US) (13:30)

RICS Housing Market Survey (00:01)

Alfa Financial Software Holdings , Alliance Trust, Attraqt Group, Aviva, BioPharma Credit , Capital & Regional, Communisis, Communisis, Countrywide, Dairy Farm International Holdings Ltd. (Singapore), Domino's Pizza Group, Frontier Smart Technologies Group Limited, Hongkong Land Holding Ltd, Impellam Group, Irish Continental Group Units, Jardine Matheson Holdings, Jardine Strategic Holdings Ltd, Mandarin Oriental International, Premier Oil, Spirent Communications

Origin Enterprises

Melrose Industries

Attraqt Group , Relx plc

BioPharma Credit, Jupiter Fund Management, South32 Limited (DI) AGMS Benchmark Holdings

Fenner, Oxford Metrics

Aviva 8 3/8% Cumulative Irrd Preference 1, CareTech Holding, CRH, Electronic Data Processing, General Accident (Prf), Grafton Group Units, Greencoat Renewables, Jupiter Fund Management , LPA Group, Safestore Holdings, St. Modwen Properties, Standard Chartered, Temple Bar Inv Trust, Thomas Cook Group

Ashmore Group, BHP Billiton, Croma Security Solutions Group, Dechra Pharmaceuticals, Genus, Joules Group, Mid Wynd International Inv Trust, MJ Gleeson , National Westminster 9%pf, Persimmon, Redde, Renishaw, Ricardo, South32 Limited (DI) , Standard Life UK Smaller Companies Trust, Wilmington

Land Securities Group, Premier Global Infrastructure Trust, Raven Russia Ltd 6.5% Red Cnv Pref Shs NPV, UIL Limited (DI), Volta Finance Limited