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Credit Crunch Woes

Daily View - 7th July 2008

The week ahead

Yet again we will be concentrating on the woes of the banks, housing and retail sectors as the Credit Crunch and the price of Oil combine to make life difficult. In all this is the fact that the UK economy had already stretched its growth through excessive consumer and public sector borrowing. Any fool can spend vast amounts on education and health but it takes proper financial acumen to decide when the core economy can actually afford it. We now face the real prospect of "sacred cow" spending really harming the rest of the economy. Personal debt is a matter for the individual and the bank(s) concerned; in general this will stall expenditure for a while as private spending gets sliced to the bone but will not drag on anything other than the various consumer sectors involved.

Government spending is another matter and requires a strong Premier to bring under control. With the current incumbent this means that we will almost certainly drift for the next three years.

Monday

Not much of interest this morning with just Michael Page reporting. Understandably, since the credit crunch began the stock has had a pretty turbulent time drifting from just over 600p down to the current 233p. The good thing about this is that the bad news has probably not really actually started on the job front and much of this fall is anticipation rather than fact. The bad news is that unemployment is a lagging indicator and so the bad times for the company will last longer that for other sectors.

Economic data is restricted to the Industrial Production figures for May due out at 9.30. Expectations are for a fall of around 0.1% (0.8% YOY). The weakness of the Pound versus the Euro is not helping at all at the moment and if Euro-land slips into a serious slowdown even this 'benefit' will do little good.

Tuesday

Persimmon.... Just the word sums up the day. The house builder will report on the first half performance but with huge layoffs already announced we can pretty much write the script already. Grim. Grimmer, Grimmest. Take your pick. The real problem is that we are just six months into a down turn and already people are speculating on the various builders' survival chances. What on earth will we be seeing and saying in another year's time?

Party Gaming will also give their latest trading statement and this is expected to show continued progress on the post US ejection business growth. In bad times gaming is generally one of the few bright spots as people cheer themselves up with a bit of a flutter unfortunately the explosive growth of online gaming means that it is difficult to fix on a sure fire winner.

On the economic data front we will get the 'official' house price data for May which is expected to show values still up 3.3% on the year. This just about sums up the current opinion of the term 'official data'!

Out of the States the focus is also on property with the Pending Home Sale number at 15.00. I suppose at some point the sales numbers will reach such a low point that they will flatten out but this month is not expected to be there just yet with forecasts of another 2.5% drop. At the same time the wholesale inventories number wil come out and this is expected to rise once more by around 07%. Inventories data is always a bit of a double edged sword. We have grown used to rises in inventories being an indication of expected growth in sales but at the moment it is more likely to be a build up of unsold stock.

Wednesday

AGMs are usually dull stuff with most of the news already out there and only the hope for a new trading statement likely to ruffle the feathers. But today we see Sir Stuart's private fiefdom of M&S fighting off a minor peasant's revolt. The headlines will probably write themselves with editors fighting over various usages of the phrase "this is not just an AGM it is an M&S AGM"
Bovis and Redrow will unfortunately lower the tone a bit adding their weight of woe to investors shoulders but on the plus side the darling of the small investor, Tullow Oil, will also give a trading statement and the news from here is likely to be rather more palatable. Whilst we are 10pc off the highs of June the stock has still more than doubled in the last year or so.

The UK Treasury will give out May's Trade data and it is expected that this will be the start of the Oil effect. The huge increase in fuel and food costs will start to affect the trade numbers in coming months so the Trade imbalance is unlikely to improve in the short term. The figure is expected to be around £7.5bln. To add to Gordon Browns woes the consumer confidence figure is not likely to be improving and as politicians will know consumer confidence filters through into voters' dissatisfaction.

Thursday

BOE decision day but hardly anyone expects them to move. Procrastination seem to be the order of the day at the moment as the twin fears of inflation and recession battle it out over the hearts and minds of the MPC. Frankly I would suggest that if the BOE wants employees to rein in pay expectations then they must give some relief somewhere. The rising costs of commodities twinned with Mortgage payment hikes is making for belligerence on the wage front.

And to complete the housing full deck of pain, Barratt will give their year end trading update. The company came close to oblivion a few weeks ago as investors feared that the huge Land bank would drag them under. The banks have, for now, backed the board but there may be some lightening of the load to be done. Building land values are likely to continue to plummet and the various builders may be keen to offload some plots to reduce loan levels.

Sports Direct also announce their full year numbers. With Mike Ashley worrying on three fronts (Sports Direct itself, Newcastle Football club and his rather injudicious Spread Bet on HBOS) the city will be hoping for rather more information this time around. The numbers are weaker than last year, expected at 148m, but it will be the trading statement that will interest the market not the historic data.

No serious economic releases today so after the BOE announcement we may drift into slumber in the afternoon.

Friday

Friday is, as usual, quite slow on the corporate data front but C&C group will be updating us on the sales performance of their drinks unit and most eyes will be looking at the Magners Cider sales figures. The summer, whilst better than last year, has not exactly been of the 'cold cider' thirst quenching variety so sales will probably still be on the lighter side of 2006.

No UK data bur over the pond we will get the US Trade Figures at 13.30 expected to be around $62 billion, some four times the size of the UK but with an economy some six times greater. At the same time the Import Price number is forecast to come in at plus 2% MOM but 18.6% YOY (not exactly the kind of figure likely to aid the Fed's inflation fight) and then at 15.00 the Michigan Consumer confidence numbers which, like the UK, are not expected to show any improvement.