City diary: Week ahead in the markets

By This Is Money
Updated: 11:42 EDT, 11 February 2011

The Bank of England's latest quarterly inflation report will be the economic highlight, while Barclays will kick off the banking results season.

MONDAY

No major corporate news is scheduled.

TUESDAY

The official figures for January's cost of living are released - followed by the Bank of England's quarterly inflation report on Wednesday.

Inflation unexpectedly shot up to 3.7% in December, from 3.3% in November, the Office for National Statistics (ONS) said.

Inflation expectations driven by the January VAT hike, plus soaring oil and food prices, were to blame.

The surge piled pressure on the Bank of England to raise interest rates to curb the soaring consumer prices index rate of inflation.

But just as the hawkish members of the monetary policy committee - such as Andrew Sentance - were looking close to getting their way, the ONS revealed the economy went into shock decline in the final three months of 2010 by 0.5%.

The figures highlighted the fragile position the economy has found itself in - teetering close to a period of so-called stagflation, when sluggish growth and high unemployment combine with soaring prices.

Possibly considering the weaker than expected fourth quarter GDP figures, the MPC held its nerve and kept rates at their 0.5% historic low for a 23rd consecutive month.

Further pressure is expected from January's CPI figures, as analysts expect the rate to surge again to around 4.1%. However, the Bank has previously stated it expects inflation to move towards 5% in the coming year.

Barclays kicks off the banking results season a week after Chancellor George Osborne revealed the details of the highly anticipated Project Merlin agreement.

The deal between the Government and leading UK banks is meant to curb bonuses and boost small business lending.

But while the City is bound to be keen to see how much Barclays' new chief executive Bob Diamond pockets for his bonus, the focus is likely to move away from pay packets and on to profits as the season rolls out.

Mr Diamond, who recently told a Treasury Select Committee the period for 'remorse and apology' for banks needed to be over, is expected to be awarded a bonus of more than £9m.

This would dwarf the bonus awarded to Stephen Hester at RBS and Eric Daniels at Lloyds, who have been awarded £2m and £1.45m in shares respectively.

Mr Diamond will be delivering his first full-year results after taking on the top role from predecessor John Varley at the beginning of the year.

Barclays is expected to report pre-tax profits of £5.1bn for 2010, which would mark a decline on the £11.6bn earned in 2009.

Barclays Capital, the investment banking arm formerly headed by Mr Diamond, is central to the group's performance - it is estimated to contribute towards 60% of the bank's profits.

But, as reflected in US banking results earlier this year, the sector suffered from weak activity in the final three months of last year.

Robert Law, a banking analyst at Nomura, said: 'With a new chief executive in place, there is heightened expectation of potential strategy changes and his comments will be an important driver for shares.'

Nomura has forecast BarCap's pre-tax profits to be £4.3bn, broadly flat on the previous year, and £805m in UK retail banking, up on the £752m in 2009.

Hovis-to-Mr Kipling firm Premier Foods is expected to reveal a decline in profits as the firm battles intense competition in the grocery market.

The UK's biggest food manufacturer, which saw its shares nearly halve in value in 2010, is forecast to report a 2% decline in trading profits to £303m in the year, according to analysts.

The results are expected to reveal an improvement on the first half of the year when trading profits declined by 6%.

The past year has seen the company, which owns brands including Sharwood's, Bisto and Ambrosia, struggle to pass on the rising cost of ingredients to its supermarket customers in an increasingly competitive market.

The company recently sold some of its best known brands in a bid to drive down its debt mountain, which ballooned to £1.4bn after a buying spree that saw it snap up Hovis owner RHM and the UK arm of Campbell's soups.

Its meat free business, which includes Quorn and Cauldron, was sold to a private equity consortium for £205m in January.

Household brands Crosse & Blackwell and Fray Bentos were sold along with its canned grocery operation to food and drinks group Princes in a deal worth £182m.

The disposals, which will not affect the 2010 figures, have driven Premier's debts down to below £1bn, which Julian Hardwick, an analyst at Royal Bank of Scotland, said left the company with a balance sheet that investors would see as comfortable.

He also expects Premier's sales to show a drop of 3.3% in 2010, which is an improvement on the 4.4% decline reported in the first three quarters.

The St Albans-based firm was involved in a pricing spat with the UK's biggest supermarket group Tesco which refused to accept price rises on some of its Hovis bread products during the final quarter.

Premier said it needed to put up costs after the price of wheat soared by up to 50%.

More than 99% of households bought a Premier Foods brand last year, according to the company's website.

InterContinental Hotels Group and British Land will also release results.

WEDNESDAY

The latest inflation report will be released and closely scanned to find out when the MPC believes inflation will return to the 2% target.

Mark Cliffe, chief economist at ING Group, said while the Bank may come under pressure to lift rates, the inflation threat is exaggerated.

He said tax rises were having a temporary impact, while food and energy prices should peak this year and wage inflation will be subdued as unemployment is expected to rise.

'Interest rates are unlikely to rise as quickly as expected,' he added.

Chocolatier Thorntons is likely to reveal how much the snow chaos in December wiped off its profits when it updates the market with its half-year results.

The retailer said the Arctic weather cost it £3.5m in lost sales in the key Christmas trading period, as shoppers opted to stay at home rather than brave icy high streets to reach its stores, although it gave no estimate for how badly profits were hit.

Strong demand for seasonal products such as Advent calendars, Christmas hampers and traditional lines including chocolate-smothered fruits helped push group sales up by 3.9% in the final quarter of 2010.

But the weather conditions kept shoppers away from its 371 company-owned stores, which saw like-for-like sales decline by 5.9%.

It said its own-store sales would have improved on last year, when like-for-likes were down by 4.4%, if not for the snow.

Its 229 franchise stores saw sales decline by 2.2% over the quarter but its other divisions such as its delivery service and commercial arm, which sells to supermarkets, reported sales up 7.6% and 35.9% respectively.

The retailer has been fighting rising commodity prices, such as cocoa, butter and sugar, which have all soared in the past year.

It put up prices on a small number of lines in November but has generally looked to take costs out of the business by changing pack sizes and products to allow it to hold price tags.

Thorntons is forecast to make pre-tax profits of £6.7m in the year to June 2011, an increase of 9% on the previous year, according to analysts. Revenues are expected to rise 3% to £221.2m.

BHP Billiton will also release results.

THURSDAY

The City will be looking for an update on bookmaker Ladbrokes' plans to buy online gambling firm 888 Holdings when it publishes its final results.

Both sides have confirmed talks are going ahead but reports have suggested the discussions have hit difficulties over the proposed price.

Ladbrokes reportedly offered £240m for 888, which has suffered in the last year as demand for online poker has decreased.

It would be the second attempt to secure 888 after Ladbrokes tried to buy the firm in 2006 for a reported £470m, but it is understood the talks fell through due to concerns the US Department of Justice might prosecute 888 as part of a crackdown on online gaming.

Ladbrokes's full year results are expected to show underlying earnings of around £190m.

In terms of recent trading, Ladbrokes may mirror recent news from rival William Hill, which had a strong finish to the year.

Heavy snowfall and freezing temperatures in December failed to stop gamblers placing their bets, with William Hill reporting a 4% rise in retail turnover during the month and 8% in the fourth quarter.

Ivor Jones, an analyst at Numis Securities, said that given the very poor weather in January 2010, new year trading is also likely to have been positive for Ladbrokes.

Also alongside the results, Ladbrokes chief executive Richard Glynn is set to outline his long-term strategy for the group, having taken on the top job last April.

AXA, Sun Life, Reed Elsevier and BAE Systems will release results. Kingfisher is scheduled to issue a trading statement.

FRIDAY

Embattled sportswear firm JJB Sports will seek approval for its plans to raise £31.5m at a special meeting of shareholders.

JJB, which employs 6,300 staff in more than 250 stores, has turned to Harris Associates and Crystal Amber, the company's two largest shareholders, and the Bill & Melinda Gates Foundation Trust to raise the sum.

JJB needs the cash to prop up its finances as trade continues to deteriorate and its rivals, JD Sports and Sports Direct, go from strength to strength.

JJB has struggled in the last couple of years, during which it has been the subject of separate investigations by the Serious Fraud Office, the Office of Fair Trading and the Financial Services Authority.

The Wigan-based retailer recently revealed that a major promotional drive failed to deliver results.

The company has persuaded Bank of Scotland to waive lending covenants in January and April as it sorts out its finances and attempts to get its revised business plan back on track.

JJB has also announced plans to shut 45 stores and said another 50 were in danger of closure. The company said it was seeking a fresh rent deal with landlords under a company voluntary arrangement (CVA) which will enable it to go ahead with the store closures.

The two major shareholders backing the capital raising have multimillion-pound investment portfolios.

Harris Associates, a private US investment giant which has a 20% stake in JJB, had $61.5bn (£37.9bn) of assets under management at December 31.

Crystal Amber is an activist investor registered in Guernsey. The company, which holds a 15.8% stake in JJB, also owns stakes in Pinewood Shepperton, the owner of the famous Pinewood film studios, and payment systems firm Paypoint.

On the economics front, January gross mortgage lending figures are due from the Council of Mortgage Lenders, while retail sales data for January will be issued by the Office for National Statistics.