Wednesday preview: United Utilities update expected
The only major company scheduled to report on Wednesday is United Utilities, which will post its second quarter trading update and hopefully update on its tussle with regulator Ofwat on its prices for the next five years.
FTSE 100
7,832.95
13:45 19/04/24
United Utilities Group
1,029.50p
13:45 19/04/24
Trading is likely to have remained in line with management’s expectations, but what the market will be looking for instead are references to the long running regulatory review from regulator Ofwat.
With Ofwat expected to make a final decision on 12 December about the company's pricing for the five years from 1 April 2015 to 31 March 2020, United would be remiss not to brief the market on developments for its pricing ahead of submitting its response to Ofwat by 3 October.
In late August, Ofwat published the draft determinations for several companies, with United receiving a stinging rejection of its proposed prices structure as some prices vastly exceed the watchdog’s recommended pricing model.
As broker Liberum plainly put it at the time: "United Utilities is very much the bad boy in today's announcement. Ofwat has disallowed £990m of proposed costs from its business plan. No other company has even a quarter of that level. Severn Trent's number is close to zero.
"This is a massive regulatory failure by UU and will threaten its dividend if it flows through into the final determinations due out in December."
The company responded by stating that the regulator had highlighted that these determinations were only drafts at that stage and that a consultation period was to follow, in which United said it intended "to engage fully and provide further supporting information and evidence as appropriate."
Ahead of the statement, Goldman Sachs recently reiterated its 'neutral' rating on the stock, with a 914p price target.
Macro news: German IFO and US new home sales
Macroeconomic data is thin on the ground on Wednesday, with German business climate and US new home sales the reports to watch, while China is widely expected to approve measures to boost bank liquidity.
German IFO Institute's business climate index and business expectations survey follows downbeat data from Europe's largest economy on Tuesday, when Markit's Purchasing Managers Index fell to its weakest level since June 2013.
Some analysts were not entirely pessimistic about what Wednesday's data will bring, with Barclays issuing a note that said: "We expect a modest bounce in the IFO business index and the expectations component, while the current assessment may weaken somewhat further."
Germany's central bank on Monday cautioned that some positive recent data were supported by one-off factors that didn't accurately represent the state of the economy.
In its monthly report the Deutsche Bundesbank noted that the labour market was still in a good condition and that consumers that haven't adjusted their income expectations and consumption plans despite the cloudier economic outlook.
Over in the US, figures on new home sales and crude oil inventories are due.
For new home sales, the consensus of economists predictions is for August to have seen 435,000 houses sold, up from July's 412,000.
But Alpari UK's Craig Erlam warned if last week's housing numbers were anything to go by, this week's numbers could be "quite disappointing".
"The housing market is one of those areas that was key to the economic recovery in the US last year but has not really recovered to pre-financial crisis levels," he said.
"Rising rates later this year may weigh on the housing numbers in the coming months, as we saw last year, although if this recovery is as strong as we hope, maybe people will be in a better position to take it and the numbers won’t be too negatively affected."