19th May 2025 07:49
(Alliance News) - London's FTSE 100 is called to open lower on Monday, as a US credit rating downgrade keeps a lid on equity market sentiment, also keeping the dollar at bay.
Moody's Ratings on Friday downgraded the US long-term issuer and senior unsecured ratings to Aa1 from Aaa and changed the outlook to stable from negative.
The one-notch downgrade on the 21-notch rating scale reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns, the credit rating agency said.
"This week we should be talking about how in May, US equities have outperformed their European counterparts. However, instead the focus will be on the US credit rating downgrade from Moody’s that was announced late on Friday night. The US credit rating agency is the last of the major agencies to downgrade the US from Aaa to Aa1. The US no longer has the coveted triple A credit rating, leaving Australia, Canada, Germany and others to have higher rated credit than the US," XTB analyst Kathleen Brooks commented.
"The reaction to this news has weighed on US equity futures, which are sharply lower on Monday, and it has also knocked the US dollar. Treasury yields are higher across the board, and the 30-year yield breached the key 5% level on Monday morning. While we do not think that there will be a mass exodus from US assets this week, it could lead to more mutterings about diversification away from US assets."
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: called down 0.4% at 8,652.76
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Hang Seng: down 0.2% at 23,308.38
Nikkei 225: down 0.7% at 37,474.73
S&P/ASX 200: down 0.6% at 8,295.10
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DJIA: closed up 331.99 points, 0.8%, at 42,654.74
S&P 500: closed up 0.7% at 5,958.38
Nasdaq Composite: closed up 0.5% at 19,211.10
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US 10-year Treasury yield: 4.52% (4.44%)
US 30-year Treasury yield: 5.00% (4.89%)
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EUR: higher at USD1.1209 (USD1.1146)
GBP: higher at USD1.3322 (USD1.3260)
USD: lower at JPY145.02 (JPY145.97)
GOLD: higher at USD3,222.11 per ounce (USD3,181.36)
(Brent): lower at USD64.83 a barrel (USD65.16)
(changes since previous London equities close)
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ECONOMICS
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Monday's key economic events still to come:
10:00 BST eurozone CPI
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Keir Starmer has had a breakthrough in his bid to secure a new deal with the EU ahead of a major summit with the bloc, the PA news agency understands. After government sources said talks were "down to the wire" on Sunday, it is understood there was late progress, although a deal is "not yet done" because there are still outstanding issues on both sides. Ministers had appeared confident of securing an accord, with Number 10 saying on Saturday the prime minister would "strike a deal" at the first UK-EU summit on Monday. The summit will see Starmer meet European Commission President Ursula von der Leyen for the second time in four days amid efforts to reach agreement with the EU on a range of issues. That includes an expected announcement on defence and security, which could feature an agreement allowing British firms access to a EUR150 billion EU defence fund. Deals on allowing British travellers to use e-gates at European airports, cutting red tape on food exports, and setting up a youth mobility scheme with the EU are also thought to be on the table. But reports suggest disagreements over fishing rights and youth mobility have presented last-minute stumbling blocks. Government sources said "huge progress" has been made in agreeing "a mutually beneficial deal with the EU" that would "deliver for British working people". But they insisted the prime minister has been "clear that he will only agree a deal which delivers in the national interest of the UK".
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New seller asking prices for properties in the UK rose to a new record high in May but the pace of growth decelerated, data published by Rightmove showed Monday. New seller asking prices climbed 0.6% monthly to GBP379,517, which is May's lowest seasonal price increase since 2016. It was much slower growth than 1.4% in April. On-year price growth slowed to 1.2% in May from 1.3% in April. Rightmove noted that "the decade-high number of homes for sale limits price growth." It said that the traditionally strong late spring market is more subdued after a busy first quarter of the year. Rightmove said: "With new seller activity currently outpacing new buyer activity, sellers are having to work harder to secure a buyer. Rightmove's research on pricing success highlights the unintended result of pricing a property too high at the start of advertising to test the market, only to have to reduce it later. Homes which need a reduction in price during marketing can take over two months longer to find a buyer. Rightmove's data also shows that there has been a 32% increase in the number of sellers who have swapped estate agent to try and find a buyer. This reflects the high market competition, and the frustration of some owners that their homes aren’t selling, a process made much harder by setting an over-optimistic price to begin with."
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BROKER RATING CHANGES
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HSBC cuts Legal & General to 'hold' (buy) - price target 255 (265) pence
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Jefferies raises Capricorn Energy to 'buy' (hold) - price target 290 (220) pence
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COMPANIES - FTSE 100
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Brewer Diageo reported a third-quarter net sales climb, and said it is on track to meet its annual guidance as a "sequential improvement" in the second-half is in the offing. It also updated on tariffs, predicting a USD150 million annualised hit, though it believes what it has "in place already" can mitigate about half of that impact. The owner of Guinness and Johnnie Walker said reported net sales in the third-quarter to March 31 rose 2.9% on-year to USD4.38 billion from USD4.25 billion. On an organic basis, it improved 5.9%. Year-to-date sales are 0.4% higher on a reported basis at USD15.28 billion, up 2.4% organically. "Performance in the quarter was supported by favourable phasing which we estimate contributed [around] 4% of Q3 group organic net sales growth, mainly from North America and to a lesser extent Latin America and Caribbean, and is expected to reverse in Q4," Diageo said. It saw growth in all regions with exception of Asia Pacific, where it was hurt by "continued consumer downtrading". Looking ahead, it said: "The increased growth rate in Q3 compared to the first half of fiscal 25 is mainly driven by phasing and does not change our expectations for fiscal 25 full-year growth from those communicated at fiscal 25 interim results in February 2025. In the second half of fiscal 25, we continue to expect to deliver a sequential improvement in organic net sales growth compared with the first half of fiscal 25." It continues to expect a "slight decline in organic operating profit in the second half, broadly in line with the decline in the first half". Organic operating profit declined by 1.2% on-year in the first half. Diageo updated on tariff implications. Assuming the current 10% tariff remains on both UK and European imports into the US, and that Mexican and Canadian spirits imports into the US remain exempt under an agreement between the North American nations, the unmitigated annualised impact will be roughly USD150 million. "We expect that given the actions that we have in place already, before any pricing, we will be able to mitigate around half of this impact on operating profit on an ongoing basis. Looking ahead, we will continue to work on measures to mitigate this impact further. Our long track record of managing international tariffs gives us confidence in our ability to navigate this successfully. The expected impact in fiscal 25 and fiscal 26 is included in our guidance," Diageo added. Diageo expects to be able to "sustainably deliver" USD3 billion of free cash flow per year from financial 2026, amid its 'Accelerate' growth programme. "This is supported by a [roughly] USD500 million cost savings programme, which will enable both reinvestment in future growth and improved operating leverage," it added.
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BT Group is nearing a deal to sell its stake in TNT Sports to Warner Bros Discovery, the Financial Times reported Saturday, citing two people familiar with the situation. BT, a London-based telecommunications group, could announce the sale of its 50% stake in TNT Sports to Burbank, California-based media and entertainment company Warner Bros as early as this week, according to the FT. BT is set to announce its results for the financial year ended March 31 on Thursday.
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COMPANIES - FTSE 250
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Kainos Group reported a decline in annual earnings, amid "broader market challenges in IT services". The Workday partner and provider of IT services to public sector, commercial and healthcare customers announced a new buyback, however. Pretax profit in the year to March 31 fell by a quarter to GBP48.6 million from GBP64.8 million. Revenue declined 4.0% to GBP367.2 million from GBP382.4 million. Results were in in line with revised expectations, Kainos added. "Our results reflect a mixed year for Kainos, with strong growth in Workday Products and in our healthcare sector, set against broader market challenges in IT services - particularly in Workday Services and in the public and commercial sectors of Digital Services," Chief Executive Officer Brendan Mooney said. "We remain grateful for the trust our customers place in us to deliver their critical transformation initiatives. The economic backdrop has affected them and for many, the focus has been on maintaining investment in critical transformation programmes. For others, it has led to reductions or delays in technology expenditure as they navigate an ever-changing business environment." The CEO said Kainos saw an "improved business performance in the final quarter", recording low single-digit revenue growth. Kainos maintained its final dividend at 19.1 pence per share. Its annual dividend was 4.0% higher at 28.4p from 27.3p. It also announced its intention for a further share buyback of GBP30.0 million to be executed over the next six months.
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OTHER COMPANIES
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Private equity firm Kohlberg Kravis Roberts believes its offer for Assura remains "superior" to a bid from Primary Health Properties, which upped the ante on Friday. KKR said its offer allows shareholders in care property investor and developer Assura a chance to "realise their investment in full and in cash". KKR said it "will continue its engagement with the Assura board". Assura said on Friday it is reviewing an offer from Primary Health Properties. Under the terms of the new offer, Assura shareholders would receive 12.5 pence in cash and 0.3769 of a new Primary Health Properties share, the London-based healthcare facility investor said. Based on the Primary Health Properties closing share price of 99.5p on Thursday, the fresh offer implies a total value of 51.7 pence for each Assura share, including the Assura dividends of 1.68p, valuing Assura at about GBP1.68 billion. The latest offer tops the 46.2p Primary Health Properties made early in April, and was also an improvement from the 43p for Assura early in March. In April, Assura accepted a 49.4p offer from KKR.
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Budget carrier Ryanair reported a decline in annual profit, despite growth in revenue and traffic. Growth in operating expenses kept a lid on its profit, and it also reported that a "key feature" of its annual trading was a decline in fares, which helped drive the "strong traffic growth" of 9% to 200 million passengers. Ryanair's pretax profit in the year to March 31 fell 16% to EUR1.78 billion from EUR2.13 billion. Revenue improved 3.8% to EUR13.95 billion from EUR13.44 billion. Traffic rose "despite repeated Boeing delivery delays", Ryanair said. For the new year, it expects traffic growth of "just 3%" to 206 million passengers "due to constrained/delayed Boeing deliveries".
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iFOREX Financial Trading announced plans for a Main Market float in London, expected to occur next month. The provider of a mobile trading platform for multi-asset contracts for difference expects to list in "late June". Eyal Carmon, its founder, will remain the majority shareholder after the initial public offering. "The founder will continue to assist with providing his expertise to the business through a consultancy agreement with Recap Ltd, a company wholly owned by the founder," iFOREX said.
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By Eric Cunha, Alliance News news editor
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