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LONDON BRIEFING: Glencore profit plunges as energy market normalises

21st Feb 2024 07:41

(Alliance News) - Stocks in the UK are called flat on Wednesday, with some large-cap UK company earnings for investors to digest, ahead of key catalysts to come from across the Atlantic.

Nvidia fell 4.4% on Tuesday ahead of hotly-anticipated fourth-quarter earnings, which are due after the closing bell in New York.

"Mixed earnings and – God Forbid – an earnings miss has potential to send Nvidia's stock price tumbling, while an earnings beat could fail to gather enough positive momentum – if the beat is not enough strong. This is how strong the expectations are," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

Ahead of Nvidia's earnings, minutes from the January Federal Open Market Committee meeting will be released. At that meeting, the Federal Reserve Chair Jerome Powell said that a cut in interest rates in March is not the "most likely case." Since his comments, strong consumer and wholesale price inflation figures have backed this wait-and-see stance.

"The year started with the expectation that the Fed would start cutting the rates as soon as March...And now we can feel the winds changing direction as not only that the first Fed cut expectation has been pushed back to June," Ozkardeskaya continued.

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 0.9 of a point at 7,718.31

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Hang Seng: up 2.0% at 16,568.01

Nikkei 225: closed down 0.3% at 38,262.16

S&P/ASX 200: closed down 0.7% at 7,608.40

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DJIA: closed down 64.19 points, 0.2%, at 38,563.80

S&P 500: closed down 0.6% at 4,975.51

Nasdaq Composite: closed down 0.9% to 15,630.78

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EUR: down slightly at USD1.0811 (USD1.0818)

GBP: down at USD1.2624 (USD1.2649)

USD: up at JPY150.05 (JPY149.84)

Gold: up at USD2,029.93 per ounce (USD2,027.87)

Oil (Brent): up at USD82.55 a barrel (USD82.09)

(changes since previous London equities close)

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ECONOMICS

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Wednesday's key economic events still to come:

16:00 CET eurozone consumer confidence

14:00 GMT UK Bank of England committee member Swati Dhingra speaks

07:00 EST US MBA mortgage applications

08:00 EST US Atlanta Fed President Raphael Bostic speaks

08:55 EST US Redbook index

14:00 EST US FOMC meeting minutes

13:00 EST US Fed Governor Michelle Bowman speaks

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According to the Office for National Statistics, UK public sector net borrowing, excluding public sector banks, was in surplus in January 2024 by GBP16.7 million, which was more than double that of January 2023. It was the largest surplus since monthly records began in 1993 in nominal terms, the ONS noted. "Each January tax receipts are always higher than in other months, owing to receipts from self-assessed taxes," the ONS explained. Meanwhile, in the fiscal year to January, borrowing was GBP96.6 billion, which was GBP3.1 billion less than the equivalent 10-month period of the prior year. "This is the first time in the present financial year that year-to-date borrowing has been lower than in the equivalent period in the last financial year, partly because central government receipts have been revised," the ONS said. Public sector net debt was GBP2.657 trillion at the end of the month, which is provisionally estimated to be around 96.5% of the UK's annual gross domestic product - remaining at levels last seen in the early 1960s.

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The UK Labour party has called for assurances over the effectiveness of Britain's nuclear deterrent after "concerning" reports about a Trident missile test failure. The Ministry of Defence has confirmed an "anomaly occurred" during an exercise that took place on January 30 on board the nuclear-powered submarine HMS Vanguard. Officials said they could not say any more because the incident relates to national security. But they said there remained "absolute confidence" in Britain's constant at-sea nuclear deterrent and that it continues to be "secure and effective". The Sun, which first reported the test failure, said the incident occurred during an exercise off the coast of Florida, US, last month. The newspaper reported that a dummy Trident 2 missile was propelled into the air by compressed gas in its launch tube, but that its so-called first stage boosters did not ignite. An anonymous source quoted by The Sun said: "It left the submarine but it just went plop, right next to them."

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BROKER RATING CHANGES

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Jefferies raises Genel Energy to 'buy' (hold) - price target 100 (85) pence

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COMPANIES - FTSE 100

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HSBC announced further share buybacks as annual profit soared on the back of higher interest rates, though its fourth-quarter performance suffered due to an impairment. The Asia-focused lender said pretax profit in 2023 surged 78% to USD30.35 billion from USD17.06 billion. Total revenue rose 30% to USD66.06 billion, from USD50.62 billion. HSBC said this was driven by an increase in net interest income from all three of its global businesses, reflecting the higher interest rate environment. Net interest income rose 18% to USD35.80 billion from USD30.38 billion, while net interest margin improved to 1.66% from 1.42%. In addition, non-interest income increased by USD10 billion, thanks to increased trading and USD6.4 billion in fair value income, mostly in Global Banking and Markets. HSBC said it has approved a fourth interim dividend of USD0.31 per share, bringing the total dividend to USD0.61 per share, almost double that of USD0.32 in 2022. HSBC also said it will begin a share buyback of up to USD2.0 billion, which it expects to complete by the announcement of its first quarter results. Looking ahead, HSBC said it continues to target a return on average tangible equity in the mid-teens for 2024, excluding notable items. It expects banking net interest income of at least USD41 billion. While its outlook for loan growth is "cautious" for the first half of the year, it expects customer lending growth in the mid-single digits over the medium to long term.

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Rio Tinto reported a decline in yearly revenue and profit and cautioned on higher costs at the Pilbara iron ore operation in 2024. Consolidated sales revenue in 2023 was 2.7% lower at USD54.04 billion from USD55.55 billion in 2022. Pretax profit declined 26% to USD13.79 billion from USD18.66 billion. Rio Tinto declared a 258.00 US cents per share final dividend, a rise of 15% from 225.00 cents. Its total dividend for the year, however, was 12% lower at 435.00 cents per share from 492.00 cents. "We will continue paying attractive dividends and investing in the long-term strength of our business as we grow in the materials needed for a decarbonising world," Chief Executive Jakob Stausholm said. Looking to 2024, Rio Tinto is guiding for Pilbara cash costs per wet metric tonne between USD21.75-23.50, up from USD21.5 in 2023. "2024 guidance for Pilbara unit cash costs reflects the increased work effort in the mines and persistent labour and parts inflation in Western Australia," Rio said. However, copper costs are expected to decrease in 2024.

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Glencore said revenue in 2023 dropped 15% year-on-year to USD217.93 billion from USD255.98 billion, as net profit plunged 75% to USD4.28 billion from USD17.32 billion. Adjusted earnings before interest, tax, depreciation and amortisation dropped 50% to USD17.10 billion from USD34.06 billion, "primarily reflecting the rebalancing and normalisation of international energy trade flows, with coal and LNG, and to a lesser extent, oil prices materially declining", Glencore said.

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COMPANIES - FTSE 250

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Senior said it has won two separate contracts to supply "a number of complex components" to Airbus SAS and Airbus Atlantic. Senior said a multi-year contract extension has been green for the manufacture and supply of various aerostructure parts for Airbus A320 and A330 aircraft programs. Senior Aerospace Thailand won a contract from Airbus Atlantic to supply business class seat structures to a "major European airline". "These contract awards underline Senior's position as a trusted, long-term partner to the largest and most important original equipment manufacturers," said Senior Aerospace CEO Launie Fleming.

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Hochschild Mining said it achieved first gold pour at the Mara Rosa mine in Brazil on Tuesday. The project remains on schedule, the miner said, with commercial production expected towards the end of the second quarter. The mine is expected to produce between 83,000 and 93,000 ounces of gold in 2024, with an all-in sustaining cost of USD1,090 to USD1,120 per ounce. "We are all very proud of the team for delivering Brazil's newest gold mine. Mara Rosa will be a low-cost operation that will create significant value for all our stakeholders. It plays an important part in our stated strategy of increasing production and reducing costs in the coming years," said CEO Eduardo Landin.

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By Elizabeth Winter, Alliance News deputy news editor

Comments and questions to [email protected]

Copyright 2024 Alliance News Ltd. All Rights Reserved.

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