31st Jul 2024 07:55
(Alliance News) - London's FTSE 100 is called to open higher on Wednesday, shaking off a poor day for US tech, ahead of a Federal Reserve interest rate decision.
The Fed decision follows a Bank of Japan hike. The central bank said in a statement it had set an interest rate of 0.25% – up from around 0% to 0.1% – having ditched its maverick negative rate policy aimed at boosting economic growth in March.
The Fed is expected to leave rates unmoved, but could choreograph a cut in September.
In New York overnight, shares in Microsoft struggled in after hours trade following fourth-quarter earnings, falling 2.7%.
In the three months to June 30, the Redmond, Washington computer software and hardware provider said net income rose 9.8% to USD22.04 billion from USD20.08 billion a year prior. Diluted earnings per share rose to USD2.95 from USD2.69. Revenue increased 15% by USD64.73 billion, up from USD56.19 billion.
EPS had been expected to land at USD2.93 per share and revenue of USD64.39 billion, according to the LSEG consensus.
"Microsoft is likely to maintain its guidance for the rest of this year, however, the disappointing cloud revenues are the story of Microsoft’s earnings report," XTB analyst Kathleen Brooks commented.
Early reports from London listings were more promising, with GSK raising its outlook, HSBC announcign a share buyback and Rathbones reporting funds under management growth.
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: called up 0.7% at 8,333.71
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Hang Seng: up 2.1% at 17,352.02
Nikkei 225: up 1.5% at 39,101.82
S&P/ASX 200: up 1.8% at 8,092.30
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DJIA: closed up 203.40 points, 0.5%, at 40,743.33
S&P 500: closed down 0.5% at 5,436.42
Nasdaq Composite: closed down 1.3% at 17,147.42
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EUR: up at USD1.0821 (USD1.0808)
GBP: up at USD1.2837 (USD1.2829)
USD: down at JPY152.88 (JPY153.88)
GOLD: up at USD2,421.85 per ounce (USD2,384.97)
(Brent): up at USD79.55 a barrel (USD78.51)
(changes since previous London equities close)
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ECONOMICS
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Wednesday's key economic events still to come:
10:00 BST eurozone CPI
08:55 BST Germany unemployment
13:15 BST ADP US employment report
19:00 BST US interest rate decision
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Taxes will likely be raised in the budget later this year, new UK Chancellor Rachel Reeves has said. The chancellor said Labour would stick to its election manifesto promises not to raise national insurance, income tax or VAT, but left open the possibility for other tax hikes at the budget on October 30. "I think that we will have to increase taxes in the budget," she said while speaking to The News Agents podcast. Reeves' admission comes a day after she scrapped a series of infrastructure projects, and announced the winter fuel allowance for pensions would be means-tested, among a series of measures aimed at filling a GBP22 billion black hole in the public finances. Reeves did not state what taxes would be raised when asked on the podcast whether Labour would stick to its manifesto promises, and instead raise inheritance tax or capital gains tax, or undertake pension reform. She said: "We had in our manifesto a commitment to fiscal rules to balance day-to-day spending through tax receipts, and by the end of the forecast period, to get debt down as a share of GDP. "Those are sensible fiscal rules to keep a grip of the public finances. We also made other commitments in our manifesto, not to increase national insurance, VAT or income tax for the duration and we'll stick with those." Pressed again about which taxes could go up, she added: "We will have a budget on October 30 and ahead of that budget, we will have a forecast by the Office for Budget Responsibility on this occasion, based on accurate numbers." On Monday, the chancellor said she was making "difficult decisions" as she accused the previous government of leaving GBP21.9 billion of unfunded commitments that it had "covered up from the country".
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The UK government is increasing the budget to support the next wave of renewable energy schemes to a record GBP1.5 billion, it has announced. Labour has focused heavily on making Britain a "clean energy superpower" with a target to achieve clean power by 2030 to shore up energy security and cut bills while tackling climate change. The new government was under pressure to up the support for renewables to meet its goals, after a faltering auction process last year which saw no companies submit bids to build new offshore wind farms. Auctions for the so-called contracts for difference scheme see developers bid to secure a fixed price they can charge for each megawatt hour of renewable power they generate. The previous government had already been forced to boost the pot to a record-breaking GBP1 billion for green power, to attract investment amid rising costs and international competition. Now Energy Secretary Ed Miliband has announced a further increase to GBP1.56 billion. That includes GBP1.1 billion for offshore wind – up GBP300 million on the previously announced pot for the technology this year.
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BROKER RATING CHANGES
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JPMorgan raises Spectris to 'neutral' (underweight) - price target 2,950 (2,750)
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COMPANIES - FTSE 100
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Drugmaker GSK raised its guidance after a first-half in which it enjoyed "excellent business momentum". It hailed "successful new launches in Oncology and for long-acting HIV medicines". The firm now expects revenue will rise between 7% and 9% at constant currency for 2024, its view increased from its previous 5% to 7% range. GSK had expected growth "towards the upper part" of that range. Constant currency core operating profit growth of 11% to 13% is expected, as GSK raised its outlook from 9% and 11%. Its guidance does not factor in its Covid-19 Solutions offering as it does not anticipate further "pandemic-related sales or operating profit" this year. For the second-quarter of 2024, revenue rose 9.8% to GBP7.88 billion from GBP7.18 billion a year prior. Pretax profit, however, fell by a quarter year-on-year to GBP1.50 billion from GBP1.99 billion. Core operating profit, which excludes items such as legal, restructuring and impairment costs from the equation, increased 16% to GBP2.51 billion from GBP2.17 billion. Half-year revenue rose 7.9% on-year to GBP15.25 billion, while pretax profit was 27% at GBP2.85 billion. Half-year core operating profit increased 16% to GBP4.96 billion. "GSK's momentum this year continues with excellent second quarter performance, reflecting strong operational execution and the strengthening breadth of our portfolio to both prevent and treat disease. Q2 sales grew in all areas, with Specialty Medicines in particular benefitting from new product launches in oncology and HIV. In R&D, so far this year, we have secured approvals or filings for 10 major opportunities and reported positive data from 7 phase III trials," Chief Executive Officer Emma Walmsley said. GSK lifted its second-quarter dividend by 7.1% to 15 pence per share from 14p a year prior. Its total first-half dividend amounted to 30p, up 7.1% from 28p. For the full-year, it expects a total 60p per share payout.
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Miner Rio Tinto maintained its first-half payout after a "stable financial performance". Sales revenue during the first six months of the year edged up 0.5% to USD26.80 billion from USD26.67 billion a year prior. Pretax profit rose 17% to USD8.12 billion from USD6.93 billion. "Rio Tinto is both consistently very profitable and growing. This is being driven by the disciplined investments we are making to strengthen our operations and progress major projects for profitable organic growth," CEO Jakob Stausholm said. "Our overall copper equivalent production is on track to grow by around 2% this year, and our ambition is to deliver around 3% of compound annual growth from 2024 to 2028 from existing operations and projects." The CEO the firm is at an "inflection point", as it looks ahead to the future of its aluminium portfolio with confidence, and hails "consistent production at our Pilbara iron ore operations". Rio Tinto maintained its interim dividend at 177.0 cents per share.
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HSBC announced a share buyback programme of up to USD3 billion as it reported a slightly lower pretax profit after a fall in net interest income. It posted a pretax profit of USD21.56 billion for the first half of 2024, down 0.5% from USD21.66 billion a year prior. The lender's net interest income fell 7.4% to USD16.91 billion from USD18.26 billion. Chief Executive Officer Noel Quinn said: "After delivering record profits in 2023, we had another strong profit performance in the first half of 2024, which is further evidence that our strategy is working. Our investment in Wealth is delivering higher, more diversified revenue and we continue to grow our core international and scale businesses, all of which helped us to provide USD13.7 billion of distributions in respect of the first half. We are confident that we have the right strategy and model to grow revenue, even in a lower interest rate environment, and are therefore providing new guidance of a mid-teens return on average tangible equity in 2025." HSBC maintained a second interim dividend at 10 US cents per share, meaning the first half payout remained unchanged at 20 cents compared to a year ago. The USD3.0 billion buyback is to "commence shortly and complete within three months". For the full-year, it expects net interest income of around USD43 billion, dependent on the path of global interest rates. The company named Jonathan Bingham as its interim chief financial officer, from September 2. He will retain his existing responsibilities as financial controller while taking on the interim CFO role. "Prior to joining HSBC in 2020, Jon worked for KPMG LLP for 20 years, of which the final 10 years were as a banking partner, in which he led KPMG's relationships with its large international banking clients," the firm said. "A process to identify the next permanent group CFO, is underway. An update will be provided on the outcome of this search in due course." HSBC earlier this month promoted CFO Georges Elhedery to be its next chief executive officer, replacing Noel Quinn in early-September.
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COMPANIES - FTSE 250
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Rathbones reported an increase in funds under management and administration, as it hailed a "significant improvement in net flows" during the second-quarter. Funds under management and administration at the June 30 half-year end rose 3.4% to GBP108.91 billion from GBP105.34 billion at the end of last year. Net outflows totalled GBP588 million, but it got a GBP4.16 billion boost from its market and investment performance. Rathbones said: "Net FUMA flows improved significantly in the second quarter. While factors which have resulted in elevated outflows remain relevant, a significant reduction in gross outflows combined with continued strength in gross inflows saw net outflows reduce from GBP600 million in the first quarter to flat in the second quarter." Rathbones said operating income in the first six months of the year shot up 88% to GBP447.4 million from GBP238.0 million. Pretax profit more than doubled to GBP65.3 million from GBP26.0 million. It lifted its interim dividend by 3.4% to 30p per share from 29p.
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JPMorgan Japanese Investment Trust and JPMorgan Japan Small Cap Growth & Income announced a tie-up, which will create a trust with GBP1 billion of net assets with a "broad all-cap strategy to capture a compelling investment opportunity". The combination, which would be the latest in a slew of tie-ups between listed investment trusts this year, will see JSGI's assets rolled into JFJ. In exchange, JSGI investors will be issued new JFJ shares, but will also have the option to realise up to 25% of their investment in JSGI in cash. "The respective boards and JPMorgan believe that the outlook for Japanese equities remains compelling with a combination of improving economic fundamentals, structural transformation and corporate governance reforms. The new combined entity, JFJ, will represent a very attractive way to invest in this opportunity. The transaction would result in a company with net assets of up to approximately GBP1.0 billion," the duo said.
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OTHER COMPANIES
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Bank of Ireland lifted its outlook, after reporting flat first-half net interest income, benefitting from higher interest rates. The lender's NII in the first-half of the year was unmoved on-year at EUR1.80 billion, but climbed 2% on a like-for-like basis. Pretax profit rose 5.4% to EUR1.08 billion from EUR1.03 billion. "[The] performance reflects higher interest rates, growth in lending income particularly in Ireland, higher funding costs and continued strong commercial pricing discipline," Bank of Ireland said. For the full-year, it now expects net interest income of EUR3.55 billion, which would be a roughly 2.7% decline from the fourth-quarter annualised run rate of EUR3.65 billion. The new outlook is at the "higher end of the guidance" given previously. Bank of Ireland had previously forecast a 3% to 4% decline from the fourth-quarter run rate NII.
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By Eric Cunha, Alliance News news editor
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