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LONDON BRIEFING: Shell unveils USD3.5 billion buyback; Melrose bullish

2nd May 2024 07:48

(Alliance News) - London's FTSE 100 is called to open higher on Thursday, after the Federal Reserve left rates unmoved and Chair Jerome Powell came across less hawkish than feared.

Powell downplayed fears that the next move on interest rates could be upwards, suggesting policy will prove restrictive enough to lower inflation.

But he also dashed hopes for a near-term rate cut noting it was taking longer to gain confidence that inflation was on track to hit the central bank's 2% target.

Powell said he believed policy was "restrictive" and believes over time, it will be "sufficiently restrictive."

In a widely expected move, the Federal Reserve kept its benchmark short-term borrowing rate in a targeted range between 5.25% to 5.50%. The federal funds rate has been at that level since July 2023, when the Fed last hiked rates, which took the range to its highest level in more than two decades.

US stocks closed mixed following the decision.

"It's somewhat surprising to see the market sit in neutral following Chair Powell's commentary, which leaned towards the dovish side of the equation, especially considering the prevailing hawkish drum beat in recent days," SPI Asset Management analyst Stephen Innes commented.

"However, despite this shift, traders remain inflation cautious knowing that another hotter CPI reading could easily bury that last rate cut that markets are desperately holding on to."

In early UK corporate news, oil major Shell announced a new buyback, while Melrose maintained its profit growth guidance after a strong start to 2024.

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 0.5% at 8,161.24

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Hang Seng: up 2.5% at 18,200.54

Nikkei 225: down 0.1% at 38,236.07

S&P/ASX 200: up 0.2% at 7,587.00

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DJIA: closed up 87.37 points, 0.2%, at 37,903.29

S&P 500: closed down 0.3% at 5,018.39

Nasdaq Composite: closed down 0.3% at 15,605.48

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EUR: up at USD1.0724 (USD1.0679)

GBP: up at USD1.2533 (USD1.2487)

USD: down at JPY155.33 (JPY157.72)

GOLD: up at USD2,317.79 per ounce (USD2,308.30)

(Brent): up at USD83.99 a barrel (USD83.78)

(changes since previous London equities close)

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ECONOMICS

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Thursday's key economic events still to come:

0900 BST eurozone manufacturing PMI

0855 BST Germany manufacturing PMI

1330 BST US initial jobless claims

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UK Chancellor Jeremy Hunt has said the Conservatives will likely suffer "significant losses" in the local elections as the party braces itself for a contest seen as the final test of public opinion before a general election. The chancellor sought to manage expectations before voters head to the polls on Thursday, suggesting the Tories are anticipating defeat in hundreds of seats. Forecasts suggest the Tories could lose up to half of the council seats they are defending, having lost a third of seats last year. Speculation has mounted that the prospect of a major defeat could push more Tory MPs into seeking to replace Rishi Sunak as leader and potentially trigger an early general election.

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BROKER RATING CHANGES

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RBC cuts Alpha Financial Markets Consulting to 'sector perform' (outperform) - price target 465 (420) pence

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Barclays cuts Petrofac price target to 10 (85) pence - 'equal weight'

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COMPANIES - FTSE 100

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Oil major Shell announced a new USD3.5 million share buyback and it lifted its first-quarter dividend. Earnings weakened, however. Total revenue, which includes its share of joint ventures and associates, fell 16% to USD74.70 billion from USD89.02 billion a year prior. Shell's pretax profit slipped 23% to USD11.04 billion from USD14.35 billion a year prior. Chief Executive Wael Sawan commented: "Shell delivered another quarter of strong operational and financial performance, demonstrating our continued focus on delivering more value with less emissions." Shell announced a new USD3.5 billion buyback to span the next three months. It lifted its first-quarter dividend by 20% year-on-year to USD0.3440, equal to what it paid for the final quarter of 2023, from USD0.2875 for the first-quarter of 2023. Shell maintained its capital expenditure outlook for 2024 at the USD22 billion to USD25 billion range.

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Aerospace-focused Melrose Industries left its annual outlook unchanged, and hailed "positive" end markets. It said revenue in the first-quarter of 2024 rose 8% on a year prior, and added adjusted operating profit rose "substantially". For the full-year, it still expects a 33% surge in its adjusted operating profit to GBP560 million at the midpoint. Chief Executive Officer Peter Dilnot said: "We have had a strong start to the year with a particularly good performance from our Engines division. We expect this momentum to continue throughout the year. Longer term, the group is well positioned to deliver ongoing growth and margin expansion supported by positive end markets and excellent business improvement momentum. We are confident about unlocking significant further potential in the years ahead."

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Standard Chartered affirmed its financial guidance for 2024, reporting a strong start to the year. The Asia-focused bank reported operating income of USD5.13 billion in the first quarter, a 13% increase from USD4.56 billion. The net interest margin increased to 1.76% from 1.63%, outperforming company-compiled consensus expectations of 1.74%. Pretax profit rose 5.9% to USD1.91 billion from USD1.81 billion, beating the company-compiled market consensus of USD1.39 billion. StanChart recorded an underlying credit impairment charge of USD176 million during the quarter, compared to USD26 million a year before. The charge was mostly within its Wealth & Retail Banking. The firm reaffirmed its previous guidance for 2024 as a whole. In February, it had guided for operating income to increase between 5% and 7% in the period from 2024 to 2026, and around the top of this range in 2024. Net interest income for 2024 is forecast to be between USD10 and USD10.25 billion at constant currency. It plans to return "at least" USD5 billion to shareholders over 2024 to 2026, with its RoTE, or return on tangible equity, to "increase steadily" from 10% towards a 12% target by 2026.

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COMPANIES - FTSE 250

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Spectris backed annual guidance but reported a "slightly softer than anticipated" first-quarter. The supplier of high-tech instruments, test equipment and software for industrial applications said first-quarter sales were 8% lower on a like-for-like basis. Chief Executive Andrew Heath said: "While conditions in some of our end markets were softer than expected in the first quarter, notably China, we continue to expect to deliver progress this year as markets improve, with progress weighted towards the second half. As a higher quality, more resilient business, facing off to attractive markets, we are well placed to deliver continued organic growth, expand operating margins towards our target of 20%+ and compound growth through M&A."

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Budget carrier Wizz Air said its passengers numbers slipped ever-so-slightly year-on-year last month. It said it carried 4.9 million passengers, down 0.3% from a year prior. Capacity, however, increased 0.4% to 5.4 million seats. Its load factor slipped to 90.3% from 90.9%. Dublin-listed Ryanair said passengers numbers increased some 8.1% to 17.3 million in April from a year prior. Its load factor, however, slipped to 92% from 94%.

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Insurer Hiscox reported an increased in written premiums over the first-quarter of 2024, despite a decline in the London Market. Insurance contract written premiums totalled USD1.54 billion in the first-quarter of the year, a rise of 8.3% from USD1.42 billion a year prior. In Hiscox Retail, there was growth of 8.1%, while in the reinsurance and insurance-linked strategy unit, it climbed 19%. In the Hiscox London Market division, however, contract written premiums declined 4.9%. Hiscox explained: "Hiscox London Market ICWP contracted temporarily, following the non-renewal of certain large binder deals to instead write more open market business and also due to the impact of one-off accounting reclassification items. The first quarter contraction is expected to be offset by growth over the course of the year." Hiscox added that large natural catastrophe losses were within expectations for the first quarter. Chief Executive Officer Aki Hussain said: "A good start to 2024, with our focus on profitable growth continuing to deliver. Retail momentum has improved with growth accelerating in Hiscox UK and US DPD as our initiatives achieve targeted outcomes, and solid sustained growth in Hiscox Europe. In Hiscox London Market and Hiscox Re & ILS we continue to deploy capital where we see attractive opportunities. The outlook for the year remains positive."

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Morgan Sindall said its financial year has started as expected, and it is "confident of delivering a full year performance which is in line with its expectations". It said its Construction and Infrastructure arms have both performed as forecast. Trading at its Fit Out offering has been "strong", while in Property Services, the "underlying operational performance has been as expected". It cautioned, however, that the Property Services unit will be hurt by exit costs related to an underperforming contract. The Partnership Housing division has been boosted by an improving housing market, Morgan Sindall added, though there has been a "lower level of scheme completions" in the Urban Regeneration group. Chief Executive John Morgan said: "Since the start of the year, trading has been as expected and looking ahead to the rest of the year, our high-quality secured order book gives us great confidence of delivering a full year performance which is in line with our expectations."

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OTHER COMPANIES

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AIB Group said it was "confident" of achieving its full-year target and hailed a decent start to 2024. The lender said its first-quarter total income rose 18%, benefitting from "the higher interest rate environment". Net interest income alone shot up 27%. "The group recorded a very strong financial performance in the first quarter of 2024," AIB said. "Our reshaped group is well-positioned, generating sustainable profits, supporting our 3.3 million customers and the wider economy and delivering attractive shareholder returns. Following a very strong first quarter, we are confident for the remainder of the year." For the whole of 2024, it expects net interest income above EUR3.65 billion, compared to EUR3.84 billion in 2023. Its NII outlook assumes a European Central Bank deposit rate of 2.75% at December 2024. The deposit rate currently stands at 4.00%.

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Revolution Bars said it has "held an exploratory meeting with Nightcap", which could result in the latter making a takeover offer. Revolution Bars, however, added that Nightcap is not currently participating in its formal sales process, kicked off last month. "There can be no certainty that any firm offer will be made for Revolution Bars Group, nor as to the terms on which any firm offer might be made," Revolution Bars added. Sky News had reported Nightcap was among the players in UK nightlife scene interest in buying all or part of Revolution Bars. Rekom, the owner of the Pryzm brand, is also interested, Sky News reported.

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By Eric Cunha, Alliance News news editor

Comments and questions to [email protected]

Copyright 2024 Alliance News Ltd. All Rights Reserved.

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