8th Apr 2020 07:44
(Alliance News) - Stock prices in London are set to ease back on Wednesday after a strong week thus far, as investor nerves are tested once again by the Covid-19 situation with record daily deaths in New York and the UK.
In early UK company news, Tesco boosted its dividend and remained cautious on its outlook for the recently-commenced financial year due to Covid-19. Aviva and DS Smith both pulled payouts, as did insurance peers of Aviva, including Direct Line and Hiscox. AG Barr also said it would pay no final dividend. Online fashion retailer ASOS said it raised nearly GBP250 million in a share placing.
IG says futures indicate the FTSE 100 index of large-caps to open 122.35 points lower at 5,582.10 on Wednesday. The FTSE 100 index closed up 122.06 points, or 2.2%, at 5,704.45 on Tuesday.
After two consecutive sessions of solid gains, European stocks are set to pull back on Wednesday.
"Yesterday turned out to be a game of two halves for markets in the US, starting with a strong first half, which helped markets in Europe post their second daily gain in succession with sentiment largely predicated on optimism that Covid-19 infection and death rates had reached the peak of the crisis, and were on their way back down across Europe," said Michael Hewson, chief market analyst at CMC Markets.
Wall Street ended lower Tuesday despite a strong start, with the Dow Jones Industrial Average ending down 0.1%, the S&P 500 down 0.3% and the Nasdaq Composite off 0.2%.
"Certainly, in respect to Italy that does appear to be the case, however sentiment started to level off a little as it became clear that any turnaround in infection rates wasn't going to be a one-way street," he continued. "The rot started to set in soon after Spain announced an increase in its death and infection rate with the release of its latest numbers, while authorities in France warned that they still expected the number of deaths and infections to continue to rise in the coming days."
"This change of tone gained more traction after the European close when New York posted its latest numbers, which showed its worst day of the crisis in terms of fatalities, even as overall infections slowed down," said Hewson.
While China celebrated its first day without coronavirus deaths on Tuesday, the relentless disease chalked up fresh milestones in hard-hit areas of Europe and the US.
A record figure of 1,939 people died in the US over the past 24 hours, according to a tally by Johns Hopkins University, as the country approaches tolls in worst-hit Italy and Spain.
New York State said a record 731 people succumbed to the new coronavirus on Monday, bringing the state's total death toll to 5,489. The previous single-day record was 630, set on Friday
Virus deaths hit a new daily high in Britain, where 55-year-old leader Boris Johnson was said to be "stable" and in "good spirits" despite receiving oxygen treatment in intensive care.
And Paris toughened its lockdown measures, banning daytime jogging to keep people from bending the rules as France breached 10,000 deaths.
Sterling was quoted at USD1.2323 early Wednesday, flat on USD1.2325 at the London equities close on Tuesday. The euro traded at USD1.0871 early Wednesday, lower than USD1.0890 late Tuesday.
Against the yen, the dollar was quoted at JPY108.90 versus JPY109.01.
In Asia on Wednesday, the Japanese Nikkei 225 index closed up 2.1%. In China, the Shanghai Composite is down 0.5%, while the Hang Seng index in Hong Kong is down 1.4%.
Gold was quoted at USD1,647.20 an ounce early Wednesday, lower than USD1,655.70 on Tuesday.
Brent oil was trading at USD32.87 a barrel early Wednesday, soft versus USD33.02 late Tuesday as traders await Thursday's OPEC+ meeting.
"Fingers remain crossed over a plethora of cross-asset markets that the producers can formulate a response that puts a floor under oil price as the recent prices in the USD20s reflect the dual demand and supply shock and is not sustainable for any of the primary producers," said Stephen Innes, chief global markets strategist at AxiCorp.
In early UK company news, grocer Tesco boosted its dividend despite a fall in full-year profit, and said sales volumes have eased back to more normal levels following coronavirus-fuelled panic buying.
For the financial year to February 29, revenue rose 1.3% to GBP64.8 billion, but pretax profit slumped 19% to GBP1.32 billion.
Cost of sales rose 1.6% to GBP60.18 billion from GBP59.22 billion, outstripping the rate of revenue growth, while finance costs rose 14% to GBP1.24 billion from GBP1.09 billion.
Like-for-like sales were down 0.6% for the year, dragged down by its central Europe operations, down 6.4%, while Asia operations suffered a 1.9% decline. In the UK & Ireland, though, like-for-like sales were up 0.2%.
The supermarket chain said it will pay a final dividend of 6.50p, reflecting the strength of the year's performance and its "robust liquidity and balance sheet". This brought the fall-year payout to 9.15p, up 59% on last year's 5.77p.
On the sale of its Thai and Malaysian operations, Tesco still plans to return GBP5 billion to shareholders via a special dividend and make a GBP2.5 billion one-off pension contribution to eliminate the funding deficit. Completion of the sale is expected in the second half of 2020.
Looking ahead, Tesco said it "would not be prudent" to provide guidance for the financial year just begun.
In the first few weeks of the coronavirus crisis, Tesco said "significant" panic buying - representing a 30% uplift in the UK - "cleared the supply chain of certain items". This has now stabilised and more normal sales volumes are being experienced.
Covid-19 is having a "material impact" on the business and it is incurring significant additional costs, particularly in payroll as employees are added to meet demand and cover workers who are absent and being paid.
"However if customer behaviour were to return to normal by August it is likely that the additional cost headwinds incurred in our retail operations would be largely offset by the benefits of food volume increases, twelve months' business rates relief in the UK and prudent operations management," said Tesco.
Aviva said it no longer recommends the payment of a final dividend for 2019 due to the "unprecedented challenges" presented by Covid-19.
The insurer stressed that it remains well capitalised with strong liquidity, and will reconsider any payouts in the fourth quarter of 2020.
"It remains too early to quantify the impact of Covid-19 on claims expenses in our life and general insurance businesses, and the potential effect of capital markets and economic trends on our results. Given the change in the economic outlook, we are reviewing all material discretionary and project expenditure. We intend to provide an operational update for investors in the second half of May," said Aviva.
DS Smith said trading since has remain "resilient" with a "relatively limited" impact from Covid-19, though it has decided to pull its interim payout.
In terms of demand, corrugated box volumes have continued to be good and the packaging firm said it has seen improvement on the first half on a like-for-like basis.
"Supplies into the grocery sector have been very busy particularly in ambient food, drinks, hygiene, frozen food and dry packaged grocery categories. E-commerce has also been strong in most categories but increasingly in everyday essential products. These are sectors where we have clear market leading positions," DS Smith noted.
The firm did, though, say it would be "prudent" to drop its interim dividend due to be paid at the start of May.
"The board recognises the high degree of importance of dividends to shareholders and, as such, it will consider the appropriateness, quantum and timing of overall dividend payment relating to the financial year ending 30 April 2020 at the time of announcement of the results in July," said DS Smith.
ASOS said it has raised GBP247 million via a placing of 15.8 million shares at a price of 1,560 pence each. This was a slight premium to Tuesday's closing price of 1,559.50p.
The placing shares represent just under 19% of ASOS's existing issued share capital. ASOS said it consulted with its major shareholders prior to the placing and approximately 95% of the shares were allocated to existing shareholders.
The clothing retailer announced plans for the placing late Tuesday, as it also said profit for the first half of its financial year increased sevenfold on a double digit rise in retail sales globally.
The economic calendar has minutes from the US Federal Reserve's emergency rate cut meeting on March 15 due out at 1900 BST.
By Lucy Heming; [email protected]
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