12th Mar 2020 07:45
(Alliance News) - Stocks in London are set to open sharply lower on Thursday after Wall Street and Asia slumped overnight amid disappointment over US President Donald Trump's coronavirus response.
In focus later in the day will be a policy announcement by the European Central Bank.
In London early Thursday, a number of firms struck a cautious tone over the coronavirus outbreak, with housebuilder Berkeley postponing a planned shareholder return boost, retailer WH Smith expecting a sizeable profit hit, and Trainline noting tougher trading conditions.
IG says futures indicate the FTSE 100 index of large-caps to open 337.92 points lower at 5,538.60 on Thursday. The index closed down 83.71 points, or 1.4%, at 5,876.52 on Wednesday.
Stocks in Asia were sharply lower overnight, taking the lead from Wall Street, after Trump set out measures to combat Covid-19. He imposed a travel ban on mainland Europe for 30 days and stated trade would be halted, although he later backtracked on the trade part.
He criticized European governments for failing to act quickly to restrict travel from China, and announced that starting at midnight Friday, all travel from Europe – except the UK and seemingly Ireland – will be suspended for a month.
While insisting the US economy remained strong, Trump urged Congress "to provide Americans with immediate payroll tax relief" to help counter the impact of the outbreak that has disrupted businesses, especially the travel industry, and sent Wall Street plunging.
Trump also said he would instruct the US Treasury to defer tax payments "for certain individuals and businesses negatively impacted" by the pandemic, a move he said would inject more than USD200 billion of liquidity into the American economy.
Jeffrey Halley, senior market analyst at Oanda, commented: "That has probably disappointed markets more than anything. The president will need Congressional approval to enact these measures, and given the partisan nature of both Houses, this is a substantial challenge. Both in the speed of response that is required and crossing party lines. Lost in the initial noise, but far more concerning to the author, is that the US Senate is not due to sit next week. That makes a rapid policy response almost impossible."
Halley also noted that Trump "did not announce any new concrete measures such as a large-scale payroll tax cut to buffer the economy against the impending coronavirus slowdown".
Trump's announcement came after the World Health Organization declared the global coronavirus crisis a pandemic.
"We have called every day for countries to take urgent and aggressive action. We have rung the alarm bell loud and clear," said Tedros Adhanom Ghebreyesus, the WHO chief. The organisation added that Iran and Italy are the new front lines of the battle against the virus that started in China.
Italy on Wednesday shut all stores except for pharmacies and food shops in a desperate bid to halt the spread of a coronavirus that has killed 827 in the the country in just over two weeks.
In the US on Wednesday, Wall Street ended deep in the red, with the Dow Jones Industrial Average ending down 5.9%, the S&P 500 down 4.9% and the Nasdaq Composite down 4.7%.
In Asia on Thursday, the Japanese Nikkei 225 index ended down 4.4%. In China, the Shanghai Composite closed down 1.5%, while the Hang Seng index in Hong Kong is down 3.5%. Â
Among the latest raft of London-listed companies to update on coronavirus, Berkeley Group said it will postpone a planned GBP455 million increase in shareholder returns until it receives "greater clarity" over the impact from coronavirus.
The housebuilder said it has experienced a continuation of the good trading environment announced with its interim results, with underlying demand maintained. The firm still expects to meet market expectations for the financial year ending April 30.
"Today's announcement is made in the context of the current increased macro uncertainty, which has been uniquely impacted by the global spread of coronavirus. While there has been no noticeable impact on Berkeley's business to date, the ultimate impact on UK business is unknown. There is no recent historic precedent and for this reason it is absolutely right for any responsible business to approach the next six months with a reduced risk appetite and heightened sense of caution," said Berkeley.
The company said that is has decided to postpone the planned GBP455 million increase in shareholder returns scheduled to be made via a B and C share scheme until the effect of coronavirus is "more measurable and certain". The board "is keen to stress" that it still intends to make the returns but will reassess this at its full-year results announcement in June, it added.
WH Smith said it expects a hit between GBP30 million and GBP40 million to profit for its current financial year due to the Covid-19 outbreak.
The retailer said that in Asia Pacific, which accounts for 5% of its travel unit's revenue, it has seen a "significant impact" on business since February. The company's travel unit operates stores selling books, magazines and snacks in places such as airports and train stations.
In addition, WH Smith said it has seen a "material reduction" in the past fortnight in passenger numbers at airports outside of Asia Pacific, in the UK, US and Europe.
"Based on current trading and modelling, the group believes that the effects of Covid-19 will result in a reduction in our expectations for revenue and profit across the Travel business for the second half," said WH Smith.
While the firm said it is not seeing a "significant impact" on its high street operations, it noted that Covid-19 could result in reduced footfall.
As a result, WH Smith expects a revenue hit of between GBP100 million to GBP130 million for the financial year ending August 31, resulting in a hit to underlying pretax profit of around GBP30 million to GBP40 million. Headline pretax profit in the 2019 financial year amounted to GBP155 million.
Ticket selling platform Trainline struck a cautious tone over the virus.
The group reported 17% growth in ticket sales for the financial year ended February 29, with revenue up 24% to GBP261 million.
However, it said the trading backdrop has become "more challenging" in past weeks, with trade softening "significantly" in February in Italy and demand weakening across the rest of its international operations.
The UK has remained "more resilient", but growth has slowed.
For the recently ended financial year, Trainline expects adjusted earnings before interest, tax, depreciation and amortisation in a range of GBP82 million to GBP86 million, ahead of its expectations at IPO. Further out, though, the company said it is "re-assessing" its plans and forecasts for the 2021 financial year.
"We have delivered on our growth plans this year, our first as a public company. While the impact of Covid-19 on near-term trading is unclear at this stage, we are well positioned in all of our markets and remain confident in our long-term growth strategy," said Trainline.
Cineworld reported a lower profit in 2019 and warned there can be "no certainty" over the impact of Covid-19.
Revenue for 2019 rose to USD4.37 billion from USD4.12 billion, but pretax profit slumped to USD212.3 million from USD349.0 million. This was as finance expenses doubled to USD568.0 million from USD225.2 million, which Cineworld said was largely due to the adoption of accounting rule IFRS16 governing lease liabilities.
Looking ahead, the company said there can be "no certainty" over the future impact of Covid-19, though it has seen a "minimal impact" thus far.
Under the 'going concern' section of the results release, downside scenario analysis considered the loss of up to three months' revenue due to Covid-19.
"These downside scenarios are currently considered unlikely, however it is difficult to predict the overall outcome and impact of Covid-19 at this stage. Under the specific downside scenario, however, of the group losing the equivalent of between two and three months' total revenue across the entire estate there is a risk of breaching the group's financial covenants, unless a waiver agreement is reached with the required majority of lenders within the going concern period," Cineworld said.
The economic events calendar on Thursday has eurozone industrial production figures at 1000 GMT and US producer prices at 1230 GMT.
In focus, though, is the European Central Bank's latest monetary policy decision at 1245 GMT, coming just a day after a surprise interest rate cut from the Bank of England.
"Being the last major central bank to act on Covid-19, the stakes are high for the ECB today. We expect the ECB to keep rates unchanged and to focus on liquidity to support primarily the SME sector. We also expect a scale up of QE to EUR30-40bn for the coming months," said Danske Bank.
ECB President Christine Lagarde holds a press conference starting at 1330 GMT.
The euro traded at USD1.1291 early Thursday, up from than USD1.1264 late Wednesday.
Sterling was quoted at USD1.2801 early Thursday, lower than USD1.2880 at the London equities close on Wednesday. Against the yen, the dollar was quoted at JPY103.71 versus JPY104.94.
Gold was quoted at USD1,636.66 an ounce early Thursday, lower than USD1,649.40 late Wednesday. Brent oil was priced at USD34.41 a barrel, down from USD36.02.
By Lucy Heming; [email protected]
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