16th Jan 2020 07:46
(Alliance News) - Stocks in London are set for a flat open on Thursday following the signing of the US-China trade deal, with focus lying on earnings and economic data.
In early UK company news, Associated British Foods reported a rise in first quarter sales, Pearson met its guidance for 2019, and Hays indicated a fall in first-half profit as it reported a decline in second-quarter net fees.
IG says futures indicate the FTSE 100 index of large-caps to open 0.6 of a point lower at 7,642.20 on Thursday. The FTSE 100 index closed up 20.45 points, or 0.3%, at 7,642.80 on Wednesday.
"While US markets greeted the signing of the deal with fresh record highs for the Dow and S&P 500, as various earnings reports continued to come in thick and fast, these gains proved to be difficult to sustain, as investors took profits heading into the close," said Michael Hewson, chief market analyst at CMC Markets.
After nearly two years of conflict between the world's two dominant economic powers, the US and China signed a trade truce on Wednesday.
US President Donald Trump, who currently faces an impeachment trial and then a tough re-election bid later this year, called the agreement "momentous". But tariffs on hundreds of billions of dollars in imports remain in place.
Trump said he will only remove tariffs "if we're able to do phase two". However, the most difficult issues remain to be dealt with in those phase two negotiations, including massive subsidies for state industry.
In the US on Wednesday, Wall Street ended in the green, with the Dow Jones Industrial Average up 0.3%, the S&P 500 up 0.2%, and the Nasdaq Composite up 0.1%.
Markets in Asia were mixed on Thursday. In Tokyo, the Nikkei 225 index closed up 0.1%. The Shanghai Composite ended down 0.5%, while the Hang Seng index in Hong Kong is up 0.1%.
"Markets elsewhere were also slightly more circumspect [than in the US] with European markets finishing the day mixed, and looking set to open similarly mixed when trading resumes later this morning," Hewson said.
"Having spent most of the last few months worrying about China trade and geopolitical tensions in the Middle East, and in particular Iran, both now appear to have taken a slightly more benign turn," he added. "Whether this current situation lasts is anybody's guess, but for now markets can now focus more on earnings, as well as the prospects for the global economy."
In early UK company news, Pearson said it met guidance in 2019 though predicts challenging trends in US Higher Education Courseware to continue.
The educational publisher said underlying revenue was flat in 2019 and adjusted operating profit GBP590 million.
US Higher Education Courseware revenue declined by 12%, though there was "modest" growth in digital revenue. Pearson said it expects the trends seen in the unit to continue, with heavy declines in print partially offset by modest growth in digital.
For 2020, Pearson expects to deliver adjusted operating profit between GBP500 million to GBP580 million, including the 25% stake in Penguin Random House that it recently agreed to sell for USD675 million.
"We have secured flat revenue this year and delivered operating profit within the guidance range, with much weaker sales in US Higher Education Courseware offset by a strong performance in the broader 76% of Pearson," said Chief Executive John Fallon.
Separately, Pearson said Chief Financial Officer Coram Williams will be leaving the company and will be replaced by Sally Johnson, deputy financial officer. Williams will step down from his position and from the board later this year, the FTSE 100 constituent said, allowing sufficient time to ensure a smooth and orderly transition to his successor.
Associated British Foods said its outlook is unchanged following a good first quarter for Primark.
Group sales for the 16 weeks to January 4 were up 4% year-on-year at constant currency, and 3% ahead at actual rates.
Sales at low-cost fashion chain Primark were up 4.5% year-on-year at constant currency and 3.0% ahead at actual exchange rates. This was, however, "almost entirely" driven by an increase in selling space. The like-for-like performance improved, AB Foods said without specifying numbers, driven by a marked upturn in the eurozone.
In the UK, Primark sales were up 4.0% driven by new selling space and a "marginal" decline in like-for-like sales. Sales in the eurozone were up 5.1% with the improvement in like-for-like sales seen in the final quarter of the previous financial year continuing. The US also delivered like-for-like sales growth.
"As expected, operating profit margin in the period decreased, with the effect of purchases contracted at a stronger US dollar exchange rate than last year but partially mitigated by cost reductions in both the cost of goods and overheads," said AB Foods.
In the current financial year, AB Foods expects to open 18 new Primark stores, with its first store in eastern Europe, in Ljubljana, Slovenia exceeding expectations.
Elsewhere in the AB Foods portfolio, Sugar revenue was up 7% at constant currency and Grocery sales flat, while Agriculture revenue was 10% ahead of a year ago and Ingredients sales up 3%.
Whitbread said it delivered a "robust" third quarter despite challenging conditions in the UK.
Total UK sales in the third quarter were up 0.3%, though fell 1.3% on a like-for-like basis. UK & International total sales growth was 1.0%.
"Our performance in the quarter reflects a good F&B performance and marginally declining total accommodation sales. Weak business and leisure confidence in the regions continued, which was partially offset by the strength of the central London market, where we outperformed," said Chief Executive Alison Brittain.
The start of the fourth quarter has seen more positive regional UK data due to lower comparators and the timing of Christmas, the company continued, along with the continuation of the strong London market. However, "it is still early" in the fourth quarter and "a level of caution" remains on the UK hotel environment, Whitbread added.
Looking into the 2021 financial year, the company noted that the UK backdrop remains "uncertain" and sustained industry inflation continues. Whitbread said it will take a cautious approach to hotel demand and expects a net margin headwind of around GBP60 million, comprising inflation and ongoing investment, partially offset by its efficient programme.
Recruitment firm Hays expects a fall in first half revenue due to strikes in France, the bushfires in Australia, the UK general election, and a slowdown in activity in Germany.
Hays said it expects operating profit for the first half of around GBP100 million, which would be down from GBP124.1 million a year ago.
Group net fees for the second quarter, which ended December 31, fell by 7% on a headline basis and 4% like-for-like. Like-for-like net fees in its Temp and Perm businesses declined by 3% and 6% respectively.
In Australia & New Zealand, net fees were down 7% like-for-like and Germany down 9%, while the UK & Ireland fell 4%.
"Growth slowed markedly in December, driven by specific events in key markets: general strikes in France, tragic Australian bushfires and the UK election," said Chief Executive Alistair Cox.
"Each event impacted markets already facing challenging economic conditions and low business confidence. Germany weakened further, with economic uncertainties driving increased client cost controls," he said. "The Americas performed well, with the USA a standout, while Asia was flat. Conditions in the UK remained uncertain, particularly before the election, although the result may provide impetus over time."
"The rebound from these events and our New Year 'return to work' are thus particularly important, and we are closely monitoring activity levels. Overall, we expect near-term macro conditions to remain difficult, but see continued opportunities for growth in key specialisms like IT," Cox added.
To come on Thursday, there are fourth quarter earnings from US bank Morgan Stanley.
The economic events calendar on Thursday has Irish inflation at 1100 GMT and US retail sales figures at 1330 GMT. Accounts from the European Central Bank's last monetary policy meeting of 2019 will be released at 1230 GMT.
"Today's highlight is the December ECB minutes. Over the coming months, we expect a change in growth risk assessment - from 'downside' to 'broadly balanced'. This could have a material impact on rates markets further out," said Danske Bank.
The euro was quoted at USD1.1150 early Thursday, soft from USD1.1159 late Wednesday. Against the yen, the dollar was quoted at JPY109.96 versus JPY109.94.
Danske Bank commented: "Publication and signing of the phase-one trade deal fuelled a mild boost to cyclical currencies but the cross more sensitive to trade issues, USD/JPY, remains below the 110 mark. EUR/USD in muted reaction as deal has both pros and cons for the EU."
Sterling was quoted at USD1.3043 early Thursday, firm on USD1.3024 at the London equities close on Wednesday.
Gold was quoted at USD1,552.57 early Thursday, up from USD1,549.30 late Wednesday. Brent was quoted at USD64.38 early Thursday, up from USD63.70.
By Lucy Heming; [email protected]
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