20th Feb 2020 07:45
(Alliance News) - Stock prices in London are set to pull back slightly on Thursday with caution still lingering in markets despite China's central bank providing stimulus by cutting its loan rate and virus epicentre Wuhan seeing a large drop in the number of new cases.
In early UK company news, Lloyds Banking raised its dividend despite profit being hit by a big PPI charge, Smith & Nephew reported an improved rate of underlying revenue growth, and Hays saw half-year profit slip amid a slowdown in Germany.
IG says futures indicate the FTSE 100 index of large-caps to open 1.62 points lower at 7,455.40 on Thursday. The FTSE 100 index closed up 75.01 points, or 1.0%, at 7,457.02 on Wednesday.
"The belief that central banks and governments can offset any economic downside from the virus with monetary and fiscal stimulus has continued to help drive asset prices higher, with Asia markets also rising this morning as China announced another reduction in its loan prime rate, in a move that wasn't unexpected," said Michael Hewson at CMC Markets.
He added, though: "In a sign that caution was still very much at the forefront of investor thinking, we also had the sight of a higher US dollar, which moved up towards a three-year high, and gold prices hitting their highest levels since 2013, as some haven buying also took place."
Gold was quoted at USD1,605.09 an ounce early Thursday, lower than USD1,605.82 on Wednesday.
Brent oil was trading at USD59.24 a barrel early Thursday, up from USD58.88 late Wednesday.
In forex, sterling was quoted at USD1.2900 early Thursday, down from USD1.2947 at the London equities close on Wednesday.
The euro traded at USD1.0783 early Thursday, soft against USD1.0793 late Wednesday. Against the yen, the dollar was quoted at JPY111.78, up from JPY110.93.
In Tokyo on Thursday, the Nikkei 225 index ended up 0.3%. In China, the Shanghai Composite ended up 1.8%, while the Hang Seng index in Hong Kong is down 0.2% in late trade.
China announced it will cut interest rates in a bid to boost the economy, as it battles the economic fallout of the new coronavirus outbreak.
The reduction in the loan prime rate – one of the preferential rates commercial banks impose on their best customers and which serves as a reference for other lending rates - is the latest measure to help companies struggling through the epidemic.
The one-year LPR was lowered to 4.05% from 4.15%, the People's Bank of China said in a statement. The five-year LPR – on which many lenders base their mortgage rates - was also lowered to 4.75% from 4.8%.
"Although the LPR came in on expectation, the market was hoping for 4% on the one-year LPR while pining for a nudge lower five years. The PBoC needs to exceed the market expectations, not hit them in this environment," commented Stephen Innes, chief market strategist at AxiCorp.
The rate reduction comes as Beijing battles to control a virus epidemic that has infected over 74,500 people in the country.
This came as China reported a big drop in new coronavirus cases on Thursday, fuelling hopes the epidemic is nearing its peak. More than 600 new infections were reported in Wuhan, ground zero of the virus, marking the lowest daily tally since late January, and well down from the 1,749 new cases the day before.
In the US on Wednesday, the Dow Jones Industrial Average ended up 0.4%, the S&P 500 up 0.5% and Nasdaq Composite up 0.9%.
In early UK company news, Lloyds Banking said 2019 profit was hit by a payment protection insurance charge, though it raised its dividend.
Net interest income for 2019 amounted to GBP10.18 billion, down from GBP13.40 billion a year ago. Total income, though, nearly doubled to GBP42.36 billion from GBP22.09 billion on net trading income of GBP18.29 billion versus an expense of GBP3.88 billion the year before.
Net of insurance claims, which soared to GBP24.00 billion from just GBP3.47 billion, total income was GBP18.36 billion versus GBP18.63 billion.
Pretax profit was down 26% to GBP4.39 billion from GBP5.96 billion a year ago, hurt by payment protection insurance provisions of GBP2.45 billion in the year, versus just GBP750 million in 2019.
"The PPI provision charge of GBP2,450 million was largely due to the significant increase in PPI information requests leading up to the deadline for submission of claims on 29 August 2019, and also reflects costs relating to complaints received from the Official Receiver as well as administration costs," the lender explained.
Lloyds raised its dividend for the year by 5% to 3.37 pence, and said it will start paying quarterly dividends in 2020, with the first one being paid in June.
"In 2019 the group has continued to make significant strategic progress while delivering solid financial results in a challenging external market. The group's statutory performance was impacted by a substantial PPI charge related to the deadline for claims submission. Underlying performance was resilient, reflecting the health of our customer franchise and the strength of the business model," said Chief Executive Antonio Horta-Osorio.
Smith & Nephew reported an improved rate of underlying revenue growth for 2019.
Revenue for 2019 amounted to USD5.14 billion, up 4.8% on the year before. Underlying revenue growth was 4.4%, a significant improvement on the 2% recorded for 2019.
Pretax profit was slightly lower at USD743 million versus USD781 million the year before, hampered by increases in selling, general & administrative expenses as well as research & development costs.
The medical technology business recorded a trading profit margin of 22.8%.
For 2020, Smith & Nephew expects underlying revenue growth around 3.5% to 4.5%, which equates to a range of 4.0% to 5.0% on a reported basis. The trading profit margin for 2020 should be at or "slightly above" that achieved in 2019.
Smith & Nephew said it is monitoring the coronavirus outbreak "closely", with its 2020 guidance assuming the situation "normalises" early in the second quarter. China represented 7% of group revenue in 2019.
Recruitment firm Hays reported a sharp fall in interim profit amid "tough market conditions".
Net fees for the six months to December 31 fell 3% to GBP553.1 million, down 2% on a like-for-like basis, while pretax profit slumped 22% to GBP95.6 million.
Hays said it saw a slowdown in its largest region, Germany, while strikes in France, Australian bushfires and the UK election also hit its results. Growth in China also slowed "materially".
"Overall, we have seen a marginally slower New Year 'return to work' than prior years. We expect near-term macro conditions to remain difficult and are mindful of continuing uncertainties, including the coronavirus. While our focus will be on cost management, we also see growth opportunities, for example in the IT sector globally and in the USA, and we will continue to invest in them," said Chief Executive Alistair Cox.
Hays said it is "too early" to quantify the financial impact of the outbreak of coronavirus on its second half.
The economic events calendar on Thursday has UK retail sales figures at 0930 GMT, followed by Irish inflation at 1100 GMT and minutes from the European Central Bank's January meeting at midday.
By Lucy Heming; [email protected]
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