6th Feb 2020 07:47
(Alliance News) - Stocks in London on Thursday are set to continue the week's rebound after China said overnight it will slash tariffs on USD75 billion of US imports.
In early UK company news, Compass reported a good start to its financial year, Beazley saw 2019 profit surge on a jump in net investment income, and Royal Mail warned its core UK parcels, international & letters unit could be loss-making in its 2021 financial year.
IG says futures indicate the FTSE 100 index of large-caps to open 36.12 points higher at 7,518.60 on Thursday. The FTSE 100 index closed up 42.66 points, or 0.6%, at 7,482.48 on Wednesday.
London's blue-chip index already is 2.7% higher since the week began.
Stocks are set to be boosted further by news overnight that China will halve punitive tariffs on USD75 billion in US imports from February 14, a month after Beijing and Washington signed a truce in their long-running trade war.
The reduction will apply to levies of 5% and 10% that were imposed on more than 1,700 items in September, according to the State Council Tariff Commission.
The move is aimed at "promoting the healthy and stable development of China-US economic and trade relations", the Commission said in a statement.
"The significance of the olive branch in the market eye is the announcement comes a day after President Trump's statement of the union address, where he called the current US-China relationship the best. A small but rather a sweet carrot to dangle as both parties move on to Phase 2 of the trade deal negotiations," said Stephen Innes, chief market strategist at AxiCorp.
"And in the wake of the coronavirus economic tumult, it's not much of a stretch to assume China is eager to start the negotiations," Innes continued. "It's a good start but investors have an extreme marathon to endure before the finish line comes in sight. None the less, it seems like China is digging deep into its magic policy bag as a cure-all for the coronavirus knockdown."
Asian stocks rallied overnight following the tariff news from China. Tokyo's Nikkei 225 index closed up 2.4% while in China, the Shanghai Composite closed up 1.7%, and the Hang Seng index in Hong Kong is 2.5% higher.
Wall Street also recorded some solid gains, with the Dow Jones Industrial Average ending up 1.7%, the S&P 500 up 1.1% and Nasdaq Composite up 0.4%.
US President Donald Trump was acquitted by the US Senate on Wednesday following a historic impeachment trial that shone a harsh light on America's divisions, without ever shaking the loyalty of his voter base.
In a political triumph for the US leader, Trump drew on staunch Republican support to easily defeat a Democratic effort to expel him from office for pressuring Ukraine to help bolster his re-election effort.
Even though several conceded Trump's behaviour was wrong, Republicans ultimately stayed loyal in voting to clear the president of charges of abuse of power, by 52 to 48, and of obstruction of Congress, by 53 to 47 – far from the two-thirds supermajority required for conviction.
Trump's impeachment and trial will leave a permanent stain on his record, as it did for the only two presidents to have encountered the same fate, Andrew Johnson in 1868 and Bill Clinton in 1998. But the Senate verdict was never truly in question since the House of Representatives formally impeached Trump in December, and it has now cleared out a major hurdle for the president to fully plunge into his campaign for re-election in November.
On the London Stock Exchange, Compass said it has had an "encouraging" start to the year.
In the three months to December 31, the contract caterer told its annual general meeting that organic revenue grew 5.3%, driven by strong levels of new business wins and good retention rates, particularly in North America.
"The cost action programme, which was announced in November, is progressing as expected and the benefits are offsetting the anticipated impact of lower Business & Industry volumes in Europe," said Compass.
Across geographies, organic revenue in North America surged 7.5%, while Europe, as expected, was flat. Rest of World increased by 4.7%, supported by "good levels of growth" in Australia and Latin America.
Royal Mail retained its profit forecast for the current financial year after a "busy" Christmas period though said it will miss its productivity target, and warned its core UKPIL business could be loss making in the up-coming 2021 financial year.
Revenue was up 3.7% for the nine months to December 29.
In Royal Mail's UK parcels, international & letters unit, UKPIL, revenue was up 1.0%, led by parcels which saw revenue growth of 3.7% and volume growth of 3.0%. Letter volumes, meanwhile, sank 9% - excluding election-related material - and revenue fell 1.5%.
GLS - General Logistics Systems - volumes were up 5%, and revenue up 11%.
For the current financial year, Royal Mail said it expects productivity improvement of 1.5%, against its 2% target. All other guidance, including an adjusted operating profit between GBP300 million to GBP340 million, was confirmed.
Looking even further out, things appear "challenging". The third-quarter run rate for addressed letter volumes "has not shown the expected level of recovery", the postal operator said.
"This, coupled with the ongoing uncertain business environment, means that we now expect a 1 percentage point increase in the decline, to 7-9% for 2020-21," said Royal Mail.
Further, the "ongoing industrial relations environment" and economic uncertainty increases the likelihood that UKPIL will be loss making in the 2021 financial year.
The FTSE 250 constituent said: "Unless we are able to make significant progress in delivering our transformation plan, our ability to meet the year 3 targets of our Journey 2024 plan will be compromised."
Beazley reported a surge in profit for 2019, though the insurer's combined ratio indicated no underwriting profit.
Gross premiums written were up 15% to USD3.00 billion in the year, while net premiums grew 11% to USD2.50 billion. Pretax profit, however, surged to USD267.7 million from USD76.4 million.
Profit was boosted as net investment income jumped to USD263.7 million from just USD41.1 million in 2018.
The insurer's combined ratio rose to 100% from 98% in 2018, due to an "adverse claims experience". A combined ratio below 100% means an insurer made a profit from its underwriting.
"An adverse claims experience across several lines of business, leading to reduced prior year reserve releases, meant that our combined ratio rose to 100% for 2019. Despite this, we are optimistic that the remedial action that we have been taking across several lines of business in recent years, alongside the expected continued premium rate increase, will favour us as we move into 2020," said Chief Executive Andrew Horton.
In forex, sterling was quoted at USD1.2992 early Thursday, flat compared to USD1.2990 at the London equities close on Wednesday.
The euro trading at USD1.1100 early Thursday, firm against USD1.1002 late Wednesday. Against the yen, the dollar was quoted at JPY109.88 versus JPY109.70.
Gold was quoted at USD1,557.22 an ounce early Thursday, softer than USD1,557.60 on Wednesday.
Brent oil was at USD56.18 a barrel early Thursday, higher than USD55.86 late Wednesday.
"Oil is rebounding on the back of the efforts to contain the virus and on the back of OPEC+ meeting in Vienna to reach a consensus to deal with virus. The discussion is to keep the production cuts for longer or make deeper ones," said Danske Bank.
By Lucy Heming; [email protected]
Copyright 2020 Alliance News Limited. All Rights Reserved.
Related Shares:
BeazleyRMG.LCompass Group