21st Nov 2019 07:46
(Alliance News) - Stocks in London are set to open lower on Thursday after US lawmakers backed a bill supporting Hong Kong civil rights, adding further strain to relations with China as the two countries continue to posture over their trade relationship.
In early corporate news in London, Johnson Matthey said it has delivered against its strategy in the first half, Severn Trent reported a rise in first-half turnover, and British Gas-owner Centrica said its full-year outlook remains unchanged.
IG futures indicate the FTSE 100 index is to open 25.79 points lower at 7,236.70. The FTSE 100 index closed down 61.31 points, or 0.8%, at 7,262.49 on Wednesday.
"The trading relationship between the US and China has taken a bit of a negative turn. President Trump said he would impose 'even higher' tariffs on imports from China if a deal isn't brokered. The announcement reopened up old trade worries, which triggered traders to cut their equity positions," said CMC's David Madden.
He continued: "The US government applied pressure to China with regards the unrest in Hong Kong. The US Senate backed a bill to protect the rights of the people in Hong Kong. The level of violence in the region is on the rise and the move by Washington DC could be viewed as cynical ploy to get Beijing to get their house in check before an agreement can be put in place. On the other hand, some US companies have exposure to the financial hub so it's in the US's interest to see a return to normality in the area."
The vote by the Senate came as investors were already growing nervous about the lack of solid news on negotiations for a mini tariffs pact to help resolve a debilitating and long-running stand-off between the US and China.
China was already angered and expressed "strong indignation" last month when the US House of Representatives passed a similar measure.
The Hong Kong Human Rights & Democracy Act, which must be signed off by Trump, supports "human rights and democracy" in Hong Kong and threatens to potentially revoke its special economic status as US lawmakers grow concerned about an increasingly tough crackdown on the months-long protests.
The bill would require the president to annually review the favourable trade status Washington grants to the city and allows for sanctions against Hong Kong and Chinese officials who commit human rights abuses including "extrajudicial rendition".
China has vowed to take "countermeasures" if the proposal becomes law. The Chinese Foreign Ministry summoned a top US diplomat in Beijing after the Senate approved the bills earlier this week.
"The Hong Kong angle has added weight to the argument the US and China might not sign phase one of the trade agreement by the end of 2019. Significant progress has been made in recent weeks, but it is worth remembering the discussions were 'about 90%' complete in May, according to Steve Mnuchin," Madden added.
Wall Street ended in the red on Wednesday, with the Dow Jones Industrial Average and the S&P 500 both closing 0.4% lower, while the Nasdaq Composite lost 0.5%.
The Japanese Nikkei 225 index closed 0.5% lower on Thursday. In China, the Shanghai Composite is down 0.3%, while the Hang Seng index in Hong Kong is down 1.5%.
The International Monetary Fund's chief warned on Thursday trade tensions and resulting uncertainties could shave off 0.8% of global gross domestic product by next year.
The global economy is in a "synchronized slowdown", Kristalina Georgieva, managing director of the IMF, said at the end of a roundtable discussion with Chinese Premier Li Keqiang and the heads of five other international organisations in Beijing.
Some 90% of the world's GDP is slowing compared with last year. In contrast, 75% of the world's GDP was increasing just two years ago, before the start of the US-China trade war, Georgieva said.
Turning back to London stocks, Johnson Matthey said its first half was in line with expectations, with revenue sharply higher but profit slipping due to one-off costs associated with manufacturing inefficiencies in its Clean Air business.
In the half year to September 30, Johnson Matthey's pretax profit fell 8% to GBP225 million from GBP244 million the year before.
Revenue jumped 37% to GBP6.82 billion from GBP4.97 billion. The company said this was driven by "good" sales growth and higher precious metals prices. Sales, excluding precious metals, were up 3% year on year to GBP2.12 billion.
Looking to the second half, Johnson Matthey said it expects a "stronger" set of results compared to the first half, primarily driven by the absence of the one-off costs and seasonality in its Efficient Natural Resources unit. For the full year, the company expects to deliver group operating performance in line with market expectations.
Centrica said its performance in the second half has been "solid" and has kept its full year targets unchanged.
The company has seen growth in total customer accounts, higher margins and returns in business energy supply in North America, strong trading and optimisation performance in Europe, and acceleration of cost efficiency delivery, Centrica said.
Adding: "These have offset the impact of further extensions to outages at the non-operated Dungeness B and Hunterston B nuclear power stations. The company has also experienced lower near-term European wholesale gas prices, although 2019 Exploration & Production earnings are largely protected by forward hedging."
Looking ahead, Centrica expects its adjusted earnings to be weighted towards the second half, with adjusted operating cash flow guided to be in the lower half of the GBP1.8 billion to GBP2.0 billion range. Year end net debt is guided between GBP3.0 billion and GBP3.5 billion.
Centrica now expects capital investment of about GBP800 million, down GBP100 million compared to guidance offered in its interim results. The company also expects in-year efficiency savings of about GBP300 million, GBP50 million higher than previous guidance.
Letter and parcel carrier Royal Mail said its profit in the first half was in line with expectations despite "considerable" economic and political uncertainty in the UK.
In the 26 weeks to September 29, Royal Mail recorded pretax profit of GBP173 million compared to GBP33 million in the 26 weeks to September 23 the year before.
Revenue was up 5.1% to GBP5.17 billion, with Royal Mail saying UK parcel growth more than offset any decline in UK letters. The company also noted it UK revenue performance was the best in five years.
Royal Mail lowered its dividend, however, to 7.5p from 8.0p the year before.
Looking ahead, the company said it expects to see adjusted operating profit between GBP300 million and GBP340 million for the full year. In the first half, the company recorded GBP165 million adjusted operating profit.
Royal Mail said its transformation is "behind schedule" but is committed to investing GBP1.8 billion into the firm. The company said its second half performance should benefit from the UK general election - due to political flyer postings - but its outlook, especially for letters, remains "challenging".
Severn Trent saw its turnover rise 3.2% in the six months to September 30, in a "strong" first half, which the company believes has laid the foundations for the next regulatory period for utilities, AMP7.
Turnover grew to GBP910.0 million from GBP881.5 million, with pretax profit slipping GBP4.6% to GBP285.3 million. The dip in profit was attributed to a one-off gain the year before on the sale of its Teal Close property.
Severn Trent upped its interim dividend by 7.2% to 40.03p from 37.35p the year before.
Chief Executive Liv Garfield said: "This has been another six month period where we have delivered for all of our stakeholders through strong performance, continued investment and environmental improvement, helping us to fulfil our goal of being the most trusted water company in England."
Late Wednesday, the US Federal Reserve Open Market Committee's meeting minutes were released, with US central bankers dismissing the idea of taking interest rates into negative territory, something Trump has called for many times.
Evidence for the benefits of negative interest rates – lenders must pay borrowers rather than the other way around – has proven "mixed" in countries where it has been tried, according to members of the Fed's rate-setting Federal Open Market Committee.
Federal Reserve policymakers also said at the October 29-30 meeting the world's largest economy has "proven resilient" in the face of persistent global difficulties but risks remain "elevated," including from Trump's trade war.
The Fed cut the benchmark lending rate last month for the third time this year, bringing it down to a range of 1.5% to 1.75%.
In Thursday's relatively quiet economic events calendar, UK public sector borrowing figures are at 0930 GMT.
By Paul McGowan; [email protected]
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