30th Jan 2020 07:48
(Alliance News) - Stock prices in London are set to open substantially lower on Thursday as the mounting death toll from the spread of coronavirus in China haunts markets once again.
In early company news, Royal Dutch Sell reported a fall in full-year earnings, Unilever said it expects underlying sales growth in the lower half of its target range in 2020, and Diageo said full-year organic net sales growth is expected to be towards the lower end of its guidance range.
IG says futures indicate the FTSE 100 index of large-caps to open 67.07 points lower at 7,421.50 on Thursday. The FTSE 100 index closed up 2.88 points at 7,488.57 on Wednesday.
"US equity markets made a solid start to Wednesday's session but closed flat as renewed anxieties regarding the coronavirus dwarfed surprisingly good earnings from some American giants such as Tesla, Microsoft and General Electrics and an accommodative statement from the Federal Reserve," said Ipek Ozkardeskaya at Swissquote.
The US Federal Reserve held its policy interest rate steady on Wednesday, but again said it is monitoring "global developments" to decide its next move.
The policy-setting Federal Open Market Committee left the benchmark interest rate steady in the target range of 1.5% to 1.75%, as expected, at the end of its two-day meeting. Policymakers also signalled that they want to see US inflation push a bit higher, to hit the 2.0% Fed target.
The statement Wednesday repeated that policymakers will "continue to monitor the implications of incoming inflation for the economic outlook including global developments and muted inflation pressures."
In the US on Wednesday, Wall Street was subdued, with the Dow Jones Industrial Average ending flat after the Fed decision, the S&P 500 down 0.1% and the Nasdaq Composite 0.1% higher.
In Asia on Thursday, though, stocks were showing sharp losses, with the Japanese Nikkei 225 index ending down 1.7%.
Markets in China remain closed for the Lunar New Year holiday, though the Hang Seng index in Hong Kong was trading 2.8% lower on Thursday.
The losses in Asian markets came after China reported its biggest single-day jump in novel coronavirus deaths on Thursday, as confirmation that three Japanese evacuated from the outbreak's epicentre were infected deepened fears about a global contagion.
The World Health Organization, which initially downplayed the severity of a disease that has now killed 170 nationwide, warned all governments to be "on alert" as it weighed whether to declare a global health emergency.
Chinese authorities have taken extraordinary steps to arrest the virus's spread, including effectively locking down more than 50 million people in Wuhan and surrounding Hubei province. But that was yet to pay dividends, with the government reporting 38 new deaths in the 24 hours to Thursday, the highest one-day total. All but one were in Hubei.
The number of confirmed new cases also grew steadily to 7,711, the National Health Commission said. Another 81,000 people were under observation for possible infection.
In early UK company news, Royal Dutch Shell reported a fall in earnings for 2019, as expected.
Current cost of supplies earnings attributable to shareholders excluding items fell to USD2.93 billion in the fourth quarter of 2019, down 48% from USD5.69 billion a year before. The company said this reflected lower realised oil, gas and LNG prices, weaker realised refining and chemicals margins as well as negative movements in deferred tax positions.
"This was partly offset by stronger contributions from LNG trading and optimisation," Shell noted.
For 2019 as a whole, attributable CCS earnings fell 23% to USD16.46 billion. This is was just below consensus of USD16.74 billion.
Revenue for the fourth quarter was down 18% to USD84.01 billion from USD102.23 billion a year ago. For 2019 as a whole, revenue amounted to USD344.88 billion, down 11% from USD388.38 billion a year ago.
"The strength of Shell's strategy and portfolio has enabled delivery of competitive cash flow performance in 2019 despite challenging macroeconomic conditions in refining and chemicals, as well as lower oil and gas prices. We generated USD47 billion in cash flow from operating activities excluding working capital movements and distributed over USD25 billion in dividends and share uybacks to our shareholders," said Chief Executive Officer Ben van Beurden
Shell said it will launch the next tranche of its share buyback programme on Thursday, with a maximum of USD1 billion in shares to be bought. Van Beurden added that the firm's intention to complete its USD25 billion buyback programme is unchanged, but the pace remains subject to "macro conditions and further debt reduction".
Unilever reported underlying sales growth below its multi-year target range, as expected.
Underlying sales growth for 2019 was 2.9%, just below its target range of 3% to 5%. The consumer goods giant in December had warned that this would be the case, given continued trouble in west African markets and a slowdown in south Asia, one of its biggest markets.
Revenue for 2019 amounted to EUR51.98 billion, up 2.0% from EUR50.98 billion the year before, while pretax profit dived by a third to EUR8.28 billion from EUR12.36 billion. This was as the company took a non-underlying charge of EUR1.24 billion versus a gain of EUR3.18 billion the year before.
Looking ahead, the Hellman's mayonnaise maker said underlying sales growth in 2020 will be in the "lower half" of its 3% to 5% range.
"While we expect an improvement from the fourth quarter of 2019 into the first half of 2020, first half underlying sales growth will be below 3%," said Chief Executive Alan Jope.
"The impact of the coronavirus outbreak is unknown at this time," he added. "As we near the completion of our three-year strategic plan, we expect continued improvement in underlying operating margin and another year of strong free cash flow, remaining on track for our 2020 goals."
Distiller Diageo said it expects full-year organic net sales growth towards the lower end of its mid-term guidance range.
Sales rose to GBP10.83 billion in the six months to December 31 from GBP10.36 billion a year ago. Organic net sales grew 4.2%.
Organic operating profit grew ahead of net sales, the company noted, up 4.6%.
Pretax profit slipped, however, to GBP2.46 billion from GBP2.63 billion. This was largely due to a non-repeating GBP146 million gain received in the year-ago period, which mainly related to the sale of a portfolio of 19 brands.
Diageo lifted its interim dividend by 5% to 27.41 pence per share.
"These results reflect the changes we are making in the business to drive shifts in our culture. They are in line with our current mid-term guidance and have been delivered in the face of increased levels of volatility in India, Latin America and Caribbean and Travel Retail," said Chief Executive Ivan Menezes.
"For the full year, we therefore expect organic net sales growth to be towards the lower end of our 4 to 6% mid-term guidance range," he continued. "We continue to expect organic operating profit to grow roughly one percentage point ahead of organic net sales."
Frasers Group, formerly known as Sports Direct International, said part of its Belgian tax dispute has been resolved.
Earlier, the Belgian Tax Authority had confirmed in writing that it expected to complete its review of 'Matter 1' early in 2020. 'Matter 1' accounts for EUR491 million, or 73%, of the total EUR674 million payment notice.
"The Tax Authority has now confirmed in writing that it has completed its review of Matter 1 and that it is satisfied with the explanation provided. Accordingly, in respect of Matter 1, VAT has been correctly accounted for in Belgium, Matter 1 has been withdrawn from the proces verbal by the Belgian Tax Authority, and this aspect of the proces verbal has been resolved with no payment of VAT liabilities or associated penalties and interest to be made," Frasers said.
The retailer said it will continue to "fully engage" and work with the tax authority to resolve smaller remaining issues.
"Frasers Group management still believe that it is less than probable that material VAT and penalties will be due in Belgium as a result of the tax audit," the company said.
The economic events calendar on Thursday has unemployment data from Germany and the eurozone at 0855 GMT and 1000 GMT respectively. In the afternoon, there are US GDP readings at 1330 GMT.
The main focus, though, is on the Bank of England's latest interest rate decision, due at midday. This will be followed by a press conference with Governor Mark Carney, his last at the central bank, at 1230 GMT.
Analysts are split over whether the BoE will cut rates or not on Thursday.
"Despite a few economic data releases that came out stronger than expected, we still expect the BoE to cut the Bank Rate by 25bp, a view we have held since November. Despite slightly stronger data, the economy remains weak overall due to high uncertainty on Brexit. However, it is likely to be a close call, which is also reflected in market pricing, as investors are pricing a 45% probability of a cut," said Danske Bank.
Sterling was quoted at USD1.3004 early Thursday ahead of the BoE decision, flat compared to USD1.3003 at the London equities close on Wednesday.
Elsewhere in forex, the euro was priced at USD1.1011 early Thursday, firm compared to USD1.1000 late Wednesday. Against the yen, the dollar was quoted at JPY108.82 versus JPY109.07.
In commodities, gold was trading at USD1,581.50 an ounce early Thursday, higher than USD1,569.44 on Wednesday amid the risk-off environment.
Brent oil was quoted at USD59.98 a barrel early Thursday, soft compared to USD59.94 late Wednesday on renewed demand fears as the virus in China continued to spread.
By Lucy Heming; [email protected]
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