30th Apr 2020 07:44
(Alliance News) - London stocks are set to rally further on Thursday after some good news on the war against Covid-19 from Gilead Sciences helped to boost sentiment.
Focus for Thursday lies on the European Central Bank's latest policy meeting, after the US Federal Reserve warned late Wednesday that "economic activity will likely drop at a unprecedented rate in the second quarter".
In early UK company news, Shell slashed its dividend to 16 US cents for the first quarter - the oil major's first dividend cut since the second world war.
IG says futures indicate the FTSE 100 index of large-caps to open 40.05 points higher at 6,155.30 on Thursday. The FTSE 100 closed up 156.75 points, or 2.6%, at 6,115.25 on Wednesday - at this closing price already up 6.3% since the week began.
"It's scarcely believable, that at a time when the US economy shows a contraction of 4.8% in Q1, with the prospect of an even bigger contraction in Q2, that equity markets in Europe and the US saw some of their biggest gains this month, after reports emerged from the US that data from a drug trial of Gilead Sciences remdesivir showed 'quite good news' in the treatment of Covid-19 patients," said Michael Hewson at CMC Markets.
US scientists on Wednesday hailed a potential breakthrough in the coronavirus fight as a trial showed patients responding to a Gilead Sciences antiviral drug, fuelling global hopes for a return to normal.
In the first proof of successful treatment against the illness that has claimed more than 226,000 lives, a clinical trial of the drug remdesivir showed that patients recovered over 30% more quickly than those on a placebo.
Hewson continued: "Markets in Asia have taken their cues from yesterday's strong gains Europe, and as a result we look set for another strongly positive open, with European stocks set to post their first positive month this year, while the S&P 500 looks set to post its best monthly performance since the 1970's. The latest Chinese PMIs also pointed to the continued stabilisation of the economy there."
Chinese factory activity continued to expand in April, data showed Thursday, but analysts warned that the outlook remained clouded by battered overseas demand as the rest of the world struggles to overcome the coronavirus pandemic.
The closely watched official manufacturing purchasing managers' index came in at 50.8, just above the 50 mark that separates expansion and contraction, but down from the previous month and slightly short of expectations. Still it is a significant improvement on the record low 35.7 posted in February, when major cities were forced to shut down to prevent the disease's spread.
Zhao Qinghe, senior statistician at the National Bureau of Statistics which released the data, said demand was recovering at a slower pace than production, in industries including textiles and chemical raw materials.
In slight contrast, the manufacturing PMI from Caixin edged down to 49.1 in April from 50.1 in March. New export business fell at the lowest rate since December 2008, as the pandemic led to temporary lockdown and business closures around the world.
In Asia on Thursday, the Japanese Nikkei 225 index ended up 2.1%. In China, the Shanghai Composite is up 1.5%, while markets in Hong Kong are closed. Â
In the US on Wednesday, Wall Street ended higher, with the Dow Jones Industrial Average ending up 2.2%, the S&P 500 up 2.7% and Nasdaq Composite closing 3.6% higher.
Late Wednesday, the US Federal Reserve said Covid-19 "poses considerable risks to the economic outlook over the medium-term".
The central bank kept the benchmark interest rate at zero, and said it will remain there until the economy has weathered the crisis and is ready to resume growth.
Fed Chair Jerome Powell warned that "economic activity will likely drop at a unprecedented rate in the second quarter" at a rate "worse than we've seen" and accompanied by high unemployment that will take persist for some time. Private economists are predicting a decline in growth by as much as 40% in the second quarter amid the collapse in consumer spending and business investment.
To come on Thursday is the European Central Bank, with a policy decision due at 1245 BST followed by a press conference with President Christine Lagarde at 1330 BST.
Looking to the meeting, Danske Bank commented: "At today's ECB meeting we expect policymakers to stay put after the various new policy measures announced lately. However, new policy responses cannot be ruled out as the ECB seems to be the only game in town near term and we think Lagarde and co will signal their readiness to act."
The euro traded at USD1.0866 early Thursday, firm on USD1.0855 late Wednesday.
Sterling was quoted at USD1.2479 early Thursday, up from USD1.2434 at the London equities close on Wednesday. Against the yen, the dollar was quoted at JPY106.49 versus JPY106.58.
Gold was quoted at USD1,712.42 an ounce early Thursday, higher than USD1,702.03 on Wednesday.
Brent oil rose to USD24.58 a barrel early Thursday from USD22.90 late Wednesday.
In early UK company news, Royal Dutch Shell announced its first dividend cut since World War Two.
Shell's first quarter current cost of supplies earnings attributable to shareholders, excluding items, were USD2.9 billion, down 46% on a year ago due to a drop in oil, gas and liquefied natural gas prices as well as lower sales volumes.
The firm produced 3.7 million barrels of oil equivalent per day, down 1% on a year before.
Turning to the dividend, Shell said: "Shareholder returns are a fundamental part of Shell's financial framework. However, given the risk of a prolonged period of economic uncertainty, weaker commodity prices, higher volatility and uncertain demand outlook, the Board believes that maintaining the current level of shareholder distributions is not prudent. Following the announcement not to continue with the next tranche of the share buyback programme, the board has also decided to reduce the first quarter 2020 dividend and reset to 16 US cents per share.
Shell has not cut it since World War Two, but there has not been a hike since 2014. It paid out 47 cents each quarter in 2019.
Peer BP on Tuesday declared a first-quarter dividend of 10.5 US cents, up 2.4% from 10.25 cents in the fourth quarter and first quarter of 2019.
Meanwhile, supermarket chain J Sainsbury saw profit rise in its recently ended financial year, though warned it could incur costs of GBP500 million due to Covid-19.
Revenue edged down to GBP28.99 billion for the year to March 7 from GBP29.01 billion the year before, but pretax profit jumped to GBP255 million from GBP202 million.
Post year-end, the supermarket said it saw a surge in demand, with one week in March seeing a 47% rise in total retail sales, excluding fuel. However, sales since mid-March have been mixed, with some weeks seeing high single-digit percentage rises and some declines.
Looking to the financial year recently commenced, Sainsbury's said underlying pretax profit will be broadly unchanged year-on-year. This includes a hit of GBP500 million due to "significant costs" associated with protecting customers and employees from Covid-19, weaker fuel, general merchandise and clothing sales, and lower financial services profitability, offset by stronger grocery sales and business rates relief.
"There are many sensitivities that sit behind these assumptions, above and beyond the duration of different stages of lockdown and there is not necessarily a linear relationship between the duration of Covid-19 impact, costs incurred and sales impact. Hence we cannot be more certain of this base case scenario than any other. It is simply our best estimate on each of the assumptions at this stage," said Sainsbury's.
The grocer has decided to defer dividend payment decisions to later in the financial year.
Lloyds Banking Group's profit almost disappeared in the first quarter on an impairment charge.
Pretax profit was GBP74 million for the quarter versus GBP1.60 billion a year before, hit by a "significantly increased" impairment charge of GBP1.43 billion, versus GBP275 million, due to the economic outlook.
The impairment charge was a result of to changes to the group's IFRS 9 assumptions, given an expected deterioration in the UK economy as a result of Covid-19.
Net income was down 11% to GBP3.95 billion amid lower interest rates, competitive asset markets and a slowdown in retail and commercial markets in March.
Lloyds said: "The longer-term financial impact of coronavirus is not yet clear and given the significant change in the operating environment and economic expectations, the group's previous guidance is no longer appropriate. The impact of lower rates and lower levels of activity on the group's business will continue into the second quarter, but remains difficult to quantify given the significant uncertainty. We expect the group will also experience further impairments, both in existing and new lending books, particularly if economic expectations deteriorate further from the base case."
The economic events calendar on Thursday has German inflation at 0855 BST. Inflation and GDP figures from the eurozone are at 1000 BST and US jobless claims at 1330 BST.
By Lucy Heming; [email protected]
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