29th Oct 2020 07:55
(Alliance News) - Stock prices in London look set to stage a mild rebound on Thursday following sharp losses on Wednesday that were sparked by Germany and France reimposing lockdowns to battle a new wave of virus infections.
In early corporate news, oil major Royal Dutch Shell reported a steep fall in quarterly earnings for the third quarter and unveiled a new cash allocation framework. Lloyds Banking Group delivered a positive third-quarter performance buoyed by a boom in demand for mortgages.
IG futures indicate the FTSE 100 index is to open 13.90 points higher at 5,596.70. The blue-chip index closed down 146.19 points, or 2.6%, at 5,582.80 Wednesday - its lowest level in six months.
Royal Dutch Shell announced a cash allocation framework which it said will enable the company to reduce debt, increase distributions to shareholders, and allow for disciplined growth.
Shell said the cash allocation framework includes a target to reduce net debt to USD65 billion from USD73.5 billion as of September 30. Upon achieving this milestone, Shell targets to distribute a total of 20% to 30% of cash flow from operations to shareholders.
Increased shareholder distributions will be achieved through a combination of Shell's progressive dividend and share buybacks. Remaining cash will be allocated to "disciplined and measured" capital expenditure growth and further debt reduction, it added.
The Anglo-Dutch firm declared a third quarter dividend of 16.65 US cents, down 65% from USD0.47 paid out in the third quarter last year. However, it was up 4.0% from the 16.00 cents paid for the second quarter, and Shell confirmed on Thursday it will grow the dividend annually as part of its progressive dividend policy.
For the third quarter ended September 30, Shell reported attributable income of USD489 million, down 92% from USD5.88 billion in the third quarter last year. Current cost of supply earnings for the period were USD177 million, down 97% from USD6.08 billion.
Over the nine month period, Shell swung to a CCS loss of USD15.44 billion from USD14.40 billion profit.
Looking ahead, Shell said as a result of the coronavirus crisis there is significant uncertainty in macroeconomic conditions with an expected negative impact on demand for oil, gas and related products.
Shell sees fourth quarter Upstream production in a range of 2.3 million to 2.5 million barrels of oil equivalent per day.
"The fourth quarter 2020 outlook provides ranges for operational and financial metrics based on current expectations, but these are subject to change in the light of current evolving market conditions. Due to demand or regulatory requirements and/or constraints in infrastructure, Shell may need to take measures to curtail or reduce oil and/or gas production, LNG liquefaction as well as utilisation of refining and chemicals plants and similarly sales volumes could be impacted. Such measures will likely have a variety of impacts on our operational and financial metrics," Shell said.
Lloyds Banking Group said it saw an encouraging business recovery in the third quarter and, with impairments significantly lower, a return to profitability in the third quarter.
For the quarter ended September 30, net income was down 25% to GBP988 million from GBP1.32 billion last year, and net interest income was down 16% to GBP2.62 billion from GBP3.13 billion.
Pretax profit for the quarter was GBP1.04 billion, up from just GBP50 million in the third quarter last year.
The bank said activity levels picked up in the third quarter of 2020 after contraction in the first six months, particularly mortgage applications and consumer spending. It received its biggest quarterly surge in mortgage applications since 2008, booking new mortgage lending of GBP3.5 billion.
The outlook remains highly uncertain given the second wave of coronavirus, UK government response including social distancing measures, and the end of the furlough scheme, together with the ongoing Brexit negotiations, Lloyds said.
Looking ahead, Lloyds said net interest margin is expected to remain broadly stable around 240 basis points in the fourth quarter, resulting in a full year margin of 250 basis points. It also expects its 2020 impairment charge to be at the lower end of the GBP4.5 billion to GBP5.5 billion previously guided range.
Fellow lender Standard Chartered reported a sharp drop in third-quarter profit but believes its ongoing transformation will allow the bank to weather the pandemic in "good shape".
In the three months to September 30, the Asia-focused lender recorded pretax profit of USD435 million, down 61% year on year from USD1.11 billion. StanChart booked a USD358 million credit impairment in the third quarter, up from USD280 million a year before, but noted it is down from the USD611 million credit charge taken in the second quarter.
Operating income dipped 11% to USD3.51 billion from USD3.96 billion, as net interest income declined 16% to USD1.62 billion from USD1.94 billion.
In the US on Wednesday, Wall Street ended sharply lower, with the Dow Jones Industrial Average down 3.4%, S&P 500 down 3.5% and Nasdaq Composite down 3.7%.
Wall Street stocks plunged Wednesday on rising worries about coronavirus lockdowns as France and Germany announced tough new restrictions and US cases continued to climb.
French President Emmanuel Macron announced that bars, restaurants and non-essential businesses will be forced to close for at least a month, a decision that came only hours after German Chancellor Angela Merkel announced similar measures in Europe's largest economy.
The Japanese Nikkei 225 index closed down 0.4%. In China, the Shanghai Composite ended up 0.5%, while the Hang Seng index in Hong Kong is down 0.3%.
"A more modest sell-off in Asia on Thursday helped by the region's better outlook for the pandemic is allowing for some let-up in the selling that took hold Wednesday. European stocks look set for a mostly positive open," said London Capital Group's Jasper Lawler.
The pound was quoted at USD1.3021 early Thursday, up from USD1.2985 at the London equities close Wednesday.
The euro was priced at USD1.1757, flat from USD1.1756, ahead of the European Central Bank's interest rate decision at 1245 GMT.
Against the yen, the dollar was trading a JPY104.37, flat from JPY104.34.
Brent oil was quoted at USD39.18 a barrel Thursday morning, flat from USD39.12 late Wednesday. Gold was trading at USD1,884.21 an ounce, up from USD1,883.33
The Bank of Japan lowered its economic growth and inflation forecasts for this fiscal year owing to the impact of the coronavirus but left its massive monetary easing policy untouched.
For the year to March 2021, the BoJ expects the economy to shrink 5.5%, against a 4.7% contraction in the July estimate, while prices are seen falling 0.6%, compared with a previously forecast 0.5% decline.
The BoJ kept its negative interest rate of 0.1% on bank deposits, as well as its policy of unlimited purchases of Japanese government bonds, to ensure their 10-year yields remain around zero percent.
The economic events calendar on Thursday has US GDP readings at 1230 GMT and Germany inflation figures at 1300 GMT.
In the US earnings calendar Thursday, technology giants Facebook, Alphabet, Apple, Amazon and Twitter are reporting quarterly results.
By Arvind Bhunjun; [email protected]
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