5th May 2022 07:55
(Alliance News) - Stock prices in London were seen opening higher on Thursday, tracking gains in US equity markets overnight, after the US Federal Reserve played down chances of a large interest rate hike in the near future.
In early UK company news, oil major Shell reported bumper first-quarter earnings and raised its dividend. Defence contractor BAE Systems reiterated annual guidance. Industrial turnaround specialist Melrose Industries said growth returned to its Aerospace business.
IG futures indicate the FTSE 100 index will open 89.55 points higher at 7,583.00. The index closed down 67.88 points, or 0.9%, at 7,493.45 Wednesday.
Shell reported a substantial rise in first-quarter earnings due to the surging price of oil, even as it joined energy peers in taking a write-down from exiting Russia following the invasion of Ukraine.
For the the three months to March 31, income attributable to shareholders was USD7.12 billion, up 26% from USD5.66 billion in the first quarter last year. Current cost of supply earnings attributable to shareholders for the first quarter was USD5.02 billion, up 15% from USD4.35 billion.
Shell explained income attributable to shareholders reflected post-tax charges of USD3.9 billion related to the phased withdrawal from Russian oil and gas activities.
The oil major posted adjusted earnings of USD9.1 billion, nearly tripled from USD3.23 billion the year before. First quarter cash flow from operating activities was USD14.82 billion, up nearly 80% from USD8.29 billion.
Turning to returns, Shell raised its first quarter dividend by 47% to USD0.25 per share from USD0.17 a year ago.
"Generating value through strong earnings and cash flow, coupled with maintaining a healthy balance sheet and continuing the disciplined delivery of our strategy, are crucial for Shell to play a leading role in the energy transition. This allows us to support our customers as they shift to cleaner energy. It's also the best way for us to contribute to the security of energy supplies," said Chief Executive Ben van Beurden.
"Today's results, the progress we are making with our USD8.5 billion share buyback programme and the reduction of our net debt to USD48.5 billion all show we remain on track, and give us the confidence to plan future shareholder distributions and disciplined investments that will accelerate our strategy," added van Beurden.
Rival BP on Tuesday had said it swung to a first-quarter loss due to its decision to exit from its shareholding in Rosneft in response to Moscow's invasion of Ukraine; however on an underlying basis, BP reported a big jump in profit.
The bumper first-quarter profits on the back of soaring commodity prices has fuelled calls for a one-off windfall tax on oil and gas companies by some UK politicians to help households deal with rising energy bills. A windfall tax is a one-off tax imposed on a company or group of companies and was introduced by Tony Blair's Labour government in 1997.
BAE Systems said trading in the first quarter was in line with expectations with strong order intake and good operational performance being maintained.
Ahead of its annual general meeting, the Farnborough-based firm said it continues to expect a strong year of order intake and order flow to date has been positive especially on its long-term programmes.
BAE Systems said its 2022 guidance unchanged from its annual results in February with sales expected to be up 2% to 4%. Underlying earnings before interest and tax are seen up 4% to 6%, also unchanged from prior guidance.
"Looking forward, our diverse portfolio, together with our focus on programme execution, cash generation and efficiencies, are helping us to navigate the challenging operating environment in the near term, while positioning us well for sustained top line and margin growth in the coming years, alongside accelerating our ESG agenda. Additionally, we see opportunities to further enhance the medium- term outlook as our customers address the elevated threat environment," said CEO Charles Woodburn.
Melrose Industries, which also is holding its AGM on Thursday, said trading for the four months to April 30 is in line with expectations for the year.
The industrial turnaround specialist said that, consistent with industry trends, its Aerospace division was experiencing continued growth, with like-for-like sales up 6%. The Automotive and Powder Metallurgy divisions remain constrained by supply, with combined like-for-like sales down 4%, significantly below underlying consumer demand levels, Melrose noted.
"Your group continues to make good progress whilst dealing with the broader world challenges. We are increasingly seeing growth return to our Aerospace business, which is being rapidly well positioned for its future, and are confident of demonstrating the full quality of our largely restructured automotive businesses. We are well set to realise shareholder value as conditions improve," said CEO Simon Peckham.
In the US on Wednesday, Wall Street ended sharply higher, with the Dow Jones Industrial Average up 2.8%, S&P 500 up 3.0%, and Nasdaq Composite up 3.2%.
Fed Chair Jerome Powell said more half-point interest rate hikes will be on the table at forthcoming meetings after the central bank on Wednesday lifted interest rates by 50 basis points, as expected.
This was the first time the US central bank has hiked rates by a half-point at one meeting since 2000, and takes the federal funds rate to now stand at 0.75% to 1.00%.
However, on the prospect of an even chunkier 75 basis point hike, Powell said it is not something the central bank is "actively considering".
The Fed also decided to start reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at the start of June.
CMC Markets analyst Michael Hewson said the policy stance "was much less aggressive than some of the more hawkish scenarios that the markets had feared".
In Asia on Thursday, the Shanghai Composite was up 0.7%, while the Hang Seng index in Hong Kong was up 0.5%. The S&P/ASX 200 in Sydney ended up 0.8%. Financial markets in Tokyo were closed on Thursday for the Children's Day holiday.
China's private sector continued to contract in April, with the return of Covid restrictions leading to a plunge in demand in both the manufacturing and services sectors, survey data from Caixin and S&P Global showed.
The Caixin services purchasing managers' index fell to 36.2 points in April from 42.0 in March, marking the sharpest drop in activity since the virus first appeared in February 2020.
Overall, China's private sector declined to its second lowest level on the survey's record, with the composite index falling to 37.2 points in April from 43.9 in March, as Covid-19 restrictions place a stranglehold on demand and new business activity.
The pound was quoted at USD1.2544 early Thursday, up from USD1.2501 at the London equities close Wednesday, ahead of a Bank of England interest rate decision at midday.
Markets overwhelmingly expect the BoE to hike rates for the fourth meeting in a row, which would bring Bank Rate to 1.00% - a level it has not stood at since 2009.
The euro was priced at USD1.0601, higher against USD1.0560. Against the yen, the dollar was trading at JPY129.46 in London, down from JPY129.93.
Brent oil was quoted at USD110.65 a barrel Thursday morning, up from USD108.55 late Wednesday. Gold stood at USD1,898.74 an ounce, higher against USD1,866.98.
Thursday's economic calendar has UK services PMI at 0930 BST and the latest US jobless claims numbers at 1330 BST.
By Arvind Bhunjun; [email protected]
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