(Alliance News) - London's FTSE 100 is called to open lower on Thursday, in the aftermath of Wednesday's budget and US data.
A US economic growth reading was weaker than expected, but consumer spending stronger. The quarter-on-quarter core personal consumption expenditures inflation gauge for the third-quarter of the year was hotter than expected, but the headline PCE reading fell below 2%.
"With the current data that we have in hand, some investors now argue that the Fed already achieved the soft landing that it was dreaming of. As such, the US dollar was weaker yesterday because the softening price pressures could allow the Fed to continue its rate cuts, but the downside remained limited because the data suggests that the cuts could be moderated. The ADP report showed yesterday that the US economy added 233,000 new private jobs last month, more than the double of 110,000 expected by analysts and was stronger than the number printed a month earlier. Of course, Friday's official data will say the last word," Swissquote analyst Ipek Ozkardeskaya added.
US data remains in focus on Wednesday, with the September personal consumption expenditures reading due at 1230 GMT.
On Wednesday, UK Chancellor Rachel Reeves announced changes to employers' national insurance, which she said would raise as much as GBP25 billion as part of a GBP40 billion package to stabilise the UK's public finances.
Commerzbank analyst Ulrich Leuchtmann commented: "There was visibly a lot of volatility in the gilt market, the market for British government bonds, and in the foreign exchange market in GBP rates. No wonder. Everyone still remembers that in 2022, the then Tory government under Liz Truss triggered a rather spectacular collapse in the gilt market with its budget plan."
In early UK corporate news, Shell reported a weaker third-quarter but announced a new buyback. Coca-Cola HBC lifted guidance, but Spectris, Kainos and Smith & Nephew cut their outlooks.
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: called down 0.4% at 8,129.83
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Hang Seng: up 0.1% at 20,409.26
Nikkei 225: down 0.5% at 39,081.25
S&P/ASX 200: down 0.3% at 8,160.00
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DJIA: closed down 91.51 points, 0.2%, at 42,141.54
S&P 500: closed down 0.3% at 5,813.67
Nasdaq Composite: closed down 0.6% at 18,607.93
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EUR: lower at USD1.0859 (USD1.0863)
GBP: lower at USD1.2983 (USD1.3003)
USD: lower at JPY152.52 (JPY153.03)
GOLD: lower at USD2,784.13 per ounce (USD2,786.80)
OIL (Brent): higher at USD72.22 a barrel (USD72.17)
(changes since previous London equities close)
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ECONOMICS
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Thursday's key economic events still to come:
10:00 GMT eurozone unemployment
10:00 GMT eurozone CPI
10:00 GMT UK Bank of England Deputy Governor Sarah Breeden speaks
12:30 GMT US personal consumption expenditures
12:30 GMT US initial jobless claims
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Rachel Reeves will face further questions about her budget after announcing GBP40 billion a year in extra taxes to pour money into schools, hospitals, transport and housing. The chancellor is expected to make a visit related to the budget on Thursday with Keir Starmer as MPs debate the measures in the Commons and think tanks present further analysis. Reeves said Labour's first budget since 2010 would be a one-off to "wipe the slate clean", but the head of the influential economics think tank the Institute for Fiscal Studies warned that more tax rises could come if Labour's planned growth does not materialise. Despite Labour's promises to protect "working people", a GBP25.7 billion increase in national insurance contributions paid by employers is likely to reduce wages and lead to job losses. The overall tax burden will reach a record 38.3% of gross domestic product in 2027-28, the highest since 1948 as the UK recovered from the impact of the Second World War. And changing the way government debt is measured allows the chancellor greater flexibility to borrow, resulting in what the Office for Budget Responsibility called "one of the largest fiscal loosenings" in recent decades. The tax hikes and increased borrowing allow Reeves to provide a GBP22.6 billion increase in the day-to-day health budget as well as a GBP3.1 billion increase in the capital budget, which she called the "largest real-terms growth in day-to-day NHS spending outside of Covid since 2010".
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BROKER RATING CHANGES
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HSBC raises Burberry to 'buy' - price target 1,000 pence
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RBC cuts Close Brothers price target to 435 (540) pence - 'outperform'
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COMPANIES - FTSE 100
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Shell announced it will kick off a USD3.5 billion share buyback but it reported a decline in quarterly earnings on softer refining margins. Total revenue in the third-quarter of 2024 fell 7.1% on-year to USD72.46 billion from USD78.01 billion, sending its pretax profit 36% lower to USD7.27 billion from USD11.29 billion. Adjusted earnings before interest, tax, depreciation and amortisation fell 2.0% to USD16.01 billion from USD16.34 billion. Shell said it grappled with "lower crude prices and weaker refining margins". It noted a "strong operational performance in Integrated Gas, Upstream and Marketing", however. Shell announced a USD0.3440 dividend per share for the third-quarter, in line with the second-quarter's, and up 3.9% on-year from USD0.3310. Shell announced a USD3.5 billion buyback which is expected to be completed by its fourth-quarter results announcement.
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Soft drink bottler Coca-Cola HBC hailed "another quarter of strong organic revenue growth" and it raised its outlook. Coca-Cola HBC now expects organic revenue growth between 11% and 13% for 2024, its outlook improved from the prior 8% to 12% growth range. Organic earnings before interest and tax are to rise between 10% and 12%, the bottom end of that range lifted from 7%. "We have delivered a strong performance in the first nine months of the year, in mixed markets. We expect the macroeconomic and geopolitical backdrop to remain challenging, but we have high confidence in our 24/7 portfolio, bespoke capabilities and the opportunities for growth in our diverse markets," the company said. The firm, which operates in nations including Italy, Greece, Ireland and Switzerland, said in a trading update that net sales revenue rose 8.9% in the third-quarter of the year. On an organic basis, it surged 14%. Volumes rose 4.1% on an reported basis, 4.0% organically.
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Medical devices maker Smith & Nephew cut its yearly outlook, due to headwinds in China. Its underlying revenue growth prediction was lowered to "around 4.5%", from a range of 5.0% to 6.0%. It expects trading profit margin growth of "up to 50 basis points" from the prior year's 17.5%. It had previously expected an outcome of "at least 18.0%". The new guidance reflects "the reduced operating leverage from slower revenue growth". In a trading statement, it said revenue for the third-quarter to September 28 grew 4.0% on both an underlying and reported basis to USD1.41 billion from USD1.36 billion a year prior. Stripping out China, growth was 5.9%, however. The firm said China was "impacted by worse than expected headwinds across our surgical businesses". Chief Executive Officer Deepak Nath said: "China VBP was a significant headwind that masked Sports Medicine's strong performance across the rest of the world. Advanced Wound Management delivered its best quarter this year, with all segments performing well."
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Grocer Sainsbury's said it will sells its Argos Financial Services card portfolio to consumer credit company NewDay Group in a GBP720 million deal. The sum is "broadly in line with the expected net value of loan balances and associated provisions at the end" at the end of the first-quarter of next year, when the deal is to be completed. "Sainsbury's is also pleased to announce the creation of a partnership with NewDay to create a new Argos-branded digital credit proposition. This will, in time, replace the current Argos card credit propositions with a wider choice of modern, flexible and more convenient ways for customers to manage the cost of purchases," Sainsbury's said. The Argos online and catalogue retail chain has been owned by Sainsbury's since 2016. The Argos Financial Services cards "support around 20% of Argos sales and are held by around two million Argos customers". NewDay provides consumer credit in the UK through the Aqua and Fluid brands. Sainsbury's added: "We expect the combination of commission income from insurance, travel money and ATMs alongside income from the NewDay partnership to deliver sustainable annual income from financial services of at least GBP40 million to Sainsbury's in the financial year to March 2028."
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COMPANIES - FTSE 250
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Spectris said tough market conditions continued in the third-quarter of the year. The provider of instruments, test equipment, and software for industrial applications said it has particularly suffered from "continued softness in China". "Against this backdrop, we have increased and accelerated cost reduction activities to improve the group's productivity and drive profitability. This decisive action on cost, and a strong focus on executing our strategy, means the group is well placed to benefit as our end markets recover," CEO Andrew Heath said. Spectris now expects full-year adjusted operating profit of around GBP200 million. In its half-year results, it predicted an outcome in line with consensus at the time of GBP225.1 million. "While our third quarter performance indicates markets have stabilised, the recovery anticipated at the time of our half year results is taking longer to materialise," the firm cautioned. Like-for-like orders in the third-quarter were 6% lower, and sales were down 10%. The firm expects to deliver GBP50 million in "full run rate benefits" from a restructuring, with GBP30 million to be delivered in 2025. The restructuring measures include efficiency savings, cost synergies from acquisitions and the "crystallisation of the benefits associated with the implementation of our new [enterprise resource planning] system".
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Kainos expects to deliver annual revenue "moderately below current market consensus" as it struggles with a tough market environment and delays in client decision-making. The IT service company, a partner of New York-listed Workday, believes revenue for the year ending March 31 will be below company-compiled consensus range of GBP375.5 million to GBP392.0 million. Kainos added: "Whilst the Workday Products business continues to grow very strongly, our Digital Services and Workday Services divisions continue to be affected by the macro-economic environment and related delays in client decision-making. Considering these factors, the board has moderated its expectations." Kainos had warned on revenue last month also. At the time, it put market consensus for revenue at GBP415.5 million.
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OTHER COMPANIES
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BHP clarified comments made by its chair at the miner's annual general meeting, suggesting they should not be interpreted as a sign that the firm no long intends to make an offer for smaller peer Anglo American. Chair Ken MacKenzie said at the miner's annual general meeting in Brisbane on Wednesday that BHP believed the two companies could have created "something unique and special". He described a BHP-Anglo tie-up as a "one plus one equals three opportunity". "Unfortunately, Anglo American shareholders had a different view, and they thought there was more value in the plan that their management wanted to execute. And so they moved on. And quite frankly, so have we," MacKenzie added. "The UK Takeover Panel Executive has confirmed that the comments made will not be treated as a statement of intention not to make an offer in respect of Anglo American," BHP explained on Thursday. BHP's pursuit of Anglo American was rebuffed in May. UK takeover rules mean BHP is now unable to make another approach for Anglo American until late-November. That would be six months after it said in May that it did not intend to make a firm offer for Anglo.
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Siemens plans to acquire Altair Engineering for approximately USD10 billion as part of its plan to strengthen its software business, the company announced on Wednesday. The Munich-based conglomerate signed an agreement the Michigan-based firm that would give Altair shareholders USD113 per share. The acquisition is expected to be completed by year's end. Altair, with some 3,500 employees, provides industrial software for companies in sectors such as aerospace, automotive, and energy, as well as in financial services. The demand for this software is expected to increase with the growing prevalence of artificial intelligence in everyday life, forecasts show. Roland Busch, Siemens chief executive and president, called it a "significant milestone" for the company.
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By Eric Cunha, Alliance News news editor
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