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(Alliance News) - Stock prices in London are set to start the new month slightly higher on Wednesday, with a slew of manufacturing PMI readings for June in focus.
In early UK corporate news, Sainsbury's first quarter was boosted by digital sales, Smith & Nephew continues to expect sharp falls in revenue, and Babcock has found a new boss.
IG futures indicate the FTSE 100 index is to open points 2.36 points higher at 6,172.10 on Wednesday. The blue-chip index closed down 56.03 points, or 0.9%, at 6,169.74 on Tuesday.
"European stocks underwent a rather mixed end to the quarter yesterday, but still managed to post their best quarter in five years, though it does need to be set in the context of coming off the worst Q1 since the financial crisis," CMC Markets analyst Michael Hewson said.
He continued: "Investors appear to be caught in two minds for the moment, with optimism about a continued improvement in economic data on the one hand, being offset by some caution on the other over the prospect that any second wave could push out any recovery well into next year. The continued rise in US coronavirus cases appears to be being pushed to one side for now, despite dark warnings from Anthony Fauci, the director of the National Institute of Allergy & Infectious Diseases, that cases could soar to 100,000 a day. This could change if death rates start to follow suit, which in turn could see current sentiment take a turn for the worst."
The Japanese Nikkei 225 index closed down 1.0%. In China, the Shanghai Composite is 0.5% higher, while the Hong Kong market is shut for holiday on Wednesday.
The Chinese manufacturing sector improved in June, the second month in a row of improvement according to IHS Markit data on Wednesday.
The headline Caixin seasonally adjusted purchasing managers' index, a composite indicator intended to provide a snapshot of the manufacturing economy's operating conditions, stood at 51.2 in June compared to 50.7 in May. This represented a second consecutive month of improvement in the sector.
Both June and May were above the 50-point mark that separates growth from contraction.
Chinese manufacturers said they had experienced "increased production for the fourth month running in June" as they kept on recovering from shutdowns and restrictions in the wake of the Covid-19 pandemic.
The rate of output growth has softened compared to May but was "solid overall" and "new orders expanded for the first time since January, albeit modestly".
Wang Zhe, senior economist at Caixin Insight Group said: "Overall, the manufacturing sector continued to recover in a post-epidemic period, and both supply and demand improved. Around mid-June, the epidemic flared back up in some parts of China, but its impact on the overall economy was limited. The gauge for future output expectations continued to rise in June, reflecting manufacturers' confidence that there would be a further relaxation of epidemic controls and a normalisation of economic activities."
In Japan, the manufacturing sector improved slightly in June compared to May but remained firmly in contraction territory, data from IHS Markit showed.
The headline au Jibun Bank purchasing managers' index edged higher at 40.1 in June compared to May's 38.4. Nonetheless, it remained below the 50 mark and so well within contraction territory - a reading above 50 would have meant expansion.
Close to half the survey panel, 48%, recorded a drop in production while only 13% expanded output during the month.
Joe Hayes, economist at IHS Markit, said: "The chance of a V-shape recovery in the manufacturing sector appears slim at this stage, which opens up the possibility of a two-speed economy if the domestic-focused service sector shows more signs of activity."
In London, FTSE 100-listed supermarket Sainsbury's said it saw "strong" grocery and Argos sales in its first quarter. Grocery sales rose 11% year on year, with general merchandise - including Argos sales growing 11% - advanced 7.2%.
Sainsbury's also noted its digital sales more than doubled in the quarter.
Holding back group sales, however, was a 27% drop in clothing sales.
As a result, total retail sales were 8.5% higher, with like-for-like sales growing 8.2% - both excluding fuel.
Chief Executive Simon Roberts said: "Our business has changed fundamentally from four months ago. We have more than doubled our weekly sales of online groceries in recent weeks, SmartShop now accounts for more than half of sales in some supermarkets and Argos sales were strong while operating as an online-only business for almost twelve weeks.
"Warm weather boosted food sales and sales in seasonal categories in Argos, but sales of clothing and fuel and trading in city centre Convenience stores were all significantly down year on year as a result of lockdown."
Looking ahead, Sainsbury's said it will remain "cautious" but expects a further weakening of consumer spending.
"It remains impossible to predict the full nature, extent and duration of the impact of Covid-19 on sales and costs. Our base case scenario continues to underpin an expectation of broadly unchanged group underlying profit before tax for the full year," the supermarket added.
Blue-chip medical devices firm Smith & Nephew said it expects a sharp drop in revenue in the second quarter.
The company expects second-quarter underlying revenue to plunge 29%. But, Smith & Nephew noted, this is in line with internal expectations.
Smith & Nephew said it was "encouraged" by its improving performance as the quarter progress - with underlying revenue declines of 47% in April, 27% in May, and around 12% in June.
"Performance was correlated strongly with the easing of lockdown restrictions and resumption of elective surgeries. Nevertheless, there continues to be significant uncertainty and geographical variation," the company said.
Smith & Nephew added: "The impact of the Covid-19 pandemic has been most pronounced on our Orthopaedic Reconstruction, Sports Medicine and ENT businesses, driven by lower levels of elective surgery in the quarter. Our Advanced Wound Management and Trauma businesses have been more resilient."
As a result Smith & Nephew continues to expect its first-half trading margin will be "substantially" down on the prior year.
Midcap aerospace and defence contractor Babcock International has appointed former Cobham CEO David Lockwood as its own chief executive.
Lockwood will replace outgoing Babcock CEO Archie Bethel, who earlier this year announced his intention to retire.
Lockwood will join Babcock's board on August 17 then become CEO on September 14. Prior to running Cobham, he was CEO of Laird.
Liontrust Asset Management has agreed to buy the UK investment business of Architas, a wholly owned subsidiary of French insurer AXA, growing Liontrust's assets under management and administration by GBP5.6 billion.
The deal, worth GBP75 million, will be paid for using a placing of up to 5.1 million new shares and existing company cash resources, Liontrust said.
Chief Executive John Ions said: "The Architas UK investment business is an important strategic acquisition for us to meet the growing demand for investment solutions from advisers and their clients over the next few years. It builds on and complements our existing investment solutions of multi-asset portfolios, Sustainable Managed and equity income funds."
Liontrust's total AuMA after the deal will be about GBP25 billion.
Travel food kiosk operator SSP Group said the Covid-19 pandemic has had an "unprecedented" hit to the travel sector, so it is reorganising its UK business.
Sales in April and May were about 95% below last year. During June, sales recovered "slightly" and are now running at about 90% below last year, with stronger performances in Continental Europe and North America reflecting the gradual easing of lockdowns in these regions offset by the UK and Rest of World, where sales remain below this level.
"The reality is that passenger numbers still remain at very low levels, a reflection of the extent and duration of the current restrictions in place. In the Rail sector, which represents the majority of SSP's UK operations, passenger numbers remain about 85% lower YOY and the UK Air sector has to date been largely closed," SSP said.
SSP expects only about 20% of its UK units will have opened by the autumn.
The company continued: "We have therefore come to the very difficult conclusion that we will need to simplify and reshape our UK business, and we are now starting a collective consultation on a proposed reorganisation. If the pace of the recovery continues at the current level, this could lead to up to about 5,000 roles becoming redundant from within the head office and UK operations. Clearly, these decisions are very difficult, and our priority is to conduct this process fairly and to support those affected."
SSP expects this reorganisation to cost between GBP8 million to GBP10 million.
In the US on Tuesday, Wall Street ended firmly in the green, finishing the second quarter on a strong note despite surging virus cases in the US threatening plans to reopen the economy.
The Dow Jones Industrial Average closed up 217.08 points, or 0.9%, at 25,812.88 - meaning the index gained 18% in the quarter ended June 30.
The S&P 500 ended up 47.05 points, or 1.5%, at 3,100.29 on Tuesday and the Nasdaq Composite finished 184.61 points higher, or 1.9%, at 10,058.77.
The pound was quoted at USD1.2365 early Wednesday, down from USD1.2384 at the London equities close Tuesday.
The euro was quoted at USD1.1223, down from USD1.1246 late Tuesday in London. Against the yen, the dollar was trading at JPY107.62, soft on JPY107.77.
Brent oil was trading at USD41.46 a barrel Wednesday morning, down slightly from USD41.66 a barrel at the London equities close Tuesday. Gold was priced at USD1,784.80 an ounce, higher than USD1,782.27.
The economic calendar on Wednesday has manufacturing PMIs from Germany, the eurozone and the UK at 0855 BST, 0900 BST and 0930 BST, respectively.
German unemployment is at 0855 BST. Followed by US ADP employment is at 1315 BST with an IHS Markit manufacturing PMI at 1445 BST and the ISM's manufacturing data at 1500 BST.
By Paul McGowan; paulmcgowan@alliancenews.com
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