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(Alliance News) - Stock prices in London are set to open flat on Thursday after mixed trading in Asia overnight following disappointing Chinese manufacturing data.
In early company news, Lloyds Banking saw its quarterly results knocked by a PPI provision, International Consolidated Airline's third-quarter results were dented by strike action, and Smith & Nephew upgraded annual revenue guidance again. Shell warned of the difficulty of continuing to buyback shares while also reducing its debt.
IG says futures indicate the FTSE 100 index of large-caps to open 0.38 of a point lower at 7,330.4 on Thursday. The FTSE 100 index closed up 0.3% at 7,330.78 on Wednesday.
"Asian markets traded on a mixed sentiment on Thursday amid the Chinese PMI data showed a faster contraction in the manufacturing sector in October," said Ipek Ozkardeskaya at London Capital Group.
Ozkardeskaya added: "But Chinese PMI figures tend to stagnate in October due to a week-long Golden Week break. Hence the October data should be taken with a pinch of salt."
Chinese factory activity contracted for a sixth-straight month in October, data showed, as the key manufacturing sector suffers under the weight of a slowing domestic economy and the long-running US trade war.
The figures are the latest to highlight a slowdown in the world's number two economy, which in the third quarter expanded at its slowest rate for nearly three decades.
The closely watched Purchasing Managers' Index, a key gauge of activity in the country's factories, fell to 49.3 last month, the National Bureau of Statistics said. This was well short of forecasts of 49.8 and also down from September's figure of the same amount. China's official PMI has fallen below the 50 mark that separates growth and contraction every month since April.
In Asia on Thursday, the Japanese Nikkei 225 index closed up 0.4%. In China, the Shanghai Composite ended down 0.4%, while the Hang Seng index in Hong Kong is trading up 0.8%.
The mixed equities trading in Asia came despite news that top US and Chinese trade negotiators will talk again on Friday.
US President Donald Trump said Monday he expected a "phase one" trade deal with Beijing to be signed on the sidelines of the November summit in Chile, after an 18-month trade impasse between the two economic giants.
But Chile's President Sebastian Pinera announced Wednesday his country could no longer host the event, due to violent unrest in the city.
Nonetheless, the Chinese commerce ministry said the two sides "will continue to push forward negotiations and other work according to the original plan", adding that leaders from both sides will hold another call Friday, a week after senior officials last spoke over the phone. The White House said later on Wednesday that Trump still hopes to sign a trade deal with his Chinese counterpart Xi Jinping in coming weeks.
In the US on Wednesday, Wall Street ended in the green, with the Dow Jones Industrial Average ending up 0.4%, the S&P 500 up 0.3% and Nasdaq Composite also gaining 0.3%.
As expected, the US Federal Reserve cut its benchmark interest rates on Wednesday.
The Federal Open Market Committee set the treasury yield range to between 1.50% and 1.75%, down from the 1.75% to 2.00% range prior.
"This action supports the Committee's view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2% objective are the most likely outcomes, but uncertainties about this outlook remain," the FOMC said in a statement.
The central bank added that the labour market remained "strong" since the last FOMC meeting in September and economic activity had been rising at a "moderate" rate.
UBS commented: "Our call for more cuts next year is predicated on a slump in the first half of next year, driven by the tariffs already in place this year. Given that our forecast is substantially weaker than the Fed's, this press conference is consistent with our view; the FOMC thinks that they are on hold, but deterioration in the data will get them to cut again."
In the economic calendar on Thursday, eurozone GDP, CPI and unemployment rate data all are at 1000 GMT. In the US, jobless claims figures are printed at 1230 GMT ahead of the Chicago PMI at 1345 GMT.
In early UK company news, Royal Dutch Shell said it may not be able to reduce debt as planned and keep on with its share buyback programme.
Shell is looking to reduce gearing to 25% by 2020. At the end of September, it stood at 27.9%, higher than the 27.6% at the end of June and 23.1% a year before.
The oil major, London's largest listed company, has kept the dividend for the third quarter at 47 US cents, the same as the prior quarter, and also announced a new USD2.75 billion buyback, as it looks to return USD25 billion to shareholders.
Chief Executive Ben van Beurden commented: "Our intention to buy back USD25 billion in shares and reduce net debt remains unchanged.
"The prevailing weak macroeconomic conditions and challenging outlook inevitably create uncertainty about the pace of reducing gearing to 25% and completing the share buyback programme within the 2020 timeframe."
Shell's CCS earnings, its preferred profit metric, excluding items was USD4.92 billion for the third quarter, 15% lower year-on-year.
Also reporting early Thursday, Lloyds Banking Group said it made "strong strategic progress" in the third quarter, though its results were dented by an additional payment protection insurance charge.
Net interest income for the three months to September 20 was down 2% to GBP3.13 billion, with net income down 6% to GBP4.19 billion.
The lender's pretax profit sank to just GBP50 million from GBP1.82 billion a year ago as it took a GBP1.80 billion provision for PPI claims in the quarter, with no such charge booked in the prior period.
This PPI provision was "driven by an unprecedented level of PPI information requests received in August", said Chief Executive Antonio Horta-Osorio.
"However, our performance continues to demonstrate the resilience of our customer franchise and business model, the strength of our balance sheet and that our strategy is the right one in this environment," he added.
Looking ahead, Lloyds is aiming for a net interest margin of 2.88% for 2019, in line with previous guidance of around 2.90%. Operating costs are now expected to be less than GBP7.9 billion, ahead of previous guidance, and its cost-to-income ratio lower than in 2018.
"Although continued economic uncertainty could further impact the outlook, the group remains well positioned with the right strategy to continue delivering for customers and shareholders," said Lloyds.
Telecommunications firm BT said it delivered an in-line set of results for the first half of its financial year, and backed its annual outlook.
Revenue for the half year to September 30 dipped to GBP11.47 billion, down from GBP11.59 billion a year ago. Pretax profit was largely unchanged at GBP1.33 billion from GBP1.34 billion.
BT declared an interim dividend of 4.62p per share, flat on what it paid out a year ago.
"We've invested to strengthen our competitive position. We've accelerated our 5G and FTTP rollouts, introduced an enhanced range of product and service initiatives for both consumer and business segments, and announced price and technology commitments to deliver fair, predictable and competitive pricing for customers," said Chief Executive Philip Jansen.
"We continue to make progress on the BT modernisation agenda, delivering over GBP1.1bn in annualised cost savings, and announcing locations in our Better Workplace Programme," he added.
British Airways parent International Consolidated Airlines reported growth in third-quarter revenue but profit took a hit from British Airways strike action.
Revenue for the three months to September 30 was EUR7.31 billion, up 2.4% from EUR7.14 billion a year ago. Pretax profit, however, slipped 9% to EUR1.26 billion from EUR1.38 billion.
Results in the third quarter were hit by cancellations relating to industrial action by BALPA pilots and by other disruption, said IAG, causing a hit to profit of EUR155 million.
Passenger unit revenue for the quarter was down 0.5%, and down 1.1% at constant currency. Non-fuel unit costs before exceptional items for the quarter were up 0.5%, and 1.% higher at constant currency on a pro forma basis.
"In quarter 3 we're reporting an operating profit of EUR1,425 million before exceptional items, down from EUR1,530 million last year. These are good underlying results. As we said in September, our performance has been affected by industrial action by pilots' union BALPA and other disruption including threatened strikes by Heathrow airport employees," said Chief Executive Willie Walsh.
"In addition, our fuel bill increased by EUR136 million during the quarter with fuel unit costs up 4.2% at constant currency," he added.
Looking ahead, IAG reaffirmed prior guidance, expecting operating profit for 2019, before exceptional items, to be EUR215 million lower than the EUR3.49 billion achieved in 2018. Passenger unit revenue is expected to be slightly down at constant currency and non-fuel unit costs are expected to improve at constant currency.
Smith & Nephew once again upgraded its revenue growth guidance after a "strong" performance in the third quarter.
Third quarter revenue was up 4.0% on an underlying basis, with growth growth 6.5%. Orthopaedics delivered 3.4% revenue growth, while Sports Medicine & ENT delivered 6.9% and Advanced Wound Management 2.1%.
For the first nine months of 2019, underlying revenue growth was 3.9%.
Looking ahead, Smith & Nephew expects underlying revenue growth for 2019 around 3.5% to 4.5%. This is an upgrade from previous guidance, given in July, of a 3.0% to 4.0% range. This July guidance, in turn, had been lifted from a 2.5% to 3.5% forecast range.
"We've built momentum across the first nine months of the year and, at the same time, continued to invest behind our commercial teams and acquisitions to support sustained success over the medium-term. As a result, we're confident to increase 2019 revenue guidance again," said Chief Financial Officer Graham Baker.
At the same time, Smith & Nephew said it now expects a trading profit margin of around 22.8%. This is at the lower end of the previously guided range, the firm noted, though a 40 basis point improvement over 2018.
"This reflects our decision to continue to invest in opportunities to support medium-term growth, dilution from the acquisitions, and a small foreign exchange headwind in the second half of 2019," S&N said.
By Lucy Heming; lucyheming@alliancenews.com
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