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(Alliance News) - Stocks in London on Tuesday were set to extend the previous session's impressive gains as the pound continued to slide on Brexit worries and markets awaited the opening bell on Wall Street after a long weekend in the US.
In early UK company news, JD Sports Fashion posted a fall in interim profit and reinstated full-year guidance, Experian upped its second quarter outlook. easyJet slammed the UK government's travel quarantine rules for harming customer confidence.
IG says futures indicate the FTSE 100 index of large-caps to open 7.20 points higher at 5,944.60 on Tuesday. The FTSE 100 closed up 138.32 points, or 2.4%, at 5,937.40 on Monday.
Sterling was quoted at USD1.3143 early Tuesday, lower than USD1.3170 at the London equities close on Monday.
The UK demanded "more realism" from the EU ahead of crucial post-Brexit trade talks on Tuesday, but the mood was soured by reports that London was looking to rewrite an agreement the two sides had already signed.
UK Prime Minister Boris Johnson's chief negotiator, David Frost, said "we must make progress this week" if an agreement is to be reached by the end of a post-Brexit transition period in December.
For that, "we need to see more realism from the EU about our status as an independent country", he said ahead of Tuesday's talks with the EU's Michel Barnier in London.
Talks have been deadlocked for months over issues such as the extent of EU access to UK fishing waters, state aid, and fair competition rules. Both sides say a deal must be agreed by a mid-October EU summit. But there was concern in Brussels after the Financial Times reported Johnson planned to legislate to override parts of the Withdrawal Agreement struck before Britain left the EU in January.
Stephen Innes, chief global markets strategist at AxiCorp, said: "While the base case remains for a deal to be struck, given the non-willingness to back down and the UK government's argumentative tone since before the summer, the tail risk of no-deal Brexit is high."
The euro traded at USD1.1819 early Tuesday, soft against USD1.1824 late Monday. Against the yen, the dollar was slightly lower, quoted at JPY106.23 versus JPY106.28.
Japan's economy shrank slightly more than initially thought in the April-June quarter, official data showed, deepening a contraction that was already the worst in the nation's modern history.
The world's third-largest economy shrank 7.9% in the second quarter of this year from the previous quarter, more than the initial 7.8% in the preliminary data, the Cabinet Office said. The latest headline figure was modestly better than market consensus of an 8.0% contraction, but it is the worst figure for Japan since comparable data became available in 1980, beyond the brutal impact of the 2008 global financial crisis.
The Japanese Nikkei 225 index closed up 0.8% Tuesday. In China, the Shanghai Composite is up 0.8%, while the Hang Seng index in Hong Kong is 0.3% higher. Â
"With US markets closed [Monday], the gentle move higher by US stock index futures, and a lack of negative headlines, has been for Asia to follow suit this morning cautiously," said Jeffery Halley, senior market analyst for Asia Pacific at Oanda.
He added: "The session is likely to be a directionless one, and at the mercy of short-term moves in US index futures, as the street awaits the return of Wall Street this afternoon."
Wall Street futures were looking largely positive, with the Dow Jones and S&P pointed up 0.7% and 0.4% respectively, but the tech-heavy Nasdaq called down 0.4%. Financial markets in the US will reopen on Tuesday after being closed on Monday for the Labor Day holiday.
In early UK company news, JD Sports Fashion it was "reassured" by its performance in the first half.
Revenue for the half-year ended August 1 came in at GBP2.54 billion, down 6.6% from GBP2.72 billion a year ago. Pretax profit slumped to GBP41.5 million from GBP129.9 million.
JD Sports said the reduction in profitability was due to additional costs associated with the shift in revenue to online channels, particularly during the period of temporary store closures.
"Given the unique circumstances of this trading period, we are reassured by the strength of the JD brand as demonstrated by the retention of more than 90% of the total revenues. However, it should be recognised that this has necessitated additional costs principally relating to the provision of enhanced health and safety measures, in all areas of the business, together with increased costs of online fulfilment, including performance marketing," said Executive Chair Peter Cowgill.
The retailer added that it is "generally encouraged" with its performance post-lockdown, though noted that retail footfall remains comparatively weak.
JD Sports said it is appropriate to reinstate guidance for the full-year.
"Assuming a prudent but realistic set of assumptions for the peak trading period that reflect an uncertain outlook for consumer confidence, the ongoing challenges of attracting footfall to stores and the potential for further operational restrictions; we would presently anticipate delivering a headline profit before tax for the full year of at least GBP265 million when calculated under IFRS 16 'Leases'," the retailer said.
Experian raised its second-quarter guidance after stronger trading in July and August.
The credit checking firm now expects organic revenue growth for the quarter in a range of 3% to 5%, helped by further strength in its US mortgage business. This had previously been guided to a range of flat to down 5%.
With "continued investment in our innovation agenda", Experian now expects organic growth in costs of between 2% and 3% for the first half, having been previously guided to being held broadly flat.
Industrial equipment rental company Ashtead said it posted a "resilient" first quarter performance during the Covid-19 crisis.
Revenue fell 6% to GBP1.20 billion and pretax profit was down 37% to GBP192.4 million.
While trading volumes were lower than last year as a result of the pandemic, Ashtead said, this was offset to some extent by emergency response efforts.
"In these challenging markets, the group delivered a strong quarter with rental revenue down only 8% at constant exchange rates. This resilient performance illustrates the successful execution of our long-term strategy, which we embarked upon after the last recession, to broaden and diversify our end markets and strengthen our balance sheet," said Chief Executive Brendan Horgan.
Assuming no significant second wave of Covid-19 infections, Ashtead expects rental revenue to be down mid to high single digits on a constant currency basis for the full-year.
DS Smith said it has performed in line with expectations since the start of May, despite the challenges thrown up by Covid-19.
The packaging firm said its like-for-like corrugated box volume performance has improved over the period since the initial impact of Covid-19, and in August there was a return to positive year-on-year growth.
Its operations in northern Europe have continued to perform well, while there has been "pleasing recovery momentum" in southern and eastern Europe since May. DS Smith added that it is "encouraged" by the progress in North America.
"While the macro-economic outlook remains challenging, we are pleased to see volume growth in August and the reduced OCC costs. Our customer focus, strong cost control, cash generation, and liquidity profile, together with continued performance in line with our expectations, gives us confidence for the future," said Chief Executive Miles Roberts.
easyJet said it expects to fly slightly less than the 40% of planned capacity previously touted for the fourth quarter due to the UK's travel quarantine measures.
"Due to the constantly evolving government restrictions across Europe and quarantine measures in the UK, including yesterday's announcements that removed seven Greek islands from the exemption list, customer confidence to make travel plans has been negatively affected," easyJet said.
In response to this reduced demand for travel, easyJet expects to fly "slightly less" than the 40% of planned capacity for the fourth quarter that was flagged previously.
The airline added that it "would not be appropriate" to maintain any forward looking financial guidance, for the 2020 and 2021 financial years, at this time.
easyJet Chief Executive Johan Lundgren said: "We know our customers are as frustrated as we are with the unpredictable travel and quarantine restrictions. We called on the government to opt for a targeted, regionalised and more predictable and structured system of quarantine many weeks ago so customers could make travel plans with confidence."
"It is difficult to overstate the impact that the pandemic and associated government policies has had on the whole industry. We again call on the government to provide sector specific support for aviation," Lundgren added.
Gold was quoted at USD1,931.71 an ounce early Tuesday, flat on USD1,929.44 on Monday. Brent oil was trading at USD41.98 a barrel, slipping from USD42.10 late Monday.
The economic events calendar on Tuesday has eurozone GDP readings at 1000 BST.
By Lucy Heming; lucyheming@alliancenews.com
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