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(Alliance News) - Stock prices in London on Thursday are due to follow Wall Street's slump overnight after the US Federal Reserve warned on an uncertain outlook, and shares in Facebook and Apple fell in the wake of their results.
In a busy morning for UK company news, Diageo lifted its dividend despite profit declining in its first half, easyJet and Wizz Air both reported sharp declines in passenger numbers in the three months to December 31, and St James's Place ended 2020 with record funds under management.
IG says futures indicate the FTSE 100 index of large-caps to open 84.77 points, or 1.3%, down at 6,482.60 on Thursday. The FTSE 100 closed down 86.64 points, or 1.3%, at 6,567.37 on Wednesday.
In the US on Wednesday, Wall Street ended in the red, with the Dow Jones Industrial Average ending down 2.1%, the S&P 500 down 2.6% and Nasdaq Composite closing 2.6% lower.
"Equity markets retreated overnight, and the US dollar rallied, as the FOMC didn't assuage the normalisers and Boeing's poor results sparked a rush for the door," said Jeffery Halley, senior market analyst at Oanda.
Boeing results and the Fed decision were before the New York market close, while Facebook, Apple and Tesla reported after the close.
"The FOMC left rates unchanged as expected but downgraded their outlook due to vaccine delays and risks," said Halley. "Chairman Powell said afterwards that a reduction in quantitative easing was not even a conversation worth having as yet. That is entirely consistent with the Fed's lower for longer mantra, but it seems that the market was looking for something more concrete."
The Federal Open Market Committee on Wednesday decided to keep the target range for the federal funds rate unchanged at 0.00% to 0.25%.
"A resurgence in recent months of Covid-19 cases, hospitalizations and deaths is causing great hardship for millions of Americans and weighing on economic activity and job creation," the central bank chief said, adding the outlook is "highly uncertain".
Boeing reported a significant loss in the fourth quarter as its commercial plane deliveries cratered. In the final three months of 2020, the Chicago-headquartered aerospace firm recorded a net loss of USD8.44 billion, widened significantly from a USD1.01 billion loss the year before.
Oanda's Halley also pointed to disappointing reports overnight from Apple, Facebook and Tesla.
"Even stellar results from Apple and Facebook couldn't lift the malaise. Much of that was probably due to their outlooks, with Apple declining to offer 2021 guidance and Facebook highlighting regulatory risks," said Halley.
Apple kicked off its financial year by notching an all-time revenue record, with iPhone sales alone jumping by nearly 20%. In the three months to December 27, the first of its financial year, total net sales soared 21% to USD111.44 billion, a company record, from USD91.82 billion 12 months earlier. Earnings per share jumped 35% to USD1.68, also beating market forecasts which tipped an EPS of USD1.42.
Apple shares fell 3.3% after-hours in New York.
Facebook - whose shares fell 1.9% post-market - reported fourth-quarter earnings which easily topped market consensus, but the social network site warned of regulatory headwinds in 2021 as well as an advertising revenue hit due to a software update from Apple.
In early UK company news on Thursday, brewer and distiller Diageo managed to post interim organic net sales growth despite virus restrictions hitting bars and restaurants.
Sales for the six months to December 31 edged down 3.6% to GBP10.44 billion from GBP10.83 billion a year ago, with pretax profit falling 11% to GBP2.20 billion from GBP2.46 billion. Organic net sales rose 1.0%, the Smirnoff vodka maker noted, despite a hit to Travel Retail and on-trade restrictions. The on-trade market comprises outlets such as bars, restaurants and clubs, while off-trade is focused on at-home consumption. Travel Retail includes duty-free sales in airports.
"We rapidly pivoted to the channels and occasions most relevant to consumers and invested behind new opportunities. This more than offset the impact of on-trade restrictions and the decline in Travel Retail," Chief Executive Ivan Menezes explained.
Menezes added that North America, Diageo's largest market, performed "particularly strongly and ahead of our expectations".
Diageo said it expects a strong sequential performance improvement in all regions compared to the second half of the 2020 financial year, though anticipates a continued hit from on-trade restrictions and disruption to Travel Retail.
Diageo lifted its interim dividend by 2% to 27.96 pence.
St James's Place reported a "robust" set for results for the final quarter of 2020.
Gross inflows amounted to GBP4.02 billion in the three months to December 31 and net inflows GBP2.29 billion, with closing funds under management GBP129.34 billion, up 11% from GBP116.99 billion at the end of 2019.
For the year, the wealth management firm said, gross inflows of GBP14.33 billion were 5% lower than 2019. Given the operating environment since March, this "bears testament to the resilience of our business".
"We continued to achieve strong retention of client investments in spite of the unprecedented external conditions, resulting in net inflows of GBP8.25 billion, representing 7% of opening funds under management," said Chief Executive Andrew Croft.
"This net investment, together with positive investment returns experienced by our clients, provided for year end funds under management of a record GBP129.34 billion, up 11% over the year," he noted.
easyJet said its first quarter was in line with expectations despite a slump in passengers amid strengthened travel restrictions across Europe.
"These restrictions and the continued uncertainty regarding their future removal are the main driver of decreased customer demand. Despite this we have successfully maintained our disciplined focus and agile approach on matching capacity to available demand while maintaining high customer satisfaction," said easyJet.
The budget airline's first quarter ended on December 31. Passenger numbers in the quarter decreased by 87% year-on-year to 2.9 million, in line with a 82% fall in capacity to 4.4 million seats - representing 18% of 2019 financial year capacity levels, and in line with expectations that easyJet would fly no more than 20%. Load factor during the quarter was 66%.
Total revenue for the first quarter slumped 88% to GBP165 million, with passenger revenue down 90% to GBP118 million and ancillary revenue sliding by 84% to GBP47 million.
Headline costs, excluding fuel, were reduced by 52% at constant currency as easyJet achieved savings across airport fees, ground handling and crew and maintenance costs. The airline said it estimates that its fixed cost and capital expenditure cash burn in a fully grounded scenario has now fallen to around GBP40 million per week.
Based on current travel restrictions, easyJet said that, for its second quarter, it expects to fly no more than 10% of capacity in the same period of the 2019 financial year. easyJet said it is anticipating a release of pent-up demand for travel as vaccinations get underway, and retains the flexibility to rapidly ramp-up to capture this.
easyJet also noted that since its level of EU ownership on January 1 was below the required majority to be allowed to fly within the EU - at 47.35% - it has started suspending voting rights to some non-EU shareholders on a 'last in, first out' basis.
Fellow airline Wizz Air also reported a sharp fall in passengers in the quarter to December 31.
Revenue in Wizz's third quarter slumped 77% to EUR149.9 million and passengers carried also fell 77%, to 2.3 million. Wizz swung to an underlying loss before interest, tax, depreciation and amortisation of EUR40.9 million from earnings of EUR130.8 million a year ago.
"We believe capacity levels in view of the restrictions will continue to be depressed during January, February and part of March 2021 and with the increasing administration of the Covid-19 vaccine we expect 2021 to be a year of transition with Wizz Air ready to service underlying demand in a fast and agile way as it becomes increasingly unrestricted," the company said.
Soft drinks maker Britvic reported a decline in first quarter revenue amid tighter virus restrictions.
Britvic's revenue for the first quarter, which ended December 31, was GBP328.1 million. On a comparable basis of constant currency and excluding the disposal of the French private label juice business, this represents a 5.8% decline on a year ago, while the decline was 9.8% on a reported basis.
"The introduction in GB and Ireland of tighter pre-Christmas Covid-19 restrictions, and the subsequent national lockdown measures, have put further pressure on sales in both the hospitality sector and on the go consumption. While there remains considerable uncertainty over the depth and duration of future restrictions, we anticipate they will remain in place at least through our second quarter," noted Britvic.
As such, the FTSE 250 constituent expects performance to continue to be "significantly affected by similar adverse channel and pack mix" to that seen in the second half of the 2020 financial year, and gradually improve following the lifting of restrictions.
In Asia on Thursday, the Japanese Nikkei 225 index closed down 1.5%. In China, the Shanghai Composite ended down 1.9%, while the Hang Seng index in Hong Kong is down 2.5%. The S&P/ASX 200 in Sydney fell 1.9%.
Sterling was quoted at USD1.3649 early Thursday, lower than USD1.3698 at the London equities close on Wednesday.
The euro traded at USD1.2087 early Thursday, soft on USD1.2100 late Wednesday. Against the yen, the dollar was quoted at JPY104.35 versus JPY104.07.
Gold was quoted at USD1,835.62 an ounce early Thursday, falling from USD1,848.50 on Wednesday. Brent oil fell to USD55.34 a barrel on Thursday, down from USD56.27 late Wednesday.
The economic events calendar on Thursday has German inflation at 1300 GMT and US GDP and jobless claims at 1330 GMT.
By Lucy Heming; lucyheming@alliancenews.com
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