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(Alliance News) - London's recent rally is set to stretch further on Thursday with markets continuing to focus on the easing of Covid-19 lockdowns rather than the increasing tensions between the US and China over Hong Kong.
In early UK company news, easyJet warned pre-virus air demand is unlikely to recover before 2023 as it announced plans to cut 30% of jobs. More positive was Cineworld, which plans to open its cinemas in July. Online fashion seller boohoo snapped up the remaining stake in PrettyLittleThing a day after defending itself over the issue against a short seller.
IG says futures indicate the FTSE 100 index of large-caps to open 62.35 points higher at 6,206.60 on Thursday. The FTSE 100 index closed up 76.49 points, or 1.3%, at 6,144.25 on Wednesday.
"US markets underwent a choppy session yesterday, opening higher on optimism over various parts of the US economy reopening, while also coping with the headwinds of rising tension between the US and China, over the status of Hong Kong," said Michael Hewson, chief market analyst at CMC Markets.
In the US on Wednesday, Wall Street ended higher, with the Dow Jones Industrial Average ending up 2.2%, the S&P 500 up 1.5% and Nasdaq Composite closing 0.8% higher.
Washington on Wednesday requested an emergency UN meeting over a controversial security law China has proposed for Hong Kong, but Beijing refused to allow it to proceed, according to US diplomats.
The US spelled out its desire for the Security Council session, saying it was "deeply concerned" by Beijing's move, which would ban "sedition" and other perceived offences in the international finance hub.
Hong Kong activists say that the proposed law effectively abolishes the basic freedoms enjoyed in the city since it was returned to China by the British in 1997.
It will "fundamentally undermine Hong Kong's high degree of autonomy and freedoms as guaranteed under the Sino-British Joint Declaration of 1984, which was registered with the UN as a legally binding treaty," Washington's UN mission said in a statement.
"This is a matter of urgent global concern that implicates international peace and security," the statement continued. But, it said, China has "has refused to allow this virtual meeting to proceed."
The Beijing legislature is expected on Thursday to move forward on the law, bypassing Hong Kong's own lawmaking body. Rabobank commented that if the security law is imposed on Thursday, "we will almost certainly see US sanctions against Chinese entities in Hong Kong".
The US already announced earlier Wednesday that Hong Kong would no longer enjoy the autonomy promised by China under US law, opening the door to potential trade retaliation.
"Against this uncertain backdrop of positivity on the one hand as economies reopen, and worries over deteriorating US, China relations, markets in Asia have been mixed with Hong Kong markets sinking, while oil prices have also fallen back," CMC's Hewson said.
"Markets here in Europe look set to once again shrug off the rising tensions between the US and China and open higher on optimism over a continued belief that the upcoming relaxation of restrictions will result in a decent rebound in economic activity as fed up consumers, once released from the limitations of lockdown go out on a spending binge, to make up for weeks of sitting at home."
Asian equities trade on Thursday displayed the conflicting influences on markets. Stocks in Japan and Australia rose, while those in China were lower. The Nikkei 225 index in Tokyo closed up 2.3% and the S&P/ASX 200 in Sydney up 1.3%. The Shanghai Composite was up 0.1%, while the Hang Seng index in Hong Kong was down 0.2%. Â
The US on Wednesday surpassed the grim milestone of 100,000 coronavirus deaths, as the pandemic tightened its grip on Latin America.
With the EU unveiling a massive recovery plan to step up its emergence from the crisis, the US figure was a sobering reminder of the devastation being wreaked around the globe by a virus that only emerged late last year.
Confirmed US deaths stood at 100,396 late Wednesday, with nearly 1.7 million infections, according to the tally compiled by Johns Hopkins University.
Nevertheless, most US states moved toward reopening restaurants and businesses, cheered on by President Donald Trump, who is eager to see the economic pain of the crisis mitigated as he seeks re-election.
In Europe, business have slowly started reopening as outbreaks on the continent slow, but Italy and Spain lack the firepower of richer European nations to rebuild their economies. The EU unveiled a historic, EUR750 billion recovery plan to get the continent back on its feet.
In early UK company news, easyJet set out plans to reduce the business as it warned pre-Covid demand is not expected to be reached again until 2023.
The low-cost airline confirmed it will take to the skies again on June 15 on a "small" number of routes where there is sufficient demand to support profitable flying. This will mainly comprise domestic travel in the UK and France.
Further routes will be announced as demand increases and government restrictions across Europe are relaxed, easyJet said. So far, booking trends on the resumed flights have been encouraging, and the demand indications for summer 2020 are improving, albeit from a low base. Bookings for winter are well ahead of the equivalent point last year, including customers who are rebooking coronavirus-disrupted flights for later dates.
In the company's financial fourth quarter to the end of September, easyJet expects to fly around 30% of the planned capacity flown in the fourth quarter a year ago.
"Looking further forward, easyJet expects its year-end 2021 fleet size to be at the bottom end of our fleet range at around 302 aircraft, which is 51 aircraft lower than the anticipated fleet size for year-end 2021 which was reported to the market prior to Covid-19," the carrier said.
Alongside this, easyJet is planning to reduce staff numbers by up to 30%. It will shortly launch an employee consultation process.
Cineworld said it plans to reopen its cinemas in July.
The cinema chain said its lenders have agreed to waive the leverage covenant for its credit facility's June test, and has increased the covenant to 9.0 times net debt to Ebitda for the December test.
The group has agreed the terms of USD110 million of additional liquidity through an increase in its revolving credit facility. It also has secured credit committee approval to apply for an additional USD45 million through the Coronavirus Large Business Interruption Loan Scheme in the UK and expects shortly to commence a process to access USD25 million through the US government CARES Act.
Cineworld expects cinema restrictions will be lifted in each of its territories by July, and it plans to reopen all its cinemas that month.
FirstGroup welcomed the UK Department for Transport's funding programme.
The transport firm noted that regional bus operators in England have initially been allocated GBP254 million in additional funding by DfT, which will allow FirstGroup to increase bus service capacity as travel restrictions begin to ease.
It added that at May 26, undrawn committed headroom and free cash was stable at GBP770 million. For the first month of the current financial year, cash generated by operations in its Road divisions and for the group as a whole was positive and ahead of expectations at the start of the month.
Fellow transport operator Stagecoach also noted the government's bus programme, as it warned that Covid-19 is set to leave a lasting effect on travel patterns.
Commercial sales at local regional bus operating companies are now at around 17% of prior year levels, it said. Plans are in place to increase regional bus vehicle mileage close to pre-Covid levels in the near future. These are currently running at 40% of pre-virus levels.
Meanwhile, available liquidity has increased "significantly" due to positive cashflow and new borrowing capacity. Due to the strong liquidity position, Stagecoach has increased its planned 2020/21 capital expenditure by GBP14 million to include additional vehicles available for delivery in the short-term.
For its financial year recently-ended, on May 2, Stagecoach expects adjusted earnings per share between 12.5p and 14.0p. The year before, adjusted EPS from total operations came in at 22.1p.
"We see a lasting effect of the Covid-19 pandemic on travel patterns with an acceleration in trends of increased working from home, shopping from home, telemedicine and home education. We anticipate that it will be some time before demand for our public transport services returns to pre-Covid levels and we are planning for a number of scenarios," said Chief Executive Martin Griffiths.
boohoo said it is buying the remaining 34% stake in PrettyLittleThing from minority shareholders Umar Kamani and Paul Papworth for an initial consideration of GBP269.8 million, potentially rising to GBP323.8 million.
"By acquiring the remaining 34% stake in PLT today, the group is taking an important further step towards achieving its vision to lead the fashion e-commerce market globally by accelerating full ownership of a brand that is in high growth with enormous growth potential ahead of it, in a transaction that creates significant value for the group's shareholders," said boohoo.
boohoo bought a 66% stake in PrettyLittleThing for GBP3.3 million in 2016 and had the option to buy the remaining stake in 2022.
The initial consideration will be settled in a combination of shares and cash, worth GBP107.9 million and GBP161.9 million respectively. The cash element will be funded from the GBP240.7 million net cash the group had on its balance sheet at the end of February.
boohoo's purchase comes a just a day after it "strongly" refuted allegations made by short seller ShadowFall.
ShadowFall claimed boohoo has provided "a misleading impression" of its free cash flow.
"We see a risk that BOO doesn't use its recent cash call for mergers & acquisitions, but instead combines it with its considerable GBP241 million net cash, to be paid to BOO's chair's son, through material dividends and a potential PrettyLittleThing [non-controlling interest] buy-out," the short seller also alleged.
The chief executive and founder of PrettyLittleThing is Umar Kamani, son of boohoo Chair & Co-Founder Mahmud Kamani.
The euro traded at USD1.1017 early Thursday, up from USD1.0977 late Wednesday. Sterling was quoted at USD1.2261 early Thursday, higher than USD1.2217 at the London equities close on Wednesday.
Against the yen, the dollar was quoted at JPY107.85, flat on JPY107.80.
Gold was priced at USD1,717.40 an ounce early Thursday, sharply higher than USD1,701.04 on Wednesday. Brent oil was trading at USD34.24 a barrel early Thursday, soft on USD34.43 late Wednesday.
The economic events calendar on Thursday has eurozone economic sentiment at 1000 BST, German inflation figures at 1300 BST and US GDP and initial jobless claims readings at 1330 BST.
By Lucy Heming; lucyheming@alliancenews.com
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