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(Alliance News) - Stock prices in London are seen opening sharply lower on Thursday after the US Federal Reserve gave its clearest indication yet that an interest rate hike is coming in March, with more to follow.
In early company news, distiller and brewer Diageo said it will accelerate its capital returns programme. Hospital firm Whitbread named a new finance head, and budget airline easyJet said the Omicron variant was hurting bookings.
IG futures indicate the FTSE 100 index will open 121.58 points lower at 7,348.20. The index closed up 98.32 points, or 1.3%, at 7,469.78 on Wednesday.
Diageo said it delivered strong net sales growth during its recent half year, amid resilient consumer demand, as the brewer and distiller said it will accelerate its capital return programme.
For the six months to December 31, net sales rose 16% to GBP7.96 billion from GBP6.87 billion the year before, and pretax profit was GBP2.72 billion, up 24% from GBP2.20 billion.
Operating profit jumped 23% to GBP2.74 billion from GBP2.24 billion, and the operating profit margin increased by 190 basis points.
Looking ahead, Diageo said from financial 2023 to 2025, it continues to expect organic net sales to consistently grow within a range of 5% to 7% per year, and organic operating profit to grow sustainably within a range of 6% to 9%.
Diageo raised its interim dividend 5% to 29.36 pence from 27.96p the year prior. The Johnnie Walker scotch and Smirnoff vodka maker said that during the half it also returned GBP500 million to shareholders via share buybacks as part of its GBP4.5 billion capital return programme. It has decided will accelerated the timeline of that programme, with the full return now to be completed during financial 2023.
Whitbread said it has promoted Hemant Patel to chief financial officer starting on March 21 when current CFO Nicholas Cadbury steps down. Cadbury is moving to British Airways-owner International Consolidated Airlines Group, and IAG confirmed early Thursday that Cadbury will join on March 21.
Patel joined Whitbread in 2018, and since then has been finance director of the UK Premier Inn & Restaurants business. Prior to joining Whitbread, Hemant was finance director of Greene King Pub Co and held a number of senior finance and commercial roles at grocer Asda and confectioner Mars.
Budget airline easyJet said its first-quarter loss almost halved on an annual basis, but the Omicron variant of Covid-19 was taking its toll on bookings in the short term.
For the three months that ended December 31, easyJet posted a headline pretax loss GBP213 million, narrowed from a GBP423 million loss in the first quarter the year before.
The budget airline said the first quarter financial performance was in line with management expectations despite the changing environment which saw increased travel restrictions at the end of the quarter to combat Omicron.
The Luton-based carrier noted October and November saw an improved performance as load factors continued to strengthen, with both months above 80%. However, Omicron paused this momentum which resulted in the load factor declining in December to 67%.
Looking ahead, easyJet said it expects that Omicron will continue to have a detrimental effect on short-term performance in the second quarter.
Chief Executive Officer Johan Lundgren said: "Booking volumes jumped in the UK following the welcome reduction of travel restrictions announced on 5 January, which have been sustained and then given a further boost from the UK government's decision earlier this week to remove all testing requirements. We believe testing for travel across our network should soon become a thing of the past.
"We see a strong summer ahead, with pent up demand that will see easyJet returning to near 2019 levels of capacity with UK beach and leisure routes performing particularly well."
Convenience food firm Greencore said first-quarter revenue was back above pre-Covid levels despite the spread of the Omicron variant in the UK during December.
For the 13 weeks to December 24, revenue was GBP389.0 million, up 24% on an annual basis and up 7.5% from the similar period pre-Covid.
The UK's largest sandwich maker said the underlying recovery in food-to-go categories continued. This was supported by the onboarding of new business wins and continued growth in the distribution component of the business.
Greencore said it was on track with its strategic capital investment programme of GBP30 million across three existing manufacturing sites, to support the delivery of previously announced business wins. Revenue from these wins is anticipated to begin in the second half of financial 2022.
Looking ahead, Greencore said: "The uncertainty regarding the duration and impact of Covid-19 variants on the group's trading environment, particularly on demand in its food to go categories, has made it more difficult to predict 2022 performance. To date, there has been some impact on the group's revenue momentum in what is its seasonally quieter period of the year.
"Though these challenges persist, the group continues to anticipate a 2022 outturn in line with market expectations. This assumes no material resumption of mobility restrictions or lockdowns arising from increasing Covid-19 infection rates in the UK. Profitability will be heavily weighted towards the seasonally important second half of the year."
Calls for a lower open in London follow sharp declines in Asia following the Fed's rate decision.
In the US on Wednesday, Wall Street ended mostly lower, with the Dow Jones Industrial Average down 0.4% and S&P 500 down 0.2%, though the Nasdaq Composite managed to close marginally higher. The Fed announcement came during New York trading hours, and all three stock indices had been higher on the day prior to the afternoon announcement.
In Asia on Thursday, the Japanese Nikkei 225 index closed down 3.1%. In China, the Shanghai Composite ended down 1.8%, while the Hang Seng index in Hong Kong was down 2.5%. The S&P/ASX 200 in Sydney closed down 1.8%.
US Federal Reserve Chair Jerome Powell on Wednesday said there is room to raise interest rates without undermining the labour market, after the central bank signalled a rate hike is imminent.
There is "quite a bit of room" to raise rates without hurting the labour market, he added, calling conditions for workers and employers "historically tight".
The US central bank on Wednesday kept the federal funds rate in a range of 0.00% to 0.25%, as expected, and signalled a rate hike is imminent.
In an unusually blunt comment for a central bank policymaker, Powell told reporters "the committee is of a mind to raise the federal funds rate at the March meeting."
Fed officials continue to expect that the wave of rising prices, which hit a multi-decade high in 2021, will ease this year as factors like supply chain struggles, largely caused by the pandemic, begin to resolve.
While a March hike has been pencilled in by traders for several months, investors appeared to be spooked by Powell's apparent hawkishness as he refused to be drawn on a timetable for further increases nor its plans to unload assets on its balance sheet, which have helped keep costs down.
Meanwhile, the US on Wednesday rejected Russia's demand to bar Ukraine from NATO and said it believed Moscow was ready to invade but offered what it called a new path out of the crisis.
Secretary of State Antony Blinken said Washington had set out to Moscow a "serious diplomatic path" to resolve the confrontation, in a private letter to the Russian government.
However, he stressed, "We make clear that there are core principles that we are committed to uphold and defend, including Ukraine's sovereignty and territorial integrity, and the right of states to choose their own security arrangements and alliances."
The dollar was higher in the wake of the Fed decision.
The pound was quoted at USD1.3426 early Thursday, down from USD1.3514 at the London equities close Wednesday. The euro was priced at USD1.1213, down from USD1.1280. Against the Japanese yen, the dollar was trading at JPY114.68, higher on JPY114.34.
Brent oil was quoted at USD89.34 a barrel Thursday morning, down sharply from USD90.27 at the close Wednesday. Gold stood at USD1,813.10 an ounce, lower against USD1,832.19.
The economic calendar for Thursday has US economic growth figures and jobless claims at 1330 GMT.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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