(Alliance News) - London stock prices are set for a higher start on Wednesday after sentiment recovered following Wall Street's negative reaction to the Fed's surprise interest rate cut.
In early UK company news, Wizz Air followed peers in reporting reduced travel demand caused by the coronavirus outbreak, while Legal & General said it has met its earnings per share growth target a year early, and intu Properties said it is "unable" to proceed with an equity raise.
IG says futures indicate the FTSE 100 index of large-caps to open 28.80 points higher at 6,747.00 on Wednesday. The FTSE 100 index closed up 63.31 points, or 1.0%, at 6,718.20 on Tuesday.
While European stocks managed to end Tuesday's session higher after a surprise interest rate cut from the Federal Reserve during European market hours, US equities tanked.
The Fed slashed interest rates by 50 basis points as it noted the coronavirus "poses evolving risks to economic activity".
"The decision by the Fed was misguided from an image point of view as it gave off the impression they are extremely worried about the coronavirus situation, and that's why US stocks fell as traders picked up on that nervousness. Cutting rates is a rushed fashion projects the wrong image," said David Madden at CMC Markets.
"The coronavirus crisis has brought about lockdowns. It has disrupted supply chains as well as caused people to curtail their travel plans. Dealers rightly asked the question, what good will the sizeable interest rate cut actually achieve. The move is unlikely to spur on business investment or jolt consumers into spending more," said Madden.
The Dow Jones Industrial Average ended down 2.9%, the S&P 500 down 2.8% and the Nasdaq Composite 3.0% lower.
However, sentiment seemed to recover overnight in Asia on Wednesday. The Japanese Nikkei 225 index closed up 0.1%. In China, the Shanghai Composite is up 0.6%, while the Hang Seng index in Hong Kong is up 0.1%. Â
China on Wednesday reported 38 more deaths from the new coronavirus but a fall in fresh cases for a third consecutive day. The death toll nationwide is now 2,981, the National Health Commission said, with more than 80,200 people infected in total.
The figures in China have generally been declining in recent weeks as a series of draconian quarantine measures seem to be paying off.
Outside of China, Argentina and Chile both said on Tuesday they had confirmed their first cases of new coronavirus in patients who recently returned from travels. In Europe, a second case of coronavirus has been confirmed in Ireland.
The latest virus figures came as figures from Caixin showed Chinese services sector activity declined sharply in February.
Adjusted for seasonal factors, including Chinese New Year, the headline services business activity index fell over 25 index points to 26.5 in February from 51.8 in January, the sharpest drop since the survey began over 14 years ago. A reading above 50 indicates expansion in the sector and one below contraction.
Caixin said the vast majority of panel members identified the outbreak of the coronavirus as the key driver of reduced activity, with firms facing extended company closures after the Chinese New Year and strict travel restrictions.
In London early Wednesday, Wizz Air became the latest airline to warn of business disruption caused by the coronavirus outbreak.
The central and eastern Europe-focused airline said demand for travel within Europe in March has been hit, particularly in those areas more affected by Covid-19.
Wizz Air said it has established a "multi-disciplinary task force" to drive further savings to alleviate the coronavirus pressure.
"The company's actions have included significant reductions in overhead and discretionary spending, leveraging our highly dedicated staff across our network, allowing us to pause recruitment and non-essential travel, working with suppliers to reduce cost and an effective allocation of our assets to maximize return for the company," said Wizz Air.
Subject to a further demand hit from the virus, it said it is mulling cutting network capacity by around a further 10% in the first quarter of its 2021 financial year.
"At this point in time it is difficult to predict the extent and the duration of the outbreak and the impact on the next financial year," said Wizz Air.
Elsewhere in London, Legal & General lifted its dividend as it said it achieved its earnings per share target a year ahead of schedule.
Legal & General said it has achieved its five-year target of EPS growth of 10% at a compound annual rate in just four years, reporting underlying EPS of 28.66p in 2019, up 16% on 2018 and representing 12% annual growth since 2015.
Gross written premiums for the year grew to GBP15.20 billion from GBP12.84 billion, while net premiums earned increased to GBP11.69 billion from GBP10.73 billion. Pretax profit edged up to GBP2.16 billion from GBP2.13 billion.
The financial services firm lifted its full-year dividend by 7% to 17.57p.
"Legal & General's strategy of Inclusive Capitalism, underpinned by structural growth drivers, has enabled us to achieve our five year EPS growth ambition in four years, growing 58% since 2015," said Chief Executive Nigel Wilson.
"Having delivered EPS growth of 16% to 28.7p, dividends up 7% to 17.57p, and a 20% plus ROE, we are well-positioned for the future and we remain ambitious," he added.
Polymetal International reported a rise in profit for 2019 amid higher gold prices and increased production.
Revenue for 2019 rose 19% to USD2.25 billion, while pretax profit surged 45% to GBP618 million from GBP426 million.
Average realised gold and silver prices "followed market dynamics" and increased by 13% and 11%, respectively, the precious metals miner said. Full-year gold production totalled 1.3 million ounces, an 8% increase year-on-year, while silver output decreased by 15% due to asset disposals and planned grade decline at Dukat.
Gold equivalent production for 2019 amounted to 1.6 million ounces, an increase of 3% on 2018 and 4% above original production guidance.
DS Smith said trading has continued to "progress well" with no material impact from the coronavirus.
Like-for-like corrugated box volume growth has increased during the second half of its financial year, with good performances in Iberia, eastern Europe and the UK. The domestic US business remains "robust", though lower US paper export prices are ongoing amid reduced demand from China.
"The group has delivered a robust performance during the period within a challenging macro-economic environment. Whilst we continue to monitor events and work closely with all our suppliers and customers, we have not to date seen any material impact to our business from coronavirus," said Chief Executive Miles Roberts.
intu Properties said it has concluded that, after engaging in talks over the past few months, it is "unable" to proceed with an equity raise.
"While a number of intu's shareholders and potential new investors indicated their support for an equity raise, the board believes the current uncertainty in the equity markets and retail property investment markets precluded a number of potential investors from committing capital into the business and intu was therefore unable to reach the target quantum at the current time," the retail property investor said.
intu said it will "continue and broaden" its conversations to discuss the range of options available, which include alternative capital structures and further disposals.
Meanwhile, it said it delivered a "robust" operational performance in a challenging 2019 for the retail industry.
Footfall in intu centres was up 0.3%, with UK footfall flat.
Like-for-like net rental income in 2019 was in line with guidance, down by 9.1%. intu sees a further decline ahead for 2020, but at a slower rate than that achieved in 2019.
Independent valuations of intu's portfolio at December 31 resulted in a valuation deficit of GBP2.0 billion for 2019, a like-for-like decrease in value of 22% for the year.
The pound was quoted at USD1.2811 early Wednesday, flat compared to USD1.2809 at the close on Tuesday.
The euro stood at USD1.1153 on Wednesday, soft on USD1.1173 at the same time on Tuesday. Against the yen, the dollar was trading at JPY107.45, firm compared to JPY107.33 late Tuesday.
Brent oil was quoted at USD52.45 a barrel early Wednesday, firm on USD52.37 late Tuesday. Gold was quoted at USD1,642.32 an ounce on Wednesday, up from USD1,636.30 at the close on Tuesday.
In the economic calendar on Wednesday, there are services PMI due from Germany, the EU, the UK and the US at 0855 GMT, 0900 GMT, 0930 GMT and 1445 GMT respectively.
Outside of the PMI releases, there are eurozone retail sales at 1000 GMT. There is US ADP employment change at 1315 GMT and the ISM's non-manufacturing report at 1500 GMT.
Also ahead is the FTSE index review due after the London market close on Wednesday, which could see NMC Health, TUI and Kingfisher kicked out the FTSE 100 and replaced with Intermediate Capital Group, Pennon Group and Fresnillo.
By Lucy Heming; lucyheming@alliancenews.com
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