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(Alliance News) - Stocks in London are set to open lower on Wednesday amid a number of virus flare ups and US lawmakers failing to make headway on further stimulus ahead of the US Federal Reserve's latest rate decision.
In early UK company news, lender Barclays reported an interim profit slump as it took a GBP3.7 billion credit impairment charge. Retailer Next said second quarter sales, while down on a year ago, were better than expected. Medical devices firm Smith & Nephew swung to a half-year loss.
IG says futures indicate the FTSE 100 index of large-caps to open 2.36 points lower at 6,126.90 on Wednesday. The FTSE 100 index closed up 24.38 points, or 0.4%, at 6,129.26 on Tuesday.
"A resurgence of Covid-19 cases in Xinjiang in China, Hong Kong, and Australia, as well as spikes in Spain and Belgium, along with other localised outbreaks across Europe has prompted concerns about a second wave, and thus jeopardising further lockdown relaxation measures as we head into August," said Michael Hewson, chief market analyst at CMC Markets.
He continued: "It is against this backdrop that today's latest Fed meeting is set to take place with no changes in policy expected, however the virus outlook looks a lot different at this meeting than when the FOMC last met" in early June.
The Federal Open Market Committee will announce its latest policy decision at 1900 BST. This will be followed by a press conference with Fed Chair Jerome Powell at 1930 BST.
The federal funds rate is currently 0.00% to 0.25%. The CME's FedWatch tool has it fully priced in that the Fed stands pat on rates this week.
The Fed meeting comes as coronavirus deaths in the US surged to their highest level in months.
The human toll of the disease surged to a level not seen since mid-May in the US, the world's hardest-hit country, with nearly 1,600 deaths recorded in 24 hours, Johns Hopkins University reported on Tuesday. Case numbers have been rising for weeks across swathes of the nation, leaving health authorities and leaders to watch nervously for a feared spike in fatalities.
The US is not the only country to see a flare up in infections. China reported 101 new coronavirus cases Wednesday, its highest single-day figure in three months, as gyms, bars and museums closed in infection hotspots.
Of the new cases, 98 were domestic infections, mostly in the northwestern region of Xinjiang, where a growing cluster first discovered earlier this month has prompted mass testing and restrictions.
In Europe, resurgent virus cases are blasting a similar hole in local hopes for a financial windfall in summer holiday hotspots. Spain, one of the countries hit hardest by the pandemic, insists it is a safe destination for tourists despite tackling 361 active outbreaks and more than 4,000 new cases.
Iran suffered its worst day yet of the pandemic, reporting 235 new deaths on Tuesday, a record toll for a single day in the Middle East's hardest-hit country.
In the US on Tuesday, Wall Street ended lower. The Dow Jones Industrial Average closed down 205.49 points, or 0.8%, at 26,379.28.
The S&P 500 closed down 20.97 points, or 0.7%, at 3,218.44 and the Nasdaq Composite ended down 134.18 points, or 1.3% at 10,402.09.
Democrats and Republicans in the US Congress late Tuesday were far from reaching an agreement on a new package to support the world's leading economy, brought to its knees by the virus pandemic.
"Very sadly, after months of deadly delay, the Republicans have unveiled a proposal that would only prolong the suffering for millions of workers and families across America," House Speaker Nancy Pelosi wrote in letter to her fellow Democrats, following two rounds of negotiations with the White House and Republican lawmakers.
In the Senate, Republican majority leader Mitch McConnell defended his party's proposal, unveiled on Monday, that calls for USD1 trillion in stimulus aid. Back in May, the House Democrats unveiled a USD3 trillion coronavirus response package, the largest yet, to fund efforts to fight the pandemic and provide emergency payments to millions of Americans.
Stumbling blocks to reaching an agreement include extending aid to the millions left jobless by the pandemic. Under the Republican plan, unemployment payments would drop to USD200 a week, compared to USD600 per week under the current plan – set to expire at the end of July.
In early UK company news, Barclays reported a more than halving in interim profit on hefty credit impairment charges.
Total income for the first half of 2020 was up 8% to GBP11.62 billion, with operating expenses down 4% to GBP6.59 billion. However, pretax profit still dropped 58% to GBP1.27 billion.
Credit impairment charges increased to GBP3.7 billion from GBP900 million a year ago, including GBP1.6 billion in the second quarter, largely due to "revised IFRS 9 scenarios" driven by Covid-19.
The scenarios reflect "forecast deterioration in macroeconomic variables (including a prolonged period of heightened UK and US unemployment), partially offset by the estimated impact of central bank, government and other support measures".
Barclays UK income decreased 11% due to ongoing margin pressure, while Barclays International income increased 16%, with Corporate & Investment Bank income up 31% and Consumer, Cards & Payments income down 21%. Within CIB, Markets income increased due to a strong performance across FICC and Equities.
"Our CET1 ratio stands at 14.2% which underscores the strength of our balance sheet. Although we will remain well capitalised and ahead of our minimum requirements, we may experience stronger capital headwinds in the second half of the year. The board will decide on future dividends and capital returns at the year-end 2020," said Chief Executive Jes Staley.
Looking to the remainder of 2020, Barclays said its impairment in the second half will remain "above the level experienced in recent years", but below the first half credit impairment charge.
Clothing retailer Next reported a fall in full price sales for the second quarter, but said even this outcome was "much better" than expected.
Full price sales tumbled 28% in the quarter, an improvement on the best case scenario given in its April trading statement. Online warehouse picking and despatch capacity is now back at normal levels and UK and Eire stores are now open, it said.
Online sales in the second quarter were up 9% and like-for-like sales in Retail stores, since they re-opened, were down 32%.
Next now estimates pretax profit to come in at GBP195 million for the full-year.
"The duration of social distancing rules, post-lockdown consumer behaviour, earnings, unemployment, and, most importantly, whether there will be a second wave lockdown, all remain unknowable. Nonetheless, our experience over the last 13 weeks has given us much greater clarity on our Online capabilities during lockdown and the state of consumer demand, and we are now more optimistic about the outlook for the full year than we were at the height of the pandemic," said Next.
Medical technology firm Smith & Nephew swung to an interim loss but said its performance improved as the second quarter progressed.
Half year revenue was down 18% to USD2.04 billion - falling 30% to USD901 million in the second quarter - with the company swinging to an interim pretax loss of USD34 million from a profit of USD383 million a year ago.
The trading profit margin, at 8.5%, was down significantly on 21.4% a year ago, as previously guided.
"The trading profit margin reflected a number of Covid-related factors, including negative leverage effect from the fixed components of our cost base and the impact of reduced production volumes, as well as additional charges of approximately USD50 million to provisions for inventory excess and obsolescence and trade receivables," said Smith & Nephew.
The firm said performance improved across the second quarter as elective surgeries restarted, with underlying revenue declines of 47% in April, 27% in May, and 12% in June.
Even though Smith & Nephew posted a loss for the half, it still declared an interim dividend of 14.4 cents per share, flat on a year ago.
Housebuilder Taylor Wimpey also turned to a half-year loss amid Covid-19 disruption.
Revenue for the first half of 2020 fell 56% to GBP754.6 million, with the firm swinging to an interim pretax loss of GBP39.8 million from a GBP299.8 million profit a year ago.
The first half net private sales rate of 0.70 homes per outlet per week was down on 1.00 a year ago. The sales rate was 0.97 prior to the UK's Covid-19 shutdown, when it then reduced to 0.30. In the nine weeks since sales centres reopened in England, the sales rate has increased to 0.70
"Looking ahead, balance sheet strength, a long order book and our high quality and growing landbank gives us confidence in our ability to navigate the challenges and emerge stronger from the pandemic. While uncertainties remain, we are confident in the underlying fundamentals of the housing market," said Chief Executive Pete Redfern.
The FTSE 100-listed firm expects to recommence dividend payments in 2021, with a 2020 final payout. It will "review the special dividend in 2021 for payment in 2022".
Aston Martin Lagonda Global Holdings reported a 64% fall in interim revenue, with its pretax loss deepening to GBP227.4 million from GBP80.0 million a year ago.
"Obviously, it has been a challenging period with our dealers and factories closed due to Covid-19, in addition to aligning our sales with inventory with the associated impact on financial performance as we reposition for future success. However, I have been most impressed that through this most challenging of times we have been able to reduce our dealers' sports car inventory by 869 units," said Chair Lawrence Stroll.
Trading remains challenging in many markets, the luxury car maker said, and the pace of emergence from lockdown and consumer recovery "varies significantly". This will impact the duration of the dealer de-stocking process for sports cars, currently expected to continue well into 2021.
The currency market was muted early Wednesday. Sterling was quoted at USD1.2929 early Wednesday, flat on USD1.2930 at the London equities close on Tuesday.
The euro traded at USD1.1739 early Wednesday, firm versus USD1.1731 late Tuesday. Against the yen, the dollar was quoted at JPY105.00, soft against JPY105.10.
In Asia on Wednesday, the Japanese Nikkei 225 index ended down 1.2%. In China, the Shanghai Composite is up 1.8%, while the Hang Seng index in Hong Kong is up 0.5%. Â
Gold was quoted at USD1,955.70 an ounce early Wednesday, firm on USD1,953.15 on Tuesday. Brent oil was trading at USD43.40 a barrel early Wednesday, higher than USD43.09 late Tuesday.
The economic events calendar on Wednesday has UK mortgage approvals at 0930 BST.
By Lucy Heming; lucyheming@alliancenews.com
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