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(Alliance News) - Stocks in London are seen adding to the week's losing streak on Thursday, after the Federal Reserve indicated the US economy will slump sharply this year and near-zero interest rates are here to stay through 2022.
In early UK company news, Ocado raised GBP1.01 billion, Johnson Matthey revealed a GBP60 million hit from Covid-19 and CMC Markets reported a dramatic surge in annual profit, boosting its dividend as a result.
IG says futures indicate the FTSE 100 index of large-caps to open 123.03 points lower at 6,206.10 on Thursday. The FTSE 100 closed down 6.59 points, or 0.1%, at 6,329.13 on Wednesday.
Stocks in the US and Asia sold off overnight in the wake of the US central bank predicting the world's largest economy will shrink 6.5% this year.
At the conclusion of its two-day meeting, the Fed's policy-setting Federal Open Markets Committee confirmed it will keep the benchmark interest rate at zero until the recovery is underway.
The Fed also released economic projections of FOMC members for the first time since December. Their median forecast is for the economy to contract by 6.5% this year, with unemployment falling to 9.3% by the end of the year from its current 13%.
The median forecast of FOMC members shows they expect the key rate to stay the same through 2022 at least, before edging back up near 2.5% over the longer term. Only two central bankers projected the rate would rise off zero in 2022.
However, they expect a solid economic rebound in 2021, with growth of 5% that would then slow to 3.5% in 2022. Powell cautioned that "the path of the economy is highly uncertain".
David Madden, market analyst at CMC Markets, commented: "Stock markets in the Far East are in the red. The Nikkei 225 is down over 2%. It would appear the dire outlook for the US this year has weighed on sentiment, and European indices are pointing to a lower start."
In Asia on Thursday, the Japanese Nikkei 225 index closed down 2.8%. In China, the Shanghai Composite is down 0.9%, while the Hang Seng index in Hong Kong is down 1.7%. Â
There were mixed fortunes on Wall Street overnight, with the Dow Jones Industrial Average ending down 1.0% and the S&P 500 down 0.5%, but the tech-heavy Nasdaq Composite closing 0.7% higher. The Fed announcement was made two-hours before the US market close.
Also damping sentiment were fears of a second wave of Covid-19 infections in the US. The number of confirmed coronavirus infections in the US topped two million on Wednesday, according to a tally by Johns Hopkins University.
The pandemic has claimed the lives of more than 112,900 people in the US, which leads the world in the number of confirmed infections with 2.0 million, according to the Baltimore-based school's latest count.
Ipek Ozkardeskaya, senior analyst at Swissquote, said: "According to Bloomberg, Florida reported the highest number of new cases in a week and hospitalizations in Texas surged by a record 6.3%...If investors start jumpshipping on news that a second wave would lead to another period of confinement and economic shutdown, then the global stock markets would be hit by another wave of a severe sell-off."
The dollar was mixed Thursday morning.
Sterling was quoted at USD1.2684 early Thursday, lower than USD1.2760 at the London equities close on Wednesday. The euro traded at USD1.1353, firm versus USD1.1343 late Wednesday.
Against the yen, the dollar was quoted at JPY107.08, lower than JPY107.20.
Gold was priced at USD1,727.71 an ounce early Thursday, higher than USD1,716.28 on Wednesday as the week's risk-off mood persisted. Brent oil was trading at USD40.44 a barrel, lower than USD40.70 late Wednesday.
In early UK company news, Ocado said it has raised GBP657 million via a share placing and retail offer.
Concurrently with the fundraise, the online grocer said it has priced an offering of GBP350 million in guaranteed senior unsecured convertible bonds due 2027.
Altogether, this represents a total raise of GBP1.01 billion.
In announcing the fundraising plan late Wednesday, Ocado had said the fundraising offers it "financial flexibility to capitalise on opportunities arising from the significant acceleration in online adoption and grow faster over the medium term".
Specialist chemicals firm Johnson Matthey reported a fall in annual profit as it took a GBP60 million hit from Covid-19.
Revenue rose 36% in the year to March 31 to GBP14.58 billion, but pretax profit fell 38% to GBP305 million. Profit was dented by a restructuring and impairment charge of GBP140 million and a GBP60 million impact related to Covid-19.
Of the Covid-19 hit, around GBP30 million reflected lower demand in Clean Air and the remainder was due to higher trade debtor provisions across the group and delayed sales due to logistical challenges in its other businesses
In light of current uncertainty, Johnson Matthey proposed a final dividend of 31.125 pence, half the level of the year before. This took the total dividend for the financial year to 55.625p, down 35% from 85.5p the year prior.
The FTSE 100 company added it plans to cut around 2,500 jobs as part of plans to save an additional GBP80 million in costs by the end of the 2023 financial year.
Unilever said it plans to unify its group legal structure under a single parent company, Unilever PLC, to create a "simpler" firm.
"Unilever remains committed to its strategy of long-term growth across all three divisions and last year began a full evaluation of its current categories and brands, with a view to accelerating the pace of portfolio change. This review has underlined how a simpler legal structure would give Unilever greater strategic flexibility to grow shareholder value, providing a catalyst for accelerated portfolio evolution and greater organisational autonomy," the consumer goods firm said.
Thus, the unification will be implemented through a cross-border merger between Unilever PLC and Unilever NV. Unilever NV shareholders will receive one new Unilever PLC share in exchange for each Unilever NV share.
Following the move to a single parent legal structure, Unilever's "strong presence" in both the Netherlands and the UK will remain unchanged, the Marmite maker stressed.
Back in 2018, Unilever shareholders rejected the company's proposal to to united the company under a single Dutch entity.
Online trading provider CMC Markets reported a dramatic surge in annual profit, and said momentum has continued into its new financial year.
Total revenue in the year to March 31 rose 80% to GBP298.1 million from GBP166.0 million the year before, with pretax profit surging to GBP98.7 million from just GBP6.3 million.
Contract for difference net trading revenue jumped 95% to GBP214.5 million with revenue per active client up 81% to GBP3,750.
On the back of the strong results, CMC boosted its dividend to 15.0 pence from just 2.0p the year before, saying this was in line with its policy of paying out 50% of post-tax profit. CMC noted it has taken no government support during the Covid-19 crisis.
Momentum has continued, with CMC saying CFD gross client income at the start of the new financial year has been "around double" that during the same period a year before with client income retention remaining strong.
"The heightened volatility and trading activity resulting from Covid-19 has continued into the first quarter of the financial year, and CMC continue to provide clients with market leading trading platforms and client service. I am also confident that, once the financial world returns to more normal conditions, the Group will continue to build on the underlying growth that was being displayed prior to the pandemic. This, in combination with our stable dividend policy and positive trading outlook, will enable CMC to continue to deliver considerable value to all of our stakeholders," said Chief Executive Peter Cruddas.
Overnight, Anglo-Dutch meal delivery firm Just Eat Takeaway.com agreed to acquire US peer Grubhub for USD7.3 billion to form the world's largest online food delivery company outside of China.
The deal comes as both companies have experienced strong growth in the wake of the coronavirus pandemic from customers stuck at home who have boosted digital orders.
The combined company will have a major presence in four key markets – the US, the UK, Germany and the Netherlands – and position the enterprise for greater growth in the US, they said in a news release. Grubhub has been effective in navigating the "fragmented" US market – but "the US remains an underpenetrated market" that is "nowhere near its end-state", the companies said.
Grubhub had held talks previously with ride-hailing giant Uber, but the discussions fell apart over price after Uber proposed USD6 billion, a banking source told AFP recently. Under the Just Eat Takeaway.com deal, which must be approved by shareholders of both companies, investors in Grubhub will receive 0.6710 of Just Eat Takeaway shares for each Grubhub share.
That values Grubhub at USD75.15 a share, compared with a closing price Wednesday of USD59.05.
The economic events calendar on Thursday has US producer prices at 1330 BST with initial jobless claims due at the same time.
"The expectation is that only 1.5 million Americans will lose their jobs this week, with the continuing claims falling to 20 million. In isolation, both are horrific numbers, but are in fact, improvements on the past week and a continuation of improving outlook. Outperformance from either could be enough for equity markets to catch their breath again," said Jeffrey Halley, Asia Pacific senior market analyst at Oanda.
By Lucy Heming; lucyheming@alliancenews.com
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