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(Alliance News) - Stocks in London are set to open slightly higher on Wednesday ahead of a raft of service PMIs from Europe that are expected to paint a dire picture of the eurozone economy.
In early UK company news, Ocado reported a surge in second quarter sales but withdrew its retail guidance for the full-year, the UK competition watchdog blocked JD Sports Fashion's takeover of Footasylum, and Smith & Nephew saw sales slide on a lack of elective procedures.
IG says futures indicate the FTSE 100 index of large-caps to open 17.7 points higher at 5,861.50 on Wednesday. The FTSE 100 index closed up 95.64 points, or 1.7%, at 5,849.42 on Tuesday.
"For now, markets appear to be pricing in the prospect that economic activity can improve from here on in, and while that may well be true, we still don't know the extent of the economic damage that has been done already...This means there is a real risk that markets may well be underestimating the longer-term consequences of the changes that are taking place, and looking past the continued dire data," said Michael Hewson, chief market analyst at CMC Markets.
"This may help explain why US markets, while having a decent day yesterday closed off their highs, and this lack of follow through, looks set to push European markets lower on the open," he added.
In focus for the day ahead is a deluge of data.
In the economic calendar for Wednesday, there are services PMIs from Spain, Italy, France, Germany and the eurozone at 0815 BST, 0845 BST, 0850 BST, 0855 BST and 0900 BST respectively.
"Today's services PMI for Spain is expected to show a fall from 23 to 10, while Italy is expected to fall to a scarcely believable record low of 9. France and Germany's numbers are expected to stay close to their flash readings of a couple of weeks ago of 10.4 and 15.9," said CMC's Hewson.
There is a UK construction PMI at 0930 BST and eurozone retail sales at 1000 BST. US ADP employment change is at 1315 BST, the data a precursor to Friday's monthly jobs report.
Already out, activity in Ireland's services sector dropped to a historic low in April, data from IHS Markit showed, as the country's economy all but shut down in a bid to halt the spread of Covid-19.
The Business Activity Index "continued its historic descent in April" to 13.9, well below the 50.0 no change mark and a decline from 32.5 in March. The index had read a positive 59.9 as recently as February.
"The month-on-month decrease in the Index, at 18.6 points, was smaller than March's 27.4-point plunge, but still far exceeded anything else in the series to date," IHS Markit noted. The April reading was the lowest in the survey's 20-year history.
Ahead of the European data, the euro traded at USD1.0823 early Wednesday, down on USD1.0842 late Tuesday. Sterling was quoted at USD1.2432 in the morning, lower than USD1.2453 at the London equities close on Tuesday.
Against the yen, the dollar was quoted at JPY106.36 versus JPY106.58.
In early UK company news, Ocado said retail revenue in the second quarter to date is up 40% on a year ago after 10% growth in the first quarter.
However, it has suspended its retail guidance for the current financial year until it can get some visibility on the length of the Covid-19 crisis and the longer-term impact on customers' disposable income.
The number of items per basket appears to have levelled off. but still remains high, as "more normal" shopping behaviours have returned. To support the "unprecedented" level of business Ocado Retail is doing, the firm has ramped up capacity significantly.
"Although we expect the long-term shift towards on-line grocery to accelerate post-crisis, there remain many uncertainties about the length of the crisis, customer reaction immediately post and its long term impact on customers' disposable incomes and so we have suspended our guidance for Retail Revenue for FY20 until we can accurately forecast likely outcomes," said Ocado.
In its solutions business, Ocado said it has managed to deliver the first international customer fulfilment centres to international partners Groupe Casino and Sobeys.
ITV said sales were down in the first quarter as Covid-19 put a halt on ITV Studios productions.
Total external revenue was down 7% in the first quarter to GBP694 million, with ITV Studios revenue down 11% and Broadcast revenue up 2%. ITV total advertising revenue was up 2%.
Since mid-March ITV Studios has had to pause the majority of its productions due to Covid-19, it said, and there has been a "significant impact" on advertising demand across most categories. More positively, ITV Studios Global Distribution is seeing good demand for library content internationally and its BritBox streaming service is seeing "good growth".
Given the uncertain outlook, ITV said it will not be giving guidance for the second quarter or for the remainder of the year.
Smith & Nephew said first quarter sales were down, with the decline deepening in April, due to a suspension of elective procedures.
First quarter revenue of USD1.13 billion was down 7.6% on a year ago on an underlying basis, with reported growth down 5.7%. The performance of all three global franchises was held by back Covid-19, it said.
April revenue was down around 47% on an underlying basis, reflecting the suspension of elective procedures in most markets, which was somewhat offset by improving trading in China. Elective surgeries are starting to return in some markets, though the pace and extent is "varied and uncertain" across countries.
Second quarter revenue and the trading margin for the first half is expected to be "substantially down" on a year ago, as previously announced, and 2020 guidance remains withdrawn due to continuing Covid-19 uncertainty.
"The recovery in China is encouraging, as is the restart of elective surgeries in many other countries, and especially within the US. While there is still much uncertainty, Smith & Nephew has the financial strength to withstand this period and, as demand increases, we are ready to step up and support customers through our robust supply chain, innovative products and some new ways of working," said Chief Executive Roland Diggelmann.
JD Sports Fashion said it "fundamentally disagrees" with the UK Competition & Markets Authority's decision to block its takeover of smaller peer Footasylum.
The FTSE 100-listed athleisure retailer will now be required to sell Footasylum, which it agreed to buy for GBP90 million a year ago.
The CMA's conclusion in its final report "materially fails to take proper account of the dynamic and rapidly evolving competitive landscape in which we operate, as well as the long lasting - and likely permanent - impact that Covid-19 has had on our industry", said JD Sports.
The CMA has failed to recognise "the reality of Footasylum's financial situation", it added.
"In conclusion, we firmly believe that the CMA has failed to meet its objective of protecting consumer interests and today's decision will be detrimental for Footasylum, its customers, its 2,500 staff and the UK sports retail market as a whole. We are carefully considering whether to make an application to the Competition Appeal Tribunal to review this decision," said JD Sports.
In Asia on Wednesday, the Shanghai Composite is up 0.5%, while the Hang Seng index in Hong Kong is up 1.4%. The market in Tokyo remains closed for the Constitution Memorial Day holiday.
In the US on Tuesday, Wall Street ended in the green, with the Dow Jones Industrial Average ending up 0.6%, the S&P 500 up 0.9% and Nasdaq Composite closing 1.1%.
In the latest sign that the Donald Trump administration no longer considers the coronavirus pandemic its top daily priority, the White House could soon disband the emergency task force handling the outbreak.
US Vice President Mike Pence said Tuesday that the emergency task force he heads will not be needed much longer than the end of this month.
The group headed by Pence and reporting to President Trump coordinates between medical institutes, political staff and state governors, some of whom have spent weeks frantically trying to help overwhelmed hospitals. Pence said that those efforts will soon be ready to be turned over to regular government agencies working "in a more traditional manner."
Trump says that while he wants a "safe" reopening, the hardship caused by the economic shutdown is the main threat.
At least 256,422 people have died of the novel coronavirus since the epidemic surfaced in China late last year, according to an AFP tally. The US is the worst-hit country, with more than 70,000 deaths, ahead of Britain where fatalities topped 32,000.
Gold was quoted at USD1,701.46 an ounce early Wednesday, higher than USD1,698.55 on Tuesday. Brent oil was trading at USD30.87 a barrel early Wednesday, firm against USD30.22 late Tuesday.
By Lucy Heming; lucyheming@alliancenews.com
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