(Alliance News) - Stocks in London are set for a solid start to trading Thursday in the wake of the passage of US President Joe Biden's USD1.9 trillion economic stimulus plan through Congress.
In early UK company news, Royal Dutch Shell appointed a new chair. Rolls-Royce posted a hefty cash outflow for 2020 and swung to a deeper-than-expected loss. Wm Morrison Supermarkets saw profit knocked by Covid-19 costs and the repayment of business rates relief. WPP swung to a full-year loss but has resumed its Kantar-funded share buyback.
IG says futures indicate the FTSE 100 index of large-caps to open 28.00 points higher, up 0.4%, at 6,744.60 on Thursday. The FTSE 100 closed down 4.74 points, or 0.1%, at 6,725.60 on Wednesday.
"Several hours after the end of European trading, it was announced that Congress backed the USD1.9 trillion stimulus plan, so it will be passed over to President Biden to sign off. The Dow Jones hit another record high, it closed above 32,000, following the announcement of the relief package," said David Madden, market analyst at CMC Markets.
In New York on Wednesday, the Dow Jones Industrial Average ended up 1.5% at 32,297.02, the S&P 500 up 0.6% and the Nasdaq Composite slightly lower.
US Congress on Wednesday passed Biden's enormous economic relief package, delivering a resounding victory for the president and a desperately needed injection of cash to millions of families and businesses enduring the coronavirus pandemic.
The USD1.9 trillion plan, which funds Covid-19 vaccines and sends stimulus checks of up to USD1,400 to most Americans, passed the House of Representatives with zero support from Republicans, who accused Biden of abandoning his Inauguration Day pledge to unify the nation.
The White House said Biden - who made the American Rescue Plan his top legislative priority - planned to sign the measure into law on Friday, days before unemployment benefits were scheduled to expire for millions of people.
CMC's Madden said: "The bullish sentiment from the US pushed up equity markets in the Far East; in addition to that, European stocks are poised for a positive start."
In Asia on Thursday, the Japanese Nikkei 225 index closed up 0.6%. In China, the Shanghai Composite closed up 2.4%, while the Hang Seng index in Hong Kong is up 1.6%. In Sydney, the S&P/ASX 200 index closed marginally lower at 6,713.90 points.
In early UK company news, oil major Shell appointed Andrew Mackenzie as it next chair, succeeding Chad Holliday at the annual general meeting on May 18. Mackenzie joined the Shell board back in October, having been chief executive officer of miner BHP Group until 2019.
Rolls-Royce revealed it burned through GBP4.2 billion in 2020, a year which grounded its airline customers, and swung to a deeper-than-expected loss.
The jet engine maker reported revenue of GBP11.82 billion for 2020, down 29% from GBP16.59 billion the year before. Its reported pretax loss deepened to GBP2.91 billion from GBP891 million, while it swung to an underlying pretax loss of GBP3.96 billion from profit of GBP583 million. The underlying pretax loss had been seen by consensus coming in at GBP3.14 billion.
"Our financial performance in 2020 was significantly affected by the Covid-19 pandemic. The global spread of the virus from March resulted in a sudden deterioration of some of our end markets. A positive albeit reduced contribution from Power Systems and growth in Defence were important to the group's overall performance, partly offsetting the severe impact to our Civil Aerospace business," said Rolls-Royce.
Rolls-Royce said its cash outflow for the year was a staggering GBP4.19 billion, versus an inflow of GBP873 million in 2019, though this was in line with analyst expectations. It reflected a deterioration in its underlying performance due to the pandemic and the hit to Civil Aerospace in particularly.
The FTSE 100 constituent expects a cash outflow of around GBP2.0 billion in 2021. It expects to become cash flow positive "at some point" during the second half of this year. Engine flying hours for 2021 are forecast at around 55% of 2019 levels, but the company said things could be worse.
"Our severe but plausible downside scenario assumes approximately 45% EFH in 2021 and 70% in 2022, both compared to the 2019 level," said Rolls-Royce.
Wm Morrison Supermarkets reported strong like-for-like growth in its recently-ended financial year, boosted by the closure of restaurants and pubs during virus lockdowns, though profit slipped as it repaid business rates relief.
Total revenue for the financial year to January 31 rose 0.4% to GBP17.6 billion, with like-for-like sales, excluding fuel and VAT, up 8.6% compared to a fall of 0.8% the year before. Pretax profit fell 62% to GBP165 million.
Profit before tax and exceptional items fell 51% to GBP201 million, including GBP290 million in direct Covid-19 costs. Profit would have been up 5.6% to GBP431 million before the payment of GBP230 million waived government business rates relief, Morrisons noted, and it expects to achieve that same figure in financial 2022.
"This target assumes a gradual return to more normal trading conditions, no significant increases in expected direct Covid-19 costs such as elevated colleague absence, and no further restrictions such as another period of prolonged cafe closures. However, we enter 2021-22 with strong trading and operational gearing momentum, and further productivity and cost efficiency opportunities supported by our very robust underlying cash flow and balance sheet," said Morrisons.
Morrisons declared a final dividend of 5.11p, taking the full-year ordinary dividend to 7.15p, up 5.6% on the year before, and the total payout for the year to 11.15p, up 27%.
Advertising and marketing firm WPP said its performance was resilient in 2020, even as revenue fell and it swung to loss.
Revenue for 2020 fell 9.3% to GBP12.00 billion, with revenue less pass-through costs down 10% at GBP9.76 billion. The firm swung to a pretax loss of GBP2.79 billion from a GBP1.21 billion profit in 2019 due to impairments of GBP3.1 billion.
WPP noted that full-year like-for-like revenue less pass-through costs fell 8.2%, with a sequential recovery from initial lockdowns as the second quarter saw a 15% fall, the third quarter a 7.6% decline and the fourth quarter a 6.5% slip.
"While revenue was significantly impacted as clients reduced spending, our performance exceeded our own expectations and those of the market throughout the year. There is no doubt that the actions we took during the previous two years to transform and simplify the business and reduce debt - to a 16-year low at the end of 2020 - played a crucial role in the strength of our response," said Chief Executive Mark Read.
WPP proposed a final dividend of 14.0p for 2020, bringing the total for the year to 24p versus 22.7p in 2019. The firm added that it is recommencing its share buyback, funded by the proceeds of the Kantar transaction, immediately, planning to purchase up to GBP300 million by June.
WPP sold a 60% stake in brand and marketing research firm Kantar to private equity firm Bain Capital in 2019 for USD3.1 billion.
For 2021, WPP reiterated its guidance of organic growth in mid-single-digits percent and a headline operating margin around 13.5% to 14.0%.
"While uncertainties remain around the impact of the vaccine roll-out and economic growth, we continue to expect 2021 to be a year of solid recovery," CEO Read said.
IG Group Holdings said it continued to see "exceptional" levels of trading activity in the third quarter.
The online trading platform delivered revenue of GBP230.3 million for the three months to the end of February, up 65% year-on-year and up 11% on the second quarter. This was driven by sustained elevated levels of trading from existing clients and high levels of client acquisition.
"With the sustained higher levels of volatility in the financial markets in FY21, IG's active client base is now at record levels and is materially larger than in the prior year period, with trading behaviours and levels of retention comparable to historical averages," said IG.
In foreign exchange market early Thursday, the safe-haven Japanese yen edged down against the dollar amid Thursday's risk-on move, while other currencies notched gains versus the greenback.
The dollar nudged up to JPY108.66 early Thursday in London from JPY108.65 at the London equities close on Wednesday.
Sterling was quoted at USD1.3953 early Thursday, higher than USD1.3902 late Wednesday.
The euro traded at USD1.1936, up from USD1.1900 late Wednesday, ahead of the European Central Bank's latest interest rate decision.
The ECB Governing Council meets this week in Frankfurt, announcing its latest policy decision at 1245 GMT on Thursday. This will be followed by a press conference with President Christine Lagarde at 1330 GMT.
No policy change is expected this week, but markets will be looking out for comments from Lagarde over rising bond yields and inflation expectations.
"The long and the short of it is that the ECB will probably stick to verbal intervention and/or a step up in the PEPP pace. If that doesn't stop the upward momentum in sovereign yields, the ECB may have to reconsider more drastic options, such as a form of outright yield curve control," said Rabobank.
Elsewhere, the economic events calendar on Thursday has the latest US jobless claims figures at 1330 GMT.
Gold was quoted at USD1,735.71 an ounce early Thursday, higher than USD1,719.15 on Wednesday. Brent oil was trading at USD68.15 a barrel, up from USD67.85 late Wednesday.
By Lucy Heming; lucyheming@alliancenews.com
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