(Alliance News) - Stocks in London are set to slide on Thursday after a sell-off on Wall Street overnight as inflation and recession worries persist.
In early UK company news, HomeServe agreed to be bought by suitor Brookfield in a GBP4.1 billion deal. Royal Mail warned there is "downside risk" to full-year forecasts. easyJet slimmed its interim loss.
IG says futures indicate the FTSE 100 index of large-caps to open down 51.29 points, or 0.7%, at 7,386.80 on Thursday. The FTSE 100 closed down 80.26 points, or 1.1%, at 7,438.09 on Wednesday.
"I was saying yesterday that the optimism in the market wouldn't last because this week's retail sales data in the US wasn't pointing at slowing inflation, and what Jerome Powell said in a conference this week wasn't something that investors would normally like to hear. Powell said this week that the Federal Reserve would go beyond what could be a neutral rate to tame inflation," said Ipek Ozkardeskaya, senior analyst at Swissquote.
In the US on Wednesday, Wall Street ended sharply in the red, with the Dow Jones Industrial Average ending down 3.6%, the S&P 500 down 4.0%, and the Nasdaq Composite down 4.7%.
It was the Dow and S&P's chunkiest points losses since June 2020, with a relief rally on Tuesday proving only temporary as inflation fears battered stocks once again.
"The weakness came as Target's quarterly earnings added fuel to the recession risk narrative," said Stephen Innes at SPI Asset Management.
Shares in retailer Target tumbled 25% after reporting a first-quarter profit "well below" expectations due to surging costs. This followed retailing peer Walmart earlier in the week posting an "unexpected" result for its first quarter, with profit dropping, amid inflation and supply chain issues.
Innes added: "Equities continue to be at the mercy of broader macro themes, with more hawkish comments from Fed Chair Jay Powell leading to a further move higher in front-end rates, which continues to prove problematic for risk."
In early UK company news, postal operator Royal Mail said there is "downside risk" to consensus expectations for the year ahead after registering a drop in annual profit.
Revenue for the financial year that ended March 27 rose 0.6% to GBP12.71 billion from GBP12.64 billion, with its domestic UK arm registering a 1.6% sales decrease but GLS revenue up 4.4% in sterling terms.
However, pretax profit dropped 8.8% to GBP662 million from GBP726 million. In its UK unit, adjusted operating profit jumped 21% with the margin up 90 basis points, but European and North American parcel operation GLS reported a 4.5% decline in profit on sterling terms with a 80 basis points margin drop.
Royal Mail proposed a final dividend of 13.3 pence, taking its full-year payout to 20p. This is double on the 10p paid out the year before.
Looking ahead, it said current adjusted operating profit consensus of GBP303 million sits within range of potential outcomes but "with downside risk". This would be down sharply on the GBP758 million posted for the recently ended financial year.
"Whilst a difficult environment persisted over the last year, with operational challenges caused by Omicron and tight labour markets, we continued to see financial tailwinds from the pandemic, which are now dissipating. We also have clear headwinds as we enter 2022-23, such as weakening GDP and growing inflationary pressures," said Chair Keith Williams.
Scottish Mortgage Investment Trust reported a net asset value total return of minus 13% for the 12 months to March 31, lagging its benchmark, the FTSE All-World Index, which returned positive 13%.
"There was cause for optimism as the global economy reopened following the initial period of lockdown. However, it did so in a stuttering fashion that brought with it the spectre of higher inflation and rising interest rates. These factors, together with concerns about Chinese regulation and Russia's assault on Ukraine, spread fear amongst markets and significantly reduced the valuations of many growth companies," the inestment firm said.
Budget airline easyJet said it expects to fly near pre-pandemic capacity in the coming months as it reported a narrowed interim loss.
easyJet reported a surge in revenue to GBP1.50 billion in the half-year to March 31 from just GBP240 million in the Covid-hit prior-year period. Its pretax loss narrowed to GBP557 million from GBP645 million.
The firm posted a headline pretax loss of GBP545 million, slimming from GBP701 million. This was towards the bottom end of its previously guided range of GBP535 million to GBP565 million.
easyJet benefited from a relaxing of Covid restrictions in the period, flying increased capacity - with passenger revenue soaring to GBP985 million from just GBP170 million year-on-year - and demand returning, though there was a temporary Omicron blip during the winter.
"The pent-up demand and removal of travel restrictions provided for a strong and sustained recovery in trading which has been further boosted as result of our actions. These include the radical reallocation of aircraft which has seen more than 1.5m seats moved to the best performing markets and the step-change in our ancillary products delivering increased revenue - both of which have contributed to our total yield increasing by 9% compared to the same period in FY19," said Chief Executive Johan Lundgren.
Looking ahead, easyJet expects to operate 90% of pre-pandemic capacity in the third quarter and said that fourth-quarter capacity on sale represents 97% of pre-virus levels.
"The airline industry has recently been experiencing operational pressures, which mainly impacted easyJet through early April...Despite this, bookings continue to be strong as we have seen demand, post the impact of the Omicron variant, returning with the removal of travel restrictions," it said.
HomeServe has agreed to be taken over by Brookfield Infrastructure Partners in a deal worth GBP4.08 billion.
Brookfield has offered 1,200p per share in cash for each HomeServe share. This represents a 71% premium to HomeServe's closing price on March 23, being the last business day before the start of the offer period, and is 14% above Wednesday's closing price of 1,053.65p.
The HomeServe directors intend to recommend unanimously shareholders back the deal.
"Whilst the HomeServe board did not solicit an offer from Brookfield, they believe that the acquisition, at 1,200 pence per HomeServe Share, reflects the strength of the HomeServe business and its future prospects," the company said.
Darktrace, noting recent media reports, said it sees "no link" between the firm and the civil actions against Mike Lynch by Hewlett Packard.
The Telegraph late Tuesday reported that Darktrace's strategy chief was part of a group of executives who helped to misrepresent the success of software company Autonomy, which was acquired by Hewlett-Packard Co back in 2011.
The Telegraph reported Darktrace Chief Strategy Officer Nicole Eagan has been named as "part of a clique" in a fraud ruling at the UK High Court. The Telegraph noted Eagan was marketing chief at software company Autonomy, when it was sold to Hewlett-Packard in 2011. Autonomy Co-Founder Mike Lynch has been accused of deliberately overstating the value of his business before it was acquired by the American technology firm. Lynch also co-founded Darktrace.
Darktrace in a statement said: "Neither Darktrace nor any of its acting executives was a party to the civil proceedings. Neither Darktrace nor its acting executives are the target of any investigation."
It added its trading and outlook remain unchanged.
In Asia on Thursday, the Japanese Nikkei 225 index closed down 1.9%. In China, the Shanghai Composite was down 0.1%, while the Hang Seng index in Hong Kong was down 2.4%. The HK index was dragged down by Chinese tech stock Tencent, down 6.8%, following some disappointing earnings on Wednesday. In Sydney, the S&P/ASX 200 fell 1.7%.
Gold was quoted at USD1,813.81 an ounce early Thursday, down from USD1,817.50 on Wednesday. Brent oil was trading at USD110.63 a barrel, firm against USD109.83 late Wednesday.
Sterling was quoted at USD1.2363 early Thursday, falling from USD1.2402 at the London equities close on Wednesday.
The euro traded at USD1.0484 early Thursday, soft against USD1.0497 late Wednesday. Against the yen, the dollar rose to JPY128.65 versus JPY128.21.
Thursday's economic calendar has the latest US initial jobless claims number at 1330 BST.
By Lucy Heming; lucyheming@alliancenews.com
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