(Alliance News) - Stocks in London are seen following the slump on Wall Street overnight as a rise in US bond yields spooks investors.
In early UK company news, International Consolidated Airlines swung to a huge loss for 2020, a year which battered the airline industry. Things were better online than in the air. Property portal Rightmove noted the UK housing market's "optimistic start" to 2021, and retailer Pets at Home upgraded profit guidance.
IG says futures indicate the FTSE 100 index of large-caps to open 74.86 points lower, or down 1.1%, at 6,577.10 on Friday. The FTSE 100 closed down 7.01 points, or 0.1%, at 6,651.96 on Thursday.
"This week has been characterised by the question as to whether higher rates are good or bad for stock markets. If last night's price action in the US is any guide then the answer to that would be a no, with the sharp declines in the US set to result in a negative start for markets here in Europe, after Asia markets slid sharply as well," said Michael Hewson, chief market analyst at CMC Markets.
He commented: "For most of this week equity markets have tried to move higher, and tried to move lower and succeeded in not doing much at all until last night in the US, which saw the Nasdaq post its biggest one day fall since October, while US 10-year yields hit a peak above 1.6%, before pulling back to just below 1.5%."
In the US on Thursday, Wall Street ended sharply lower, with the Dow Jones Industrial Average ending down 1.8%, the S&P 500 sliding 2.5% and the Nasdaq Composite tumbling 3.5%.
The fall in New York translated into a tough session for Asia. The Japanese Nikkei 225 index closed down 4.0%. In China, the Shanghai Composite ended down 2.1%, while the Hang Seng index in Hong Kong was down 3.3%. The S&P/ASX 200 in Sydney finished 2.4% lower.
Worries over interest rates and inflation expectations have come against an improving economic outlook. The US on Thursday hailed progress in turning around its troubled Covid-19 vaccine rollout, and the EU said it also was on track to meet jab targets as global coronavirus deaths topped 2.5 million.
US President Joe Biden declared the US rollout is now "weeks ahead of schedule" as he celebrated 50 million vaccines administered since he took office on January 20, but he warned Americans to keep masking up. The US is the world's hardest-hit country, with coronavirus deaths crossing the 500,000 mark earlier this week.
The EU announced Thursday it expected to vaccinate 70% of adults by the end of the summer, after months of problems and friction. Britain, which has forged ahead with its vaccine drive, said it was lowering its alert level from the highest tier - from 5 to 4 - citing a dip in cases.
While the medium-term outlook for the pandemic has improved, results from British Airways parent International Consolidated Airlines showed there is considerable short-term uncertainty and a backlog of damage.
The airline operator swung to a loss for 2020, as it flew just 34% of 2019's passenger capacity last year. Current plans for the first quarter of 2021 is for capacity of 20% of 2019 levels, IAG said, but this remains "uncertain and subject to review".
Total revenue for 2020 slumped 69% to EUR7.81 billion, while IAG swung to a hefty pretax loss of EUR7.81 billion from a EUR2.28 billion profit in 2019. The company turned to an operating loss of EUR7.43 billion from a EUR2.61 billion profit.
"Our results reflect the serious impact that Covid-19 has had on our business. We have taken effective action to preserve cash, boost liquidity and reduce our cost base. Despite this crisis, our liquidity remains strong. At 31 December, the group's liquidity was EUR10.3 billion including a successful EUR2.7 billion capital increase and GBP2 billion loan commitment from UKEF. This is higher than at the start of the pandemic," said Chief Executive Luis Gallego.
He added: "We know there is pent-up demand for travel and people want to fly. Vaccinations are progressing well and global infections are going in the right direction. We're calling for international common testing standards and the introduction of digital health passes to reopen our skies safely."
Given the uncertainty over Covid-19, including the duration of the pandemic, IAG said it is not providing profit guidance for 2021.
In other early UK company news, property portal Rightmove reported a fall in revenue for 2020 as it offered a discount to customers from April to September.
Revenue fell 29% to GBP205.7 million, with pretax profit falling to GBP134.8 million from GBP213.6 million.
The company noted that market closures in the first half of the year prompted it to offer support to its Agency and New Homes customers, initially with a 75% discount from April to July, followed by 60% and 40% for Agency customers in August and September. Since housing markets have reopened around the UK, the recovery in home moving activity has been "strong".
"The UK housing market has, for the most part, shaken off pandemic-related challenges to forge an optimistic start to 2021. In the absence of further economic shocks, we think it is likely that the current shortage of new listings will correct once the immediate lockdown is lifted and will have no lasting impact on estate agency branch numbers," said Rightmove.
Chief Executive Peter Brooks-Johnson added that strong activity has continued into 2021 and the company recorded its busiest January ever for traffic.
Rightmove declared a final dividend of 4.5 pence, having cancelled 2019's 4.4p final dividend. The final dividend is the only payout Rightmove will make for 2020, versus a total payout of 2.8p for 2019, though it added that it has approved the resumption of its share buyback programme in March 2021.
RSA Insurance reported "record" underwriting results as it prepares to be acquired and divided up by Intact and Tryg.
Total income for 2020 amounted to GBP6.55 billion, down from GBP6.90 billion the year before, while pretax profit edged down to GBP483 million from GBP492 million, which the company chalked up to "market impacts" from Covid-19, bid costs, exits and restructuring. Underlying pretax profit rose 15% to GBP718 million.
The insurer reported a 36% increase in underwriting profit to GBP550 million.
"We are pleased to report excellent results for RSA in 2020. Underwriting profits are sharply up to new record levels and return on tangible equity has risen above our target range," said Chief Executive Stephen Hester.
"We have built a high performing company and 2020's results showcase the value creation thereby achieved. This in turn drove the 52% premium we were able to negotiate in Q4 through an all cash bid from Intact and Tryg. The offer is on track to complete in the coming months, ending a chapter for RSA but not the whole story..."
Back in November, RSA Insurance agreed to be sold in a deal with Canada's Intact Financial and Denmark's Tryg that valued the insurer at GBP7.2 billion.
Pets at Home lifted guidance as it reported strong recent trading.
The pet care business said that its performance over the last eight weeks has been ahead of expectations, with continued strong and broad-based growth across all channels and categories. As such, Pets at Home now expects full-year underlying pretax profit, including the previously announced repayment of business rates relief of GBP28.9 million, to be around GBP85 million, which is ahead of previous guidance of at least GBP77 million.
"While recent positive progress around vaccinations for Covid-19 reduces the level of uncertainty ahead, our priority remains safeguarding the health, safety and wellbeing of all of our colleagues, partners and customers," said Pets at Home.
The pound retreated from the USD1.40 mark amid the overnight risk-off moves. Sterling was quoted at USD1.3931 early Friday, tumbling from USD1.4130 at the London equities close on Thursday. The euro also fell, to USD1.2141 from USD1.2230 late Thursday.
The safe-haven Japanese yen gained, however. Against the yen, the dollar was quoted at JPY106.05, down versus JPY106.22.
Gold was quoted at USD1,758.15 an ounce early Friday, lower than USD1,778.65 on Thursday. Brent oil fell to USD66.04 a barrel from USD66.90 late Thursday.
By Lucy Heming; lucyheming@alliancenews.com
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