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(Alliance News) - Stock prices in London are set to open lower on Wednesday with sentiment muted despite a rally on Wall Street overnight.
In early UK company news, Ferguson laid out plans for a two-step shift to a primary US listing, while Hastings and Spirent Communications said they still intend to pay previously planned dividends.
IG says futures indicate the FTSE 100 index of large-caps to open 37.71 points lower at 5,753.60 on Wednesday. The FTSE 100 index closed down 51.35 points, or 0.9%, at 5,791.31 on Tuesday.
"For now market sentiment continues to get support from declining virus infection rates in most of Europe and investors hope that the prospect of a gradual reopening of virus-hit economies will eventually rekindle demand," said Danske Bank.
However, the bank added: "A more cautious risk sentiment also prevailed in Asia this morning as China's central bank again lowered the rate on its one year medium-term lending facility by 20bp."
In Asia on Wednesday, the Japanese Nikkei 225 index closed down 0.5%. In China, the Shanghai Composite is down 0.5%, while the Hang Seng index in Hong Kong is down 0.7%. Â
The muted trading in Asia followed a strong session in the US overnight. The Dow Jones Industrial Average ended up 2.4%, the S&P 500 up 3.1% and the Nasdaq Composite up 4.0%.
US President Donald Trump announced Tuesday that swaths of the US could lift coronavirus shutdowns "very soon" and made peace with state governors after being accused of acting like a king. The president indicated that numerous states with less dense populations could open "very, very soon, sooner than the end of the month," while places like New York could take longer.
While defusing an extraordinary domestic row, Trump however opened a new front on the international stage when he announced a freeze in US funding to the World Health Organization because he said it had been biased toward China. According to Trump, the WHO prevented transparency over the Covid-19 outbreak when it appeared in China, costing other countries crucial time to prepare, delaying decisions to stop international travel.
Meanwhile, China's economy contracted for the first time in around three decades in the first quarter as the coronavirus crisis brought the country to a standstill, according to an AFP poll of economists. The world's second-largest economy tanked in the first three months of the year as factories closed, consumers were compelled to stay home and the virus spread to other countries.
Analysts from 14 institutions expect China's economy to have shrunk 8.2% from a year ago in the first quarter – the first contraction since quarterly data started to be reported in the early 1990s.
"News on how long and how deep the coronavirus-led recession should continue hitting the global headlines and sour the investor mood," said Ipek Ozkardeskaya at Swissquote bank.
"Under these circumstances, and with looming first quarter corporate earnings, recent gains we have seen in equity markets could be the calm before the storm," Ozkardeskaya continued. "Investors could close their positions and run to safety in the blink of an eye. This explains why safe-haven assets are curiously bid despite solid gains across global equities."
Gold was quoted at USD1,726.37 an ounce early Wednesday, lower than USD1,734.53 on Tuesday but still up almost 5% from USD1,650.50 late Wednesday last week.
Brent oil was trading at USD29.81 a barrel early Wednesday, down from USD30.08 late Tuesday.
Sterling was quoted at USD1.2604 early Wednesday, higher than USD1.2597 at the London equities close on Tuesday.
The euro traded at USD1.0975 early Wednesday, up from USD1.0962 late Tuesday. Against the yen, the dollar was quoted at JPY107.03, soft from JPY107.15.
In early London company news, Ferguson said it thinks the US is its "natural long-term listing location" after a demerger of its UK operations.
After consultation with institutional shareholders, Ferguson said it does not think the required 75% majority would be in favour of a primary US listing. Thus - once "general uncertainty" from Covid-19 dies down - Ferguson will convene a general meeting to consider an additional listing in the US which, if approved, would take effect in the first half of 2021.
"The board expects that the additional US listing will facilitate increased ownership by domestic US funds and, accordingly, the company will also initiate additional full-time investor relations support in the region. In addition, the executive team will also undertake extensive additional investor marketing in the US," said Ferguson.
Within a year of the additional US listing, the board intends to put forward a further resolution to relocate the company's primary listing to the US.
"We believe that ultimately achieving a US primary listing remains the right outcome for our business as a domestic US value-added distributor. Consequently, after a period of transition, the board intends to hold a further shareholder vote to change the primary listing to the US. We believe this process presents the most orderly and equitable path to achieving this aim," said Chair Geoff Drabble.
Separately, the firm said trading to March 31 was not "materially impacted" by coronavirus, though revenue growth softened towards the end of the period.
Revenue from ongoing operations rose 4.3% in the first half of financial 2020, and was up 7.3% in the two months ended March. Within this, US revenue grew 5.0% in the half, and 8.2% in the two-month period, while Canadian sales fell.
Given Covid-19 uncertainty, Ferguson is not providing guidance for the financial year ending July 31, and has suspended its USD500 million share buyback.
Packaging firm Smurfit Kappa said its performance in the first quarter was strong, though sales and earnings were down on a year ago.
Revenue was EUR2.19 billion in the three months to March, down from EUR2.32 billion a year ago. Ebitda fell to EUR380 million from EUR424 million.
Volumes in Europe increased by 3%, or around 2% on an organic basis, while demand in the Americas grew by 3.5% year-on-year.
Smurfit said that due to Covid-19 uncertainty, it is prudent to no longer recommended 2019's proposed final dividend at its upcoming annual general meeting.
"Beyond the current uncertainty that Covid-19 brings, the board remains committed to providing shareholders with an attractive and progressive dividend stream. The board will make an assessment of the quantum and timing of a dividend later in the year when the effects of the current Covid-19 pandemic are better understood," said Smurfit.
Insurer Hastings Group said the first quarter of 2020 was "unprecedented" with Covid-19 heaping operational challenges on top of recent industry headwinds.
Gross written premiums were stable at GBP234.3 million for the three months to March 31, but net revenue was "down slightly" at GBP179.2 million, as policy growth was more than offset by lower earned premiums and reduced investment income.
"Trading trends in light of Covid-19 continue to be monitored closely, including any impact in trading income due, in particular, to reduced mid-term policy adjustment income and the impact of the actions the group has taken, and may continue to take, to support policyholders," the group said.
Motor insurance accident frequencies reduced during March, Hastings added, with this trend expected to continue for the duration of Covid-19 travel restrictions.
The insurer still intends to seek shareholder approval for its 2019 final dividend of 5.5p at May's AGM.
Most of Hastings's insurance peers have pulled their planned payouts. RSA and Aviva have already withdrawn their 2019 final dividend, as have Direct Line Insurance Group and Hiscox.
Spirent Communications also confirmed it will pay its 2019 final dividend.
The firm said it delivered "strong results" in the quarter to March 31, with revenue up 12% and "robust" profit growth.
After taking into account strong cashflow in the period, which resulted in a cash balance of USD208 million at the end of March, Spirent said it intends to pay its previously announced 2.70p final dividend. This will be paid at the start of May.
"We have started the year well and our pipeline remains solid. We recognise that the current volatile environment may affect deal timing and as a result, we continue to be extremely vigilant and are taking prudent actions to mitigate risk and delay discretionary expenses. We are keeping a careful eye on customer demand as we monitor the continuing effects of the virus," said Chief Executive Eric Updyke.
The economic calendar has US retail sales at 1330 BST and an interest rate decision from the Bank of Canada at 1500 BST.
By Lucy Heming; lucyheming@alliancenews.com
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