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(Alliance News) - Stocks in London are set to open modestly higher on Tuesday, amid caution as the US Federal Reserve kicks off its two-day policy meeting.
In early UK company news, oil company BP posted a profit for the first quarter and unveiled plans for a USD500 million share buyback after hitting its debt target. Bankers HSBC reported a big jump in first quarter profit after a provision release. Among travel and leisure firms, Whitbread swung to a full-year loss and Jet2 guided to the same.
IG says futures indicate the FTSE 100 index of large-cap London stocks to open up 4.98 points, or 0.1%, at 6,969.60 on Tuesday. The FTSE 100 index closed up 24.56 points, or 0.4%, at 6,963.12 on Monday.
"In spite of the strong finish for US markets yesterday and a subdued Asia session, today's European open looks set to be another subdued one as the latest Federal Reserve meeting gets under way, with little expectation of any distinct change of tone from what we saw in March, with the US dollar expected to come under further pressure in the short term," said Michael Hewson, chief market analyst at CMC Markets.
Ahead of Wednesday's US interest rate decision, the Bank of Japan on Tuesday raised its growth forecasts for the world's third-largest economy, citing expected stronger demand, and left its ultra-loose monetary policy in place.
But it acknowledged that the outlook remains "highly unclear" and could change depending on how the still-raging coronavirus pandemic evolves and affects the domestic and international economy.
Still, the BoJ revised up its estimate for the 2020-21 fiscal year that ended on March 31, projecting the economy shrank 4.9%, compared with the 5.6% contraction it predicted in January. For the current fiscal year, it now expects 4.0% growth, against its January forecast of 3.9%, while it lifted its expectations for the fiscal year ending in March 2023 to 2.4%, from 1.8% previously.
The Japanese yen was a touch lower Tuesday. The dollar was quoted at JPY108.22, higher versus JPY108.18 late Monday in London.
In Tokyo, the Nikkei 225 index closed down 0.5%. In China, the Shanghai Composite was down 0.1%, while the Hang Seng index in Hong Kong was down 0.1%. The S&P/ASX 200 in Sydney ended down 0.2%.
Helping to cushion the Hang Seng index was HSBC, rising 1.7% after saying it started 2021 with a sharp jump in pretax profit, boosted by credit releases.
Pretax profit in the three months to March 31 improved 79% to USD5.78 billion from USD3.23 billion the year before. In the first quarter, HSBC's expected credit losses came out as a net release of USD400 million compared to the mammoth USD3.0 billion charge seen a year before.
The London-headquartered but Asia-focused bank reported growth from all regions, with Asia profit growing slightly to USD3.76 billion but European and North American operations swinging to profit from a loss a year before.
As a busy week for UK earnings heats up, oil major BP said it will start share buybacks after reducing net debt below USD35 billion.
BP reported a replacement cost profit for the first quarter of 2021 of USD3.33 billion, swinging from a loss of USD628 million a year ago, while underlying RC profit jumped to USD2.63 billion from USD791 million.
"This result was driven by an exceptional gas marketing and trading performance, significantly higher oil prices and higher refining margins," the company said.
Brent oil was trading at USD66.09 a barrel early Tuesday, higher than USD65.50 late Monday and triple its value compared to a year ago.
BP ended the period with net debt of USD33.31 billion, well down on the USD51.40 billion reported at the same date a year ago. BP's net debt stood at USD38.9 billion at the end of 2020.
"We generated around USD11 billion of cash inflow in the first quarter, enabling us to reach our USD35 billion net debt target significantly ahead of plan and move to the second phase of our financial frame. We are starting buybacks in the second quarter with the intent to offset the full-year dilution from employee share schemes. In addition, we intend to distribute 60% of surplus cash flow for 2021 through share buybacks, with the remaining 40% being used to further strengthen our balance sheet," said Chief Financial Officer Murray Auchincloss.
BP plans to buyback USD500 million of shares in the second quarter. It will provide an update on third-quarter buyback plans at the time of its second-quarter results, it said.
Chief Executive Bernard Looney said: "With the acceleration of divestment proceeds, together with strong business performance and the recovery in the price environment, we generated strong cash flow and delivered on our net debt target around a year early. We are commencing share buybacks in the second quarter which, alongside our resilient dividend, support the growth in distributions to shareholders."
BP's dividend was held steady at 5.25 cents for the first quarter of 2021 with that paid out for the fourth quarter of 2020 - though half of the 10.50 cents dividend paid for the first quarter of 2020.
Looking ahead, the energy giant expects oil demand will recover this year due to strong growth in US and China and the rollout of vaccines.
Premier Inn hotel chain owner Whitbread said its full-year performance reflected the virus restrictions that were in place for the bulk of the period.
Revenue for the financial year that ended February 25 sank 72% to GBP589.4 million from GBP2.07 billion the year before, sending Whitbread to a pretax loss of GBP1.01 billion from a profit of GBP280.0 million.
The loss included an impairment charge of GBP348.0 million relating to goodwill in Germany, property, plant and equipment and right-of-use assets, as a result of impairment reviews triggered by the Covid-19 situation and its impact on current and future growth rates.
No payout was recommended for the recently ended year, after a total dividend of 32.7p paid for the 2020 financial year.
Whitbread said dividends will not be paid during its current revolving credit facility covenant waiver period, which lasts until March 2023, as a condition agreed with lenders and pension trustees, or until the original covenant tests are passed.
"The board hopes to return to paying dividends again following the normalisation of the group's financial position and performance," Whitbread said.
Jet2 guided to a loss for its recently ended financial year, though said the rollout of vaccines is encouraging.
The airline and package holiday operator expects to report a loss before foreign exchange revaluation and tax from continuing operations for the financial year ended March 31 between GBP375 million to GBP385 million, swinging from a profit of GBP264.2 million the year before.
The UK's vaccine rollout and increasing momentum in Europe are both encouraging for the financial year ahead, Jet2 said, though it highlighted uncertainty over the UK government's proposed Covid-19 travel restrictions for the 2021 summer season.
"Unsurprisingly given the short-term uncertainty, customers are booking significantly closer to departure for Summer 21. However, we continue to be encouraged by the volume of customer bookings for both Winter 21/22 and for Summer 22, for which package holiday bookings are displaying a materially higher mix of the total," it said.
In the US late Monday, Tesla reported a surge in first-quarter earnings but shares fell after-hours in New York.
In the first quarter of 2021, Tesla posted revenue of USD10.39 billion, up 74% from USD5.99 billion in the first quarter of 2020. First quarter diluted GAAP earnings per share attributable to common stockholders was USD0.39 from USD0.02 last year.
Tesla reported in first-quarter vehicle deliveries of 184,800 Model 3 and Model Y cars, beating expectations and setting a record for the Palo Alto, California-based firm.
However, Nicholas Hyett, an analyst at Hargreaves Lansdown, commented: "Less positively, there's the complete lack of guidance around near-term production headwinds. A global shortage of computer chips is expected to limit production from all manufacturers in the immediate future, and Tesla won't be exempt. Given the ongoing importance of its production ramp up, it may even be more heavily impacted."
In the US on Monday, Wall Street ended mostly higher, with the Dow lagging. The Dow Jones Industrial Average ended down 0.2%, the S&P 500 up 0.2%, and the Nasdaq Composite up 0.9%.
Sterling was quoted at USD1.3891 early Tuesday, higher than USD1.3885 at the London equities close on Monday. The euro traded at USD1.2072, soft on USD1.2075 late Monday.
Gold was quoted at USD1,781.20 an ounce early Tuesday, rising from USD1,777.60 on Monday.
The economic calendar on Tuesday has a US monthly house price index print at 1400 BST.
By Lucy Heming; lucyheming@alliancenews.com
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