LONDON MARKET MIDDAY: Apple Warning, HSBC Restructure Drag On FTSE 100

Tue, 18th Feb 2020 11:57

(Alliance News) - London stocks traded firmly in the red on Tuesday following a revenue warning from iPhone maker Apple, with the FTSE 100 further weighed down by HSBC after the bank unveiled details of a wide restructuring.

The FTSE 100 index was down 67.02 points, or 0.9%, at 7,366.23 on Tuesday. The FTSE 250 was down 98.52 points, or 0.5%, at 21,727.82, and the AIM All-Share was down 0.5% at 964.26.

The Cboe UK 100 was down 0.9% at 12,478.02, the Cboe UK 250 was down 0.4% at 19,606.95, and the Cboe Small Companies down 0.1% at 12,437.64.

In European equities, the CAC 40 in Paris was down 0.4%, while the DAX 30 in Frankfurt was 0.7% lower.

"A warning from Apple has put the cat among the pigeons and provided the first real evidence that the coronavirus will have ramifications beyond China," said Chris Beauchamp, chief market analyst at IG.

The COVID-19 virus, which is believed to have originated in Wuhan late last year, has now spread to more than 72,000 people and killed 1,900 in China.

Amid this, Apple said that disruption due to the novel coronavirus had hit both production and demand in China, and the company was "experiencing a slower return to normal conditions" than planned.

"We do not expect to meet the revenue guidance we provided for the March quarter," it said in a statement, adding that worldwide iPhone supply would be "temporarily constrained" and demand in China had been affected.

Apple had forecast revenue of USD63 billion to USD67 billion for the second quarter to March.

Shares in the iPhone maker were down 3.2% in pre-market trade in New York.

"Markets had been rubbing along in expectation that stimulus from China would smooth over any bumps in the road," said IG's Beauchamp. "But Apple's warning upends those forecasts and suggests that we will see other companies reporting warnings."

Re-opening from Monday's holiday, stocks in the US are called lower. The Dow Jones is seen down 0.5%, the S&P down 0.4% and the Nasdaq 0.7% lower.

In data on Tuesday, UK earnings growth disappointed in December while the unemployment rate remained steady.

The unemployment rate was stable at 3.8% in the October to December period, in line with the reading for the three months to November. It was, though, 0.1 of a percentage point lower than the previous quarter.

Average weekly earnings growth slowed to 2.9% for total pay, which includes bonuses, from 3.2% the month before. For regular pay, which strips out bonuses, this decelerated to 3.2% from 3.4%.

Consensus, according to FXStreet, had pencilled in 3% growth for total pay and 3.3% growth for average pay. This marked the slowest growth in total pay since August 2018, when wages rose 2.8%.

The pound was quoted at USD1.3038 at midday following the data, higher than USD1.3013 at the London equities close Monday.

Meanwhile, the euro was soft at USD1.0833 on Tuesday versus USD1.0836 late Monday amid woeful economic sentiment data from Germany.

The ZEW economic sentiment indicator posted 8.7 points in February, down from 26.7 in January, and also lower than the 10.7 in December. The indicator assessing the current situation in Germany also declined in February, with the survey dropping to minus 15.7 points from minus 9.5 points in January.

Naeem Aslam at AvaTrade described the data as "completely rotten".

"The German ZEW number has killed all the hopes for the euro bulls and it prompts a reaction from the ECB now," said Aslam.

Elsewhere in forex, the yen was firm in the wake of Tuesday's risk-off mood. The dollar was quoted at JPY109.71 Tuesday, lower than JPY109.91 late Monday.

Brent oil was trading at USD56.58 a barrel Tuesday, down from USD57.34 late Monday. Gold was quoted at USD1,587.43 an ounce, up from USD1,582.14 late Monday.

In London, HSBC was weighing on the FTSE 100Â after reporting a sharp drop in annual profit and unveiling a wide restructuring effort that could see 35,000 job losses.

The stock was down 6.4% at midday.

For 2019, Europe's largest lender saw pretax profit drop by 33% to USD13.34 billion from USD19.89 billion the year before.

Profit was hurt by a total goodwill impairment of USD7.35 billion, with USD4.0 billion coming from HSBC's Global Banking & Markets division, and USD2.5 billion from Commercial Banking, reflecting lower long-term economic growth assumptions and the planned reshaping of the Global Banking & Markets unit.

Meanwhile, HSBC is set to cut 15% of its global workforce as it embarks on a radical cost-cutting plan, the bank's interim chief said Tuesday.

"It's fair to say that our direction of travel will be to move the current headcount of 235,000 to be closer to 200,000 over the next three years," Noel Quinn told Bloomberg News in an interview.

HSBC has set itself a new return on tangible equity target of between 10% and 12% for 2022, and intends to maintain its dividend and continues to plan for a CET1 ratio at the top end of its 14% to 15% target. The lender will, however, suspend its share buybacks for 2020 and 2021.

Also lower was Glencore, down 4.2%.

The blue-chip miner posted adjusted earnings before interest, tax, depreciation and amortisation of USD11.60 billion for 2019, 26% lower than the year before. However, according to company-compiled analyst consensus the market had forecast adjusted Ebitda of USD11.25 billion.

Peer BHP was down 3.0% as it reported rises in interim profit and revenue for 2019, but noted uncertainty from coronavirus.

For the six months to the end of December, pretax profit rose by 15% to USD7.79 billion from USD6.80 billion the year before, as revenue grew by 7.5% to USD22.30 billion from USD20.74 billion.

BHP lifted its interim dividend by 18% to 65 US cents per share compared to 55 cents the prior year, even as net debt increased by 21% to USD12.84 billion from USD10.64 billion.

"Despite near term uncertainty - due to the coronavirus outbreak, trade policy and geopolitics - we remain convinced about the positive underlying fundamentals of our commodities. We see enormous potential to reliably deliver exceptional financial and operational performance, and to grow value and returns," said BHP.

InterContinetal Hotels Group advanced 2.7% after reporting a notable increase in annual profit, resulting from rooms growth, a full year performance from its new UK hotel portfolio, and a lower System Fund deficit.

IHG reported a 6.9% rise in 2019 revenue to USD4.63 billion from USD4.33 billion in 2018. Pretax profit came in at USD542 million for 2019, up 12% from USD482 million in 2018. According to company-compiled analyst consensus, IHG was expected to post pretax profit of USD711.16 million for 2019.

Elsewhere in London, Amigo Holdings was up 12% after confirming it received interest from "several" parties after putting itself up for sale.

Amigo launched a strategic review and formal sale process at the end of January. A sale could include the whole company, parts of it, the UK business, or a de-listing.

"Amigo has received indications of interest from several parties. Interested parties have entered into non-disclosure agreements with the company and discussions are ongoing," Amigo said on Tuesday.

By Lucy Heming; lucyheming@alliancenews.com