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LONDON MARKET OPEN: HSBC and Glencore drag FTSE 100 into the red

Wed, 21st Feb 2024 08:40

(Alliance News) - Stock prices in London opened mixed on Wednesday, with the FTSE 100 index weighed down by weak earnings from HSBC and Glencore - among its largest constituents by market cap.

The FTSE 100 index opened down 50.16 points, 0.7%, at 7,669.05. The FTSE 250 was up 3.10 points at 19,112.73, and the AIM All-Share was down 1.28 points, 0.2%, at 751.77.

The Cboe UK 100 was down 0.6% at 768.27, the Cboe UK 250 was up 0.2% at 16,555.52, and the Cboe Small Companies was up 0.2% at 14,512.76.

In European equities, the CAC 40 in Paris was marginally higher, while the DAX 40 in Frankfurt was up 0.1%.

Later on Wednesday, minutes from the January Federal Open Market Committee meeting will be released. At that meeting, the Federal Reserve Chair Jerome Powell said that a cut in interest rates in March is not the "most likely case." Since his comments, strong consumer and wholesale price inflation figures have backed this wait-and-see stance.

The dollar was stronger in early exchanges.

Sterling was quoted at USD1.2627 early Wednesday, lower than USD1.2649 at the London equities close on Tuesday. The euro traded at USD1.0809, down from USD1.0818. Against the yen, the dollar was quoted at JPY150.15, up versus JPY149.84.

In the FTSE 100, HSBC was the worst performer, down 6.7%.

HSBC announced further share buybacks as annual profit soared on the back of higher interest rates, though its fourth-quarter performance suffered due to an impairment. The Asia-focused lender said pretax profit in 2023 surged 78% to USD30.35 billion from USD17.06 billion. Total revenue rose 30% to USD66.06 billion, from USD50.62 billion. HSBC said this was driven by an increase in net interest income from all three of its global businesses, reflecting the higher interest rate environment.

HSBC said it has approved a fourth interim dividend of USD0.31 per share, bringing the total dividend to USD0.61 per share, almost double that of USD0.32 in 2022. HSBC also said it will begin a share buyback of up to USD2.0 billion, which it expects to complete by the announcement of its first quarter results.

"There's a lot to unpack here...Backing out a lot of the mess, it looks like performance was a little worse than expected with higher operating costs more than offsetting slightly better impairments," commented Matt Britzman, equity analyst, Hargreaves Lansdown.

Looking ahead, HSBC said it continues to target a return on average tangible equity in the mid-teens for 2024, excluding notable items. It expects banking net interest income of at least USD41 billion. While its outlook for loan growth is "cautious" for the first half of the year, it expects customer lending growth in the mid-single digits over the medium to long term.

"The outlook is equally as messy. Returns are expected in the mid-teens once some one-off bits are backed out, costs are forecast to rise 5% and loan loss levels are expected to tick higher. Overall, that paints a mixed underlying picture that looks to be a little worse than the current consensus has built-in," Britzman continued.

Glencore's annual earnings also disappointed investors, as the stock fell 4.5%.

The Barr, Switzerland-based diversified mining group said revenue in 2023 dropped 15% year-on-year to USD217.93 billion from USD255.98 billion, as net profit plunged 75% to USD4.28 billion from USD17.32 billion. Adjusted earnings before interest, tax, depreciation and amortisation dropped 50% to USD17.10 billion from USD34.06 billion, "primarily reflecting the rebalancing and normalisation of international energy trade flows, with coal and LNG, and to a lesser extent, oil prices materially declining", Glencore said.

In the FTSE 250, Hochschild Mining rose 3.0%.

Hochschild said it achieved first gold pour at the Mara Rosa mine in Brazil on Tuesday. The project remains on schedule, the miner said, with commercial production expected towards the end of the second quarter. The mine is expected to produce between 83,000 and 93,000 ounces of gold in 2024, with an all-in sustaining cost of USD1,090 to USD1,120 per ounce.

"We are all very proud of the team for delivering Brazil's newest gold mine. Mara Rosa will be a low-cost operation that will create significant value for all our stakeholders. It plays an important part in our stated strategy of increasing production and reducing costs in the coming years," said CEO Eduardo Landin.

In the US on Tuesday, Wall Street ended in the red, with the Dow Jones Industrial Average down 0.2%, the S&P 500 down 0.6% and the Nasdaq Composite down 0.9%.

Nvidia fell 4.4% ahead of fourth quarter earnings, which are due after the closing bell in New York.

"Investors are baulking at the price put on the big tech names as although another big growth number is expected from Nvidia, the company will need to shoot the lights out again to justify its huge share price gains. It's up 44% year to date and a whopping 236% over the past 12 months. But given Nvidia's stratospheric rise, expectations for the fourth quarter are very high indeed," said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

In Asia on Wednesday, the Nikkei 225 index in Tokyo closed down 0.3%. In China, the Shanghai Composite closed up 1.0%, while the Hang Seng index in Hong Kong was up 1.6%. The S&P/ASX 200 in Sydney closed down 0.7%.

Gold was quoted at USD2,028.43 an ounce early Wednesday, slightly higher than USD2,027.87 on Tuesday.

Brent oil was trading at USD82.46 a barrel, higher than USD82.09.

In addition to the Fed minutes and Nvidia's results, there will also be eyes on speeches from some key central bank members. In the UK, Bank of England committee member Swati Dhingra will speak. In the US, Fed Governor Michelle Bowman will also do a talk.

By Elizabeth Winter, Alliance News deputy news editor

Comments and questions to newsroom@alliancenews.com

Copyright 2024 Alliance News Ltd. All Rights Reserved.

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