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LONDON MARKET PRE-OPEN: Dixons Gets Sales Boost But To Miss Guidance

Thu, 26th Mar 2020 07:45

(Alliance News) - Stock prices in London are set to open lower on Thursday as the lift to sentiment provided by a chunky US stimulus package wears off and markets once again focus on the worrying spread of Covid-19 in Europe and the US.

In the day ahead, there will be a monetary policy decision from the Bank of England at midday.

In early UK company news, Dixons Carphone said it no longer expects to meet its annual guidance due to Covid-19 but did note an uptick in sales as people prepare to work from home. William Hill said its incoming finance chief will no longer be joining the company, instead staying at packaging firm DS Smith.

Engineers Weir and Senior withdrew recommendations to pay a final dividend for 2019.

IG says futures indicate the FTSE 100 index of large-caps to open 190.80 points lower at 5,497.40 on Thursday. The FTSE 100 index closed up 188.66 points, or 3.5%, at 5,634.67 on Wednesday.

In the US on Wednesday, Wall Street was broadly higher, with the Dow Jones Industrial Average ending up 2.4% and the S&P 500 up 1.2%, though the Nasdaq Composite closed 0.5% lower.

In Asia on Thursday, the Nikkei 225 index closed down 4.5%.

Market sentiment in Japan deteriorated after Tokyo Governor Yuriko Koike on Wednesday urged residents to stay home this weekend, warning of a possible "explosion" of the coronavirus after a record 41 new cases were recorded.

Koike said the Japanese capital, so far spared the draconian measures seen in other major global cities, was at a "critical stage" in containing the virus that has confined one third of the planet to their homes.

"Koike's remarks threw cold water on investors," Daiwa Securities chief technical analyst Eiji Kinouchi told AFP.

In China, the Shanghai Composite ended down 0.6%, while the Hang Seng index in Hong Kong is down 0.7%.  

"Markets are all over the place at the moment - and currently trying to go up. It's easy to see why - the Bonzo Dog Doo-Dah Bailout in Washington DC...Likewise in Europe we see Germany lumbering towards an enormous fiscal stimulus of up to EUR750 billion (albeit more on the loan than spending side)," said Rabobank.

"However, the real catalyst for a real recovery is going to be beating the virus: and here the news is still not really good," Rabobank added. "Yes, Italy has seen a levelling off of new cases, but the same isn't true in Spain, for example."

The US Senate unanimously passed the nation's largest-ever rescue package late Wednesday, a USD2 trillion lifeline to suffering Americans, critically depleted hospitals and an economy all ravaged by a rapidly spreading coronavirus crisis.

The monster package, thrashed out among Republicans, Democrats and the White House, provides direct cash payments to millions of hurting American taxpayers, amounting to USD3,400 for an average American family of four. It provides some USD500 billion in grants and loans to small businesses and core industries, including as much as USD50 billion for strained airlines and their employees.

The measure cleared the Senate 96-0 after days of tumultuous, sometimes bitter negotiations and debate, as the US death toll for the pandemic soared past 1,000, with 68,000 confirmed infections.

Outbreaks have grown nationwide, but with particular fear that New York could be the next epicentre of the coronavirus pandemic.

As the number of confirmed cases worldwide soared past 450,000, UN Secretary General Antonio Guterres warned that only a concerted global effort could stop the spread of the virus.

A total of more than 20,800 deaths have now been reported in 182 countries and territories, according to an AFP tally.

In Spain, the number of fatalities surpassed those of China, where the novel coronavirus first emerged three months ago, making it the hardest-hit nation after Italy.

Spain saw the number of deaths surge to more than 3,400 after 738 people died in the past 24 hours, and the government announced USD467 million deal to buy medical supplies from Beijing. The death toll in Italy jumped in 24 hours by 683 to 7,503 – by far the highest of any country. The number of French deaths was up by 231 on Wednesday to more than 1,330, and metro and rail services in Paris were cut to a minimum.

The G20 major economies will hold an emergency videoconference on Thursday to discuss a global response to the crisis, as will the 27 leaders of the EU.

Elsewhere, the economic events calendar on Thursday has US GDP readings at 1230 GMT.

Already out, UK retail sales were flat year-on-year in February, versus up 0.8% in January.

There will be an interest rate decision from the Bank of England at midday in London, alongside the release of minutes from this week's meeting, as well as accounts of the emergency meeting last week, at which the UK central bank voted to cut interest rates to a record low of 0.1%.

"Today's Bank of England meeting is unlikely to be like any other. This month's two emergency rate cuts are unlikely to be followed by any more now we're at 0.1%. We may see the central bank commit to further measures to help stabilise the economy, having seen the bank already announce another GBP200 billion of purchases of government and corporate bonds, bringing the total to GBP645 billion," said Michael Hewson at CMC Markets.

Sterling was quoted at USD1.1820 early Thursday ahead of the BoE, higher than USD1.1764 at the London equities close on Wednesday.

Naeem Aslam at AvaTrade commented that if the BoE throws an "unexpected punch", sterling could be "knocked out".

Elsewhere in forex, the euro traded at USD1.0897 early Thursday, up from USD1.0834 late Wednesday. Against the yen, the dollar was quoted at JPY110.71, firm on JPY111.60.

Gold was quoted at USD1,599.20 an ounce early Thursday, lower than USD1,607.66 on Wednesday. Brent oil was trading at USD26.93 a barrel early Thursday, down from USD27.08 late Wednesday.

In London early Thursday, Dixons Carphone said it no longer expects to achieve annual guidance due to Covid-19, but it has gotten a boost to online sales as customers prepare to work from home.

The electronics retailer has closed stores in the UK and Ireland, in line with government guidance, following on from store closures in Greece earlier in the month. However, almost all Nordic stores are still trading, the firm added.

Online trading, which is still in operation, has been "very strong" in all countries over the last two weeks as people prepare to work from home.

"Early signs are that this strong trading has continued since stores closed and will help to compensate for lost store sales," said Dixons.

In the 11 weeks to March 21, Electricals like-for-like sales were up 8%, with sales running 23% higher in the last three weeks amid good demand for home working equipment as well as TVs and gaming.

Group like-for-like sales in the 11 weeks were up 4%, with these up 13% in the last three weeks following a flat showing in the 8 weeks to February 29.

The firm said that while it will see some sales recovery through online channels, it does not expect to meet guidance of adjusted pretax profit of GBP210 million for the current financial year. Dixons said it has "sufficient" funding capacity available to meet its obligations over the foreseeable future.

It will mull whether it is "prudent" to pay a final dividend at its full-year results.

Weir withdrew its 2020 guidance as well as its recommendation to pay a 2019 final dividend.

Trading in January and February was in line with expectations. Through March, however, with a significant reduction in oil prices and the escalation of the Covid-19 pandemic, the backdrop has changed "rapidly".

In Minerals and ESCO, overall aftermarket demand in main mining markets has remained "robust so far", Weir said. March to date has seen a slowdown in original equipment orders, although the longer-term project pipeline remains active.

Oil & Gas has seen North American order activity start to slow as a result of lower oil prices and widespread reductions in spending, the company said.

"We expect to see continued sequential declines in activity through 2020 with E&P capex now expected to be down at least 30% year on year versus our prior expectation of 10%," said Weir.

Engineering firm Senior also said it is no longer recommending the payment of a 2019 final dividend, believing conserving cash "is the most prudent way to manage through the crisis" until the full disruption from Covid-19 is known.

Trading in the first two months of the year was in line with expectations but, while the firm expects "structural long-term drivers" of its end markets to remain in place, trading for the rest of 2020 will be hurt. The firm thus has suspended its guidance for the year.

William Hill said its incoming chief financial officer will be staying at DS Smith "given the current unprecedented circumstances".

Adrian Marsh, group finance director at DS Smith, had been due to join the bookmaker as CFO. He will now not be joining the group as he intends to stay at the packaging firm "given the current unprecedented circumstances", and Ruth Prior, who is currently serving out her notice period, will continue as William Hill's CFO.

It has "immediately" recommenced the search for a new finance chief.

By Lucy Heming; lucyheming@alliancenews.com

Copyright 2020 Alliance News Limited. All Rights Reserved.

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