(Alliance News) - Stocks in London are set to bounce back on Wednesday as the Omicron risk sentiment continues to see-saw.
In early UK company news, power station Drax Group sees full-year earnings towards the top end of analyst expectations, and auto dealer Pendragon upgraded profit guidance once again. Online trading platform IG unveiled the USD216 million divestment of Nadex and Small Exchange.
IG says futures indicate the FTSE 100 index of large-caps to open up 50.35 points, or 0.7%, at 7,109.80 on Wednesday. The FTSE 100 fell by almost exactly the same amount - by 50.50 points, or 0.7%, to 7,059.45 - on Tuesday.
"A hawkish Jerome Powell darkening an already dark day for Wall Street," said Jeffery Halley, senior market analyst at Oanda.
On Tuesday, the Dow Jones Industrial Average ended down 1.9%, the S&P 500 down 1.9%, and the Nasdaq Composite down 1.6%, after US Federal Reserve Chair Jerome Powell said the threat of "persistently high inflation" has increased.
It was a distinct change of tone for the central bank chief who for months has tried to assuage fears by saying the recent inflation spike would be "transitory", and pledged to be patient before raising interest rates. He now says it is time to retire that term.
Powell pledged that the Fed "will use our tools to make sure that higher inflation does not become entrenched" and signalled that it may be appropriate to speed up the pace of the pull-back in monthly asset purchases.
"However, US index futures are strongly rallying this morning on what I assume to be a follow-through from comments out of Israel that booster shots would offer Omicron protection," Oanda's Halley added. "That has also lifted some Asian markets."
Tokyo's Nikkei 225 index ended up 0.4% on Wednesday. In China, the Shanghai Composite closed up 0.4%, while the Hang Seng index in Hong Kong was up 0.8%. The S&P/ASX 200 in Sydney ended down 0.3%.
In the latest Omicron twist, new data from the Netherlands showed the coronavirus variant that has spooked markets was present in Europe before the first cases were reported in South Africa.
The new variant – whose high number of mutations the WHO believes may make it more transmissible or resistant to vaccines – was found in two Dutch test samples from November 19 and 23, with one having no travel history.
In the week since the new virus strain was reported to the World Health Organization by South Africa, dozens of countries around the world have responded with travel restrictions – most targeting southern African nations. The likely futility of broad travel restrictions was underscored as Dutch authorities reported that Omicron was present in the country before South Africa officially reported its first cases, on November 25.
In early UK company news, renewable electricity firm Drax Group said it expects full-year earnings to be around the top end of analyst forecasts.
Drax said its biomass and pumped storage generation assets in the UK have played an important role as the nation's power system came under stress from higher gas prices, European interconnector issues, and periods of low wind. Drax said it has been able to increase forward hedged prices in 2022 and 2023.
Drax continues to expect the Customers business will return to profitability at the adjusted earnings before interest, tax, depreciation and amortisation level for 2021.
Drax now expects group adjusted Ebitda for 2021 around the top of the range of current analyst expectations, subject to a good performance in December. It placed consensus at GBP380 million with a range of GBP374 million to GBP391 million. In 2020, Drax booked adjusted Ebitda from continuing operations of GBP366 million, down from GBP371 million in 2019.
In a separate capital markets update on Wednesday, Drax said it is targeting 8 million tonnes of production capacity by 2030, underpinned by an aim to double sales of biomass to third parties to 4 million tonnes per year.
Contracts-for-difference trading provider IG Group plans to sell North American Derivatives Exchange and a 39% stake in Small Exchange to Foris DAX Markets, part of crypto.com, for USD216 million in cash.
The deal is expected to complete in the first half of 2022 and is not expected to materially alter IG's medium-term revenue expectations.
"We're really excited by this deal, as it delivers a significant return on the previous investments made in Nadex and Small Exchange and enables additional investment across all our businesses," said Chief Executive June Felix.
Commercial vehicle hire business Redde Northgate said interim trading was ahead of expectations and full-year profit is seen "at least" in line with consensus.
Total revenue for the half-year to October 31 rose 10% to GBP612.9 million from GBP556.0 million year-on-year, and pretax profit jumped to GBP71.7 million from GBP25.9 million. Redde will pay out an interim dividend of 6.0p, up 77% on a year ago.
"We are pleased to have delivered a strong H1 performance driven by high demand for our products and services and underlying margin gains," said Chief Executive Martin Ward.
UK&I rental margins improved to 17.6% in the period from 12.7% a year ago, while margins in Spain improved to 17.1% from 15.0%.
"The work undertaken since the merger has built a strong platform for further growth, with increasingly large contract wins demonstrating the appeal of the integrated mobility services offering and driving continued momentum across the business," said Redde, adding that full-year underlying pretax profit should be "at least in line" with consensus.
Car dealership Pendragon now expects 2021 underlying pretax profit to be GBP80.0 million, up from October's guidance of GBP70.0 million. This, in turn, had been raised from a prior guidance range of GBP55.0 million to GBP60.0 million.
Behind the latest upgrade was a strong performance in the fourth quarter so far. Demand for new vehicles continues to outstrip supply, but the shortfall in October and November was lower than feared and performance supported by strong margins, Pendragon said.
Used vehicles continue to perform well, it said, with strong margins underpinned by favourable market conditions.
"The board is confident that the group's strategy positions it well to respond to the ongoing market uncertainty and to capitalise on any resultant opportunities," Pendragon added.
Sterling was quoted at USD1.3319 early Wednesday, higher than USD1.3245 at the London equities close on Tuesday.
The euro traded at USD1.1326 early Wednesday, up from USD1.1280 late Tuesday. Against the yen, the dollar was quoted at JPY113.48, up from JPY113.38.
Gold was quoted at USD1,785.83 an ounce early Wednesday, up from USD1,776.50 on Tuesday. Brent oil was trading at USD71.41 a barrel, higher than than USD70.75 late Tuesday.
The economic events calendar on Wednesday has manufacturing PMI readings from Germany, the eurozone, UK and the US at 0855 GMT, 0900 GMT, 0930 GMT and 1445 GMT respectively. There is also US ADP employment data at 1315 GMT.
By Lucy Heming; lucyheming@alliancenews.com
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Redde Northgate (REDD)
IG (IGG)
Drax (DRX)