LONDON MARKET PRE-OPEN: Stockpiling Boosts Astra As Next's Sales Drop

(Alliance News) - The FTSE 100's rally this week looks set to continue on Wednesday as countries across the globe take cautious steps towards the re-opening of their economies following Covid-19 lockdowns.

In focus on Wednesday is a first-quarter gross domestic product reading in the US later in the day, followed by the US Federal Reserve's latest monetary policy decision.

In early UK company news, drug maker AstraZeneca reported first-quarter profit growth as it got a boost from Covid-19 stockpiling. Lender Barclays saw quarterly profit drop, and retailer Next said a drop-off in sales has been "faster and steeper" than anticipated.

IG says futures indicate the FTSE 100 index of London large-caps to open 7.50 points higher at 5,966.00 on Wednesday. The FTSE 100 closed up 111.71 points, or 1.9%, at 5,958.50 on Tuesday.

The US on Tuesday recorded its one-millionth coronavirus case as countries including Spain, Russia and Nigeria took tentative steps back towards normal life by preparing to reopen some businesses.

France said Tuesday that shops, markets and selected schools could reopen next month, with face masks required on public transport and work-from-home orders staying in place for several more weeks. Spain said restrictions would be slowly lifted over the next two months, while Italians will be able to exercise outdoors and visit relatives from next week – but only if they wear masks and refrain from hugs and handshakes.

Italy, Spain and France have been the worst affected countries in Europe, with each reporting more than 23,000 deaths.

The US – where millions of jobs have gone – reached another grim milestone as it registered 58,351 deaths.

Sterling was quoted at USD1.2462 early Wednesday, higher than USD1.2436 at the London equities close on Tuesday.

The euro traded at USD1.0842 early Wednesday, firm against USD1.0834 late Tuesday. Against the yen, the dollar was quoted at JPY106.57, soft on JPY106.89.

Despite Tuesday's upbeat European session, Wall Street ended in negative territory. The Dow Jones Industrial Average closed down 0.1%, the S&P 500 down 0.5% and Nasdaq Composite closed 1.4% lower.

Nasdaq constituent Alphabet ended down 3.0% ahead of the release of its first-quarter results but climbed 7.7% afterwards in the after-hours session.

The Google parent said that profit rose slightly in the first quarter of this year despite a slowdown in online ads caused by the pandemic. Alphabet reported net income of USD6.84 billion for the three months to March 31, up 2.7% from USD6.66 billion last year, on revenue that grew 13% to USD41.16 billion compared with USD36.34 billion in the same quarter a year earlier.

In China, the Shanghai Composite index closed up 0.3%, while the Hang Seng index in Hong Kong is flat. Markets in Japan are closed for Showa Day.

Gold was quoted at USD1,709.11 an ounce early Wednesday, higher than USD1,701.40 on Tuesday. Brent oil rose to USD21.10 a barrel early Wednesday from USD19.98.

In early UK company news, AstraZeneca reported quarterly growth in both profit and revenue as it got a boost from Covid-19 stockpiling.

The Anglo-Swedish drugmaker saw a 16% rise in revenue in the first three months of the year to USD6.35 billion, or a 17% rise at constant exchange rates, while pretax profit was up 23% to USD935 million. Core earnings per share rose 21% to USD1.05.

Astra estimated a "low-to-mid single-digit percentage benefit" from short-term inventory increases in the distribution channel, longer prescriptions, and improved treatment-regimen adherence - all indirect effects of Covid-19. The benefit is expected to reverse in the coming months, it added.

The pharmaceutical company said its 2020 guidance is unchanged, with total revenue expected to increase by a high single-digit to a low double-digit percentage and core earnings per share expected to increase by a mid- to high-teens percentage. It does, though, recognise "heightened risks and uncertainties" from Covid-19.

"Our focus ensured another quarter of strong growth across every therapy area and region. The new medicines performed extremely well, and our pipeline continued to deliver. Standouts included landmark news for Tagrisso, Farxiga and Koselugo, our latest oncology medicine. The progress made on all fronts provides confidence that we will, once again, meet our full-year commitments," said Chief Executive Pascal Soriot.

Barclays reported a sharp drop in first quarter profit as the lender was forced to dramatically increase its credit impairments to handle the Covid-19 pandemic.

Barclays also noted it will decide on future dividends and its capital returns policy at the end 2020, following the cancellation of its shareholder payouts following guidance from regulators in the UK.

In the three months to March 31, the lender recorded pretax profit of GBP913 million, 38% lower than the GBP1.48 billion seen in the first quarter of 2019. Credit impairments in the quarter jumped to GBP2.12 billion from GBP448 million the year before.

Released earlier in the morning, Standard Chartered reported a sharp drop in first quarter profit - due to rising credit impairments - but has vowed to come through the Covid-19 pandemic "with strength".

In the three months to March 31, the Asia-focused bank's pretax profit plunged 29% to USD886 million from USD1.24 billion in the same period a year before. The lender's credit impairments in the first quarter jumped to USD956 million from just USD78 million in the first quarter of 2019.

StanChart expects a "gradual recovery" from Covid-19 - with a "major" contraction in economic growth rates across most of the world in the second quarter, before the global economy moves out of recession in the latter part of 2020.

Clothing and homewares retailer Next said its finances remain secure, though the drop off in sales to date has been "faster and steeper" than anticipated in its March stress test.

In the year to April 25, full price retail sales slumped 52% while online sales were down 32%, with total full price sales, including interest income, down 38%.

Even with full year full price sales down 40%, Next said it can operate "comfortably" within its cash resources, achieve positive Ebitda and end the year with less net financial debt than at the end of last year.

The fashion chain is now modelling lower sales for both the first and second half of the year, though it thinks it can achieve higher cost savings and stock cancellations than originally planned.

Next said it has increased cash resources through asset sales and the suspension of its share buyback and dividend. It has also agreed with banks to waive financial covenants on its revolving credit facility for the coming year, and has secured additional borrowing facilities through the UK government's Covid Corporate Financing Facility. Next thinks it is unlikely it will needed to draw on these additional funds, it added.

WPP said it had a good performance to February, with the impact of Covid-19 in March as expected.

First quarter revenue from continuing operations was down 4.9% to GBP2.8 billion, with like-for-like sales down 3.8%. Like-for-like revenue less pass-through costs was down 3.3% with the impact of Covid-19 "felt more strongly in March" with a fall of 7.9%, as expected.

Encouragingly, the advertising firm said it won USD1 billion in net new business in the first quarter, and there has been a "rapid" recovery in Chinese economic activity, with offices back to 90% occupancy.

"We expect the impact of COVID-19 on our business to increase in the short term, but it is not possible to quantify the depth or duration of the impact. We are nonetheless confident that, through our scenario planning, we are well positioned to take further action if the downturn is prolonged and to respond positively when the market picks up," said WPP.

Hiscox, noting press reports, confirmed it is mulling a possible equity raise.

The FTSE 250 insurer said it believes it has sufficient capital to meet expected liabilities as a result of exposures related to the pandemic and it expects "hardening" rates across the US wholesale and reinsurance markets.

While its liquidity position remains "robust," it is evaluating "possible sources of capital to respond in an appropriate way to these market dynamics", including raising new equity.

"No decision has been made on whether to proceed with a capital raise or with regards to the timing or size of any such capital raise," said Hiscox.

To come on Wednesday are GlaxoSmithKline's first quarter results at midday.

The economic calendar on Wednesday has eurozone consumer confidence at 1000 BST, German inflation at 1300 BST and US gross domestic product at 1330 BST.

"With over 25 million people filing for jobless claims in the past few weeks today's Q1 GDP number will be the first indication of how much economic damage is about to come the way of the US in the coming weeks and months. Even then it will seriously understate what is about to come in Q2 given that the lockdown in the economy only came into effect in the middle of March," commented Michael Hewson, chief market analyst at CMC Markets.

At 1900 BST is an interest rate decision from the US Federal Reserve, followed by a press conference with Fed Chair Jerome Powell at 1930 BST.

From a policy standpoint, no change is expected given the Fed has already slashed the federal funds rate to a range of 0.00% to 0.25% while also launching a number of initiatives to support credit to businesses as well as local governments.

Hewson added: "Today's meeting is unlikely to see anything new announced, though it will be interesting to see how US policymakers flesh out the design and implementation of the raft of new measures they announced recently, as well as how various policymakers view the outlook for the next few weeks and months, in the context of the huge rise in unemployment we've seen since the last emergency rate meeting in March."

By Lucy Heming; lucyheming@alliancenews.com

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