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Morning Market Pulse - May's deal dealt meaningful blow

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Mike van Dulken and Artjom Hatsaturjants at Accendo Markets, commented to clients this morning:

 

FTSE 100 called to open +5pts at 6900, holding that post-Christmas rising channel - albeit now limited to the lower half - towards a confluence of falling resistance at 7075. Bulls need a break above 6925 to extend the channel; bears require a breach of 6875 overnight lows to jeopardize it. Watch levels: Bullish 6925, Bearish 6875

 

Calls for a mildly positive open come after a strong showing by US Tech on Wall St after Netflix hiked prices. Asia mixed, with China and Australia helped by the People’s Bank of China injecting more liquidity into the market (more stimulus) ahead of the extended Lunar New Year holiday helping, but Japan lower.

 

GBP is steady after wild overnight gyrations, neither helping nor hindering the FTSE, after UK PM May’s overwhelming Brexit vote defeat. Despite falling as low as -1.7% at one point, Sterling is back to square one as the Parliamentary calculus remains unchanged and the PM is likely to remain in power, even after today’s no confidence vote.

 

Oil prices are slightly higher in spite of weaker than expected US API Oil Inventories, which saw a crude oil stockpiles fall, but less than the market anticipated (-0.65m vs. -2.5 est. vs. -6.1m prev.).

 

In corporate news this morning, Bovis Homes FY new homes +3.1%, in-line (Private -0.2%, affordable +11.2%). Avg. selling price +0.2% (Private +1%). Expects significant step-up in 2018 operating margin, profits slightly ahead of consensus. Forward sales +0.9% (value +0.6%); customer demand for new homes supported by attractive financing and government initiatives. Early ‘19 encouraging. Final div +17%.

 

Pearson narrows FY guidance for adj. op. profit from £520-560m to £540-545m; Total underlying revenues -1%, with US Higher Education Courseware -5%, offset by rest of business growing 1%+; Net debt more than halved. Digital transformation progressing to plan; Expect 2019 adj. op. profit £590-640m (+8-18%) with US Higher Education flat to -5% as underlying pressures continue.

 

AstraZeneca strikes a deal with China’s Luye Pharma to market Xuezhikang cholesterol medicine in mainland China. Reckitt Benckiser CEO Rakesh Kapoor to retire by end-2019 after 32 years with the company (8 as CEO); search for the new chief executive ongoing. BAE Systems awarded 5yr $80m US Navy communication platforms contract.

 

Tullow Oil FY oil production 88.2K bopd in-line with 87-91K guidance. Expects 93-101K in 2019. Expects FY18 revenue c. $1.8bn, cash flow c. $410m. Net debt -11.4% YoY. FY CAPEX of c. $425m (7.6% less than anticipated) and 2019 CAPEX ~$570m. Dividends no less than $100m in 2019.

 

Hochschild Mining 2018 Gold equivalent production +2.5%, Silver +2.5%; 2018 all-in sustaining costs on track to meet positively revised guidance; 2019 gold production expected -13% (Silver -5%) and costs +2-3% (Silver down 6-7%).

 

Gulf Keystone Petroleum FY production in-line with expectations. 31.5K bopd average gross production at upper end of 27-32K guidance (production est. to improve to 32-38K in 2019). On track to expand capacity to 55K toward end of 2019 and 110K by 2024.

 

Diploma trading in-line, Q1 like-for-like revenues +8% YoY (4% organic). Revenues boosted 1% by FX. Industrial OEM rev. weaker after delivery delays, expected to recover in coming months. Op. margin in-line, slightly below last year. Johnny Thomson (ex-Compass CFO) appointed new CEO.

 

Cineworld FY like-for-like revenue +6.2% YoY (US +8.6%, driven by record box office year, UK/IRL -0.6% after tough comparable, ROW flat). On track to deliver FY performance in-line with expectations and confident in another year of growth in 2019. Saga says Aug-Jan trading in-line with expectations, pressure on insurance business offset by strong underwriting which beat expectations. Cruises strong, 2019 sold out; 2020 54% booked.

In focus today will be Prime Minister’s Questions (12:00am) and the motion of no-confidence in PM May’s Government, as the fallout from yesterday’s Government defeat in the Brexit vote reverberates. Despite the enormity of the loss, Theresa May likely has the necessary majority to survive the challenge after coalition partners vowed to back her today.

 

Other speakers include Bank of England (BoE) Governor Carney (9:15am), who testifies to the Parliament’s Treasury Select Committee on financial stability. Any comments with regards to Brexit and/or inflation could move GBP.

 

In terms of macro data, headline UK Inflation (Weds, 9:30am) is projected slower at 2.1% YoY in December (weakest since Feb 2017), likely explained by falling oil/energy prices. The less volatile Core metric, however, is seen unchanged at 1.8%, just below the BoE’s 2% target, holding March 2017 lows. Like the headline figure, the other, less favoured, Retail Price Index is expected to slow to 2.9% in Dec (from 3.2% prev.).

 

From the US, the Fed Beige Book (7pm) is published 2 weeks before each Fed meeting, summarising economic conditions from all 12 Federal Reserve districts. This will be looked to for clues about trends the Fed will discuss at its next meeting, helping investors work out whether we should expect more interest rates hike, a pause, or whether that’s it for this hiking cycle

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