Shares were lower early Wednesday as the earnings season moved toward its peak, with lender Lloyds Banking and software firm Aveva at either end of the FTSE 100.
Amid the mixed company results, the overall investment mood was hurt by an escalation of tensions between Russia and the EU, as well as by China virus lockdowns.
The FTSE 100 index was down 39.81 points, or 0.5%, at 7,346.38 early Wednesday. The mid-cap FTSE 250 index was down 165.28 points, or 0.8%, at 20,326.84. The AIM All-Share index was down 4.44 points, or 0.4%, at 1,019.85.
The Cboe UK 100 index was down 0.5% at 731.67. The Cboe 250 was down 1.0% at 17,947.35,but the Cboe Small Companies up 0.1% at 15,139.98.
In mainland Europe, the CAC 40 in Paris was down 0.5% and the DAX 40 in Frankfurt down 0.4% early Wednesday.
Wall Street ended with significant losses on Tuesday. The Dow Jones Industrial Average closed down 2.4%, the S&P 500 down 2.8%, and the Nasdaq Composite down 4.0%.
Alphabet shares fell 3.6% and dropped a further 2.6% after-hours after the Google parent reported a sharp fall in first-quarter earnings.
‘A massive tech rout fought for space above the fold with news that Moscow cut gas flows to Poland and Bulgaria while Sergei Lavrov warned of the threat of nuclear war,’ said Stephen Innes at SPI Asset Management.
The governments in Bulgaria and Poland said Russia was halting delivery of natural gas supplies as of Wednesday, marking a major escalation in the face-off between Moscow and Europe over the war in Ukraine.
The Bulgarian Energy Ministry said late Tuesday that the Bulgarian natural gas supply company Bulgargaz had received a notification of the gas cut from Russia's state-backed energy giant Gazprom. The Polish natural gas company PGNiG said Tuesday afternoon that Gazprom was stopping gas flows as of Wednesday morning because Warsaw refused a demand by Moscow to pay for its supplies in roubles.
Brent oil was trading at $105.14 a barrel early Wednesday, higher than $103.65 late Tuesday.
SPI's Innes added: ‘Cutting gas flows is not new news, but it's the timing of Russia plugging the gas flows when stagflationary fears are running rampant again. I would expect more dominoes to fall throughout Europe and for Russia to continue to shut down the supply to those refusing to pay in for Russian gas roubles and those providing substantial support to the Ukrainian resistance effort.’
In Asia on Wednesday, the Japanese Nikkei 225 index closed down 1.2%. In China, the Shanghai Composite ended up 2.5%, while the Hang Seng index in Hong Kong was down 0.2%. The S&P/ASX 200 in Sydney closed down 0.8%.
Against the yen, the dollar strengthened to JP¥127.99 versus JP¥127.27.
Sterling was quoted at $1.2543 early Wednesday, lower than $1.2622 at the London equities close on Tuesday. Meanwhile, the euro traded at $1.0594, soft against $1.0655 late Tuesday.
Safe-haven asset gold eased amid the dollar strength. Gold was quoted at $1,901.10 an ounce early Wednesday, down from $1,903.55 on Tuesday.
In London, shares in Aveva dropped 13% after warning that revenue growth in its current financial year is expected to slow and margins are set to reduce amid cost pressures.
The firm said it delivered a strong end to its 2022 financial year, which finished on March 31. It registered revenue growth of 18% in the fourth quarter on a pro forma organic constant currency basis, with full-year growth of 7%.
Aveva aims to drive an acceleration in annual recurring revenue growth in the recently commenced financial year to a level of 15% to 20%. As ARR accelerates, it cautioned, reported revenue will be impacted by the timing of revenue recognition. In addition to this, revenue will be knocked by the war in Ukraine and sanctions on Russia - though Aveva noted that Russia is a ‘relatively small’ market for the group.
Adjusted earnings before interest and tax in the current financial year will be pressured by additional costs, including wage inflation, increased travel and event costs post-Covid and investment, the company said.
‘Taking all of these factors into account, revenue growth is expected to be lower in FY23 than in FY22 and adjusted Ebit margin is expected to reduce, before resuming growth in FY24,’ Aveva said.
Lloyds Banking rose 2.5%, the stock at the top of the FTSE 100 in opening trade, after upgrading guidance.
Underlying net interest income for the first quarter of 2022 rose 10% to £2.95 billion, with total net income for the period up 12% to £4.11 billion. Despite this increase, pretax profit fell 14% to £1.62 billion, with Lloyds's profit hit by a £177 million underlying impairment versus a net credit of £360 million a year before.
The impairment reflects ‘a low incurred charge and limited impact from revised economic outlook, including higher inflation offset by stronger house prices and unemployment.’
‘In the first three months of 2022, we delivered solid financial performance, with strong income growth and capital build. These results demonstrate the consistent strength of our business model,’ said Chief Executive Charlie Nunn.
‘Whilst we are seeing continued recovery from the coronavirus pandemic, the outlook for the UK economy remains uncertain, particularly with regards to the persistency and impact of higher inflation.’
Given the solid start to the year, Lloyds now expects its full-year banking net interest margin to be above 270 basis points, versus guidance of 260 basis points previously, and return on tangible equity to be greater than 11%, versus a prior prediction of around 10%. This compares to a banking net interest margin of 2.68% in the first quarter and RoTE of 10.8%.
WPP was up 1.3% in morning trade as it also raised its outlook. The advertising and marketing firm reported first-quarter revenue less pass-through costs growth of 9.5% on a like-for-like basis. It now expects full-year growth to be in the region of 5.5% to 6.5%, up from ‘around 5%’ previously.
‘Demand is strong for our services, particularly in digital media, e-commerce, data and marketing technology,’ said Chief Executive Mark Read.
In the FTSE 250, Drax rose 3.5%, as the electricity generator expects full-year adjusted Ebitda around the top end of current range of analyst expectations after reporting a strong system support performance during the first three months of 2022.
WH Smith advanced 3.0% after swinging to a half-year profit with its pandemic recovery ‘underway’. The stationary and magazines retailer posted a pretax profit of £18 million for the six months to the end of February, turning from a loss of £38 million year-on-year.
‘The group has delivered a good performance with a strong rebound in profitability. We have seen a recovery across all our travel markets despite the impact of the Omicron variant in Q2, and we are in a strong position to capture growth as the recovery continues,’ said Chief Executive Carl Cowling.
On AIM, shares in Empyrean Energy collapsed 67% after saying the Jade prospect at its 100% owned Block 29/11 permit, offshore China, reached final total depth but logging indicated no oil pay in the target reservoir.
‘We are extremely disappointed with the results of the well, particularly after conducting a systematic and comprehensive technical analysis followed by running a safe drilling operation,’ said Chief Executive Tom Kelly.
The economic events calendar on Wednesday has US trade data at 1330 BST.
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