Equities in London were lower on Thursday morning, UK bond yields spiked and the pound was around the $1.30 mark as investor digest Wednesday’s budget announcement.
Early UK corporate updates were mixed. Shell and Coca-Cola HBC impressed, but Smith & Nephew and Kainos were among those to disappoint.
Those reports followed earnings from New York-listed Meta and Microsoft overnight, which similarly failed to provide a spark.
The FTSE 100 index traded down 50.72 points, 0.6%, at 8,108.91. The FTSE 250 was down 151.35 points, 0.7%, at 20,542.77, and the AIM All-Share was down 3.12 points, 0.4%, at 741.40.
The Cboe UK 100 was down 0.6% at 813.42, the Cboe UK 250 lost 0.7% at 18,139.28, and the Cboe Small Companies was down 0.3% at 16,600.41.
In European equities on Thursday, the CAC 40 in Paris was down 0.5%, while the DAX 40 in Frankfurt fell 0.6%.
The pound was quoted at $1.2982 early Thursday, down from $1.3006 at the London equities close on Wednesday. The euro stood at $1.0857, fading from $1.0863. Against the yen, the dollar was trading at JP¥152.42, down from JP¥153.03 at the time of the European equities close on Wednesday.
Rachel Reeves has said she does not want to repeat the £40 billion tax rises she implemented in her first budget ‘ever again’.
The fiscal announcement was a chance to ‘wipe the slate clean’ following the Conservatives’ time in power, the Chancellor told broadcasters as she defended the Budget on Thursday morning.
Choices made by Reeves will see the overall tax burden reach a record 38.3% of gross domestic product in 2027-28, the highest since 1948.
Post-budget trade saw small-caps outperform, but bond prices fall. The AIM All-Share surged 4.0% on Wednesday, while the AIM UK 100, made up of the largest firms on the junior market, shot up 4.3%.
The yield on the UK 10-year gilt, however, spiked as the day wore on and moved as high as around 4.41% on Thursday.
XTB analyst Kathleen Brooks commented: ‘UK bonds are sinking, as the OBR also revised up their expectations for inflation and interest rates for the long term. The increase in the UK’s yield differential is helping the pound to stabilize around $1.30 versus the USD. The pound is the second-best performer in the G10 FX space on Thursday, behind the yen, as the dollar pares back gains as jitters hit the Trump trade as we move towards next week’s US election.’
In Tokyo on Thursday, the Nikkei 225 ended down 0.5%. The Shanghai Composite in China rose 0.4%, while the Hang Seng in Hong Kong lost 0.3%. The S&P/ASX 200 fell 0.3%.
The Bank of Japan warned Thursday of ‘high uncertainties’ following the ruling party’s worst election result in 15 years, as it kept interest rates unchanged.
Prime Minister Shigeru Ishiba’s coalition lost its majority in Sunday’s snap vote, likely forcing him to head a minority government with support from other parties to pass legislation.
The BoJ on Thursday kept its main short-term policy rate at 0.25%, as widely expected, warning of ‘high uncertainties surrounding Japan’s economic activity and prices’.
In New York, the Dow Jones Industrial Average lost 0.2% on Wednesday. The S&P 500 fell 0.3% and the Nasdaq Composite shed 0.6%.
Facebook owner Meta Platforms fell 4.2% in extended trade, while Microsoft shed 4.3% as earnings underwhelmed.
‘While both delivered top- and bottom-line beats compared to consensus expectations, Microsoft’s guidance was lacking, with cloud revenue growth set to slow, and margins likely to shrink, in the coming quarters,’ Pepperstone analyst Michael Brown commented.
‘Meanwhile, Meta’s increasing capex on AI technology exerted pressure, as risks around the theme continue to become more two-sided, particularly after relatively poor earnings from AMD on Tuesday. This, of course, tees things up in somewhat precarious fashion for Nvidia earnings, due towards the back end of next month.’
In London, Shell added 1.1%, one of just a handful of early climbers among London large-caps. It said it will maintain the pace of quarterly share buybacks despite reporting a decline in earnings on softer refining margins.
The London-based oil major said total revenue in the third-quarter of 2024 fell 7.1% on-year to $72.46 billion from $78.01 billion, sending its pretax profit 36% lower to $7.27 billion from $11.29 billion.
Adjusted earnings slipped 3.1% to $6.03 billion from $6.22 billion. Nonetheless, this was above market consensus for $5.4 billion.
Adjusted earnings before interest, tax, depreciation and amortisation were down 2.0% to $16.01 billion from $16.34 billion.
Chief Executive Officer, Wael Sawan said it was ‘another set of strong results’.
‘We continue to deliver more value with less emissions, whilst enhancing the resilience of our balance sheet,’ he asserted.
Shell said it grappled with ‘lower crude prices and weaker refining margins’. It noted a ‘strong operational performance in Integrated Gas, Upstream and Marketing’, however.
Shell announced a $3.5 billion share buyback, which is expected to be completed by the time of its fourth-quarter results announcement.
Coca-Cola HBC added 1.6%. The soft drink bottler hailed ‘another quarter of strong organic revenue growth’ and it raised its outlook.
Coca-Cola HBC now expects organic revenue growth between 11% and 13% for 2024, its outlook improved from the prior 8% to 12% growth range. Organic earnings before interest and tax are to rise between 10% and 12%, the bottom end of that range lifted from 7%.
The firm, which operates in nations including Italy, Greece, Ireland and Switzerland, said in a trading update that net sales revenue rose 8.9% in the third-quarter of the year. On an organic basis, it surged 14%. Volumes rose 4.1% on a reported basis, 4.0% organically.
Smith & Nephew tumbled 13%, as it cut guidance on China woe. The medical devices maker’s underlying revenue growth prediction was lowered to ‘around 4.5%’, from a range of 5.0% to 6.0%.
It expects trading profit margin growth of ‘up to 50 basis points’ from the prior year’s 17.5%. It had previously expected an outcome of ‘at least 18.0%’. The new guidance reflects ‘the reduced operating leverage from slower revenue growth’.
In a trading statement, it said revenue for the third-quarter to September 28 grew 4.0% on both an underlying and reported basis to $1.41 billion from $1.36 billion a year prior. Stripping out China, growth was stronger at 5.9%, however.
The firm said China was ‘impacted by worse than expected headwinds across our surgical businesses’.
Also cutting guidance, Workday partner Kainos plunged 14%. It expects to deliver annual revenue ‘moderately below current market consensus’ as it struggles with a tough market environment and delays in client decision-making.
Synthomer rose 4.5%. The developer of highly specialised polymers said its third-quarter was in line with expectations.
‘We expect to make some earnings progress (on a continuing Group basis adjusting for the divested Compounds business), and to be modestly free cash flow positive in 2024, despite the absence of a broad-based macroeconomic demand improvement,’ it said.
Gold was quoted at $2,779.88 an ounce, falling from $2,786.80. Brent oil fetched at $72.29 a barrel, rising from $72.17.
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