ADVFN Morning London Market Report: Tuesday 14 May 2019

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London open: Stocks rise as Vodafone rallies despite dividend cut, Greggs on a roll

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London stocks rose in early trade on Tuesday as investors continued to mull trade developments between the US and China and eyed the release of key UK jobs data.

At 0830 BST, the FTSE 100 was 0.4% higher at 7,193.98, while the pound was down 0.2% against the dollar at 1.2939 and 0.3% lower versus the euro at 1.1509.

Stocks on Wall Street suffered heavy losses on Monday after China retaliated against the US by announcing tariffs on $60bn of US goods. Both the Dow and the S&P 500 endured their worst day since 3 January.

CMC Markets analyst Michael Hewson attributed the firmer open in London and Europe partly to the fact that US President Trump has kept open the prospect of some form of deal in the next three to four weeks.

Speaking at a White House event, Trump also said that he was prepared to meet his Chinese counterpart Xi Jinping at a G20 summit in Japan next month.

Nevertheless, this is unlikely to change the prospect of further volatility in the days ahead, Hewson said.

“With the EU also threatening its own retaliation if Trump implements tariffs on EU autos at the end of this week, stocks have seen valuations put into the shredder, with large falls across the board, as in the space of five days we’ve seen all the April gains for US markets disappear,” he added.

Investors were also likely to remain on edge amid news that Trump is considering imposing tariffs on a further $300bn of Chinese imports.

On home shores, the ILO unemployment rate, claimant count and average earnings are due at 0930 BST.

Unemployment for the three months to March is expected to remain at its lowest levels since the mid-1970s at 3.9%. Meanwhile, wage growth is expected to tick just a touch lower to 3.3% from 3.4% in February.

“This is still well above the headline CPI inflation rate of 1.9%, meaning that once again consumers are seeing real wages growth, for the eighth month in succession,” said Hewson.

In equity markets, Vodafone was in the green even as it cut its full-year dividend to 9 cents a share from 15 cents and said it swung to an annual loss of €7.6bn from a profit of €2.8bn the year before. Revenue at the company fell 6.2% to €43.7bn.

Neil Wilson, chief market analyst at Markets.com, said the cut to the dividend was “very hefty indeed” and investors will punish this move.

“Unlike some notable others, though, Vodafone has grasped the nettle and chosen to put the future of the business ahead of short-term returns to yield hungry investors,” he said. “Now it’s not great news, but at least it shows the new CEO is willing to think longer term and is seeking to manage the debt.”

Richard Hunter, head of markets at Interactive Investor, took a similar view. He argued that while there is “a long list of reasons to be uncheerful” about the results, there are also grounds for optimism in terms of Vodafone’s ambitions.

“The reduction to the dividend is prudent, given the enormous constraints on cash flow, not to mention that dividend cover had slipped to unsustainable levels. Even after the cut, the yield will remain punchy and the group has committed to returning to a progressive policy.”

DCC gained after it said annual pre-tax profit rose 3.3% as acquisitions helped the sales and support services group overcome mild weather that affected its heating businesses.

FTSE 250 baker Greggs saw its shares rally as it said sales and underlying profits for 2019 will be “materially higher” than it had expected, helped by strong demand for its vegan sausage rolls. In an update for the first 19 weeks of the year, the group said total sales were up 15.1% versus 4.7% growth in 2018, while company-managed shop like-for-like sales were 11.1% higher compared to 1% growth in 2018.

EI Group fizzed higher after the pub operator reported a rise in interim underlying pre-tax profit, as it said consumers are still supporting their local pub despite “unprecedented political uncertainty and inflationary pressure”.

Standard Life Aberdeen was a touch firmer as it posted a 3% increase in assets under management and administration as at 31 March 2019 to £568.9bn, helped by positive market movements.

In broker note action, FirstGroup was lifted to ‘outperform’ at RBC Capital Markets.

On the downside, shares in Renishaw tumbled as the metrology and healthcare technology group said pre-tax profits for the nine months to-end March 2019 fell 18.8% to £84.8m as revenues were flat.

Landsec nudged lower as it said a “significant” fall in the value of its retail assets led to wider full-year pre-tax losses as retail failures increase vacancies and the company warned of no let-up in the near term.

 

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Comments

  1. shawly says:

    What’s going on at AG Bell? Large falls recently.

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