Updates from Amazon and Apple have set a downbeat tone for European markets after the tech giants highlighted the impact of supply chain pressures.
Their figures were released after Wall Street's closing bell and offset what had been another record-breaking session for the S&P 500 and Nasdaq.
In London, NatWest reported a jump in third quarter profits to £1.1 billion, with boss Alison Rose pleased with recent trends: “Growth is good, unemployment is low and there are limited signs of default across our book,” she said.
Borrowing costs for NatWest customers will be in focus, however, after several UK lenders raised their mortgage rates yesterday in anticipation of next week's forecast Bank of England interest rate hike.
FTSE 100 Live Friday
Supply chain squeeze dents Amazon/Apple
FTSE 100 in downbeat end to week
FTSE 100 set to open lower
07:33 , Graeme Evans
US markets knocked over more records last night, but that was before misses to revenues expectations from tech heavyweights Amazon and Apple.
Higher costs and supply chain disruptions were blamed for the disappointing performances, which sent the pair's shares down by about 4% in after-hours trading on Wall Street.
US futures are priced to open lower later today, while CMC Markets is predicting that the FTSE 100 index will start the final session of the month 20 points lower at 7229.
Mixed economic data in the US hasn't helped, with a much weaker GDP performance offset by the lowest level for weekly jobless claims since the start of the pandemic. However, the S&P 500 still lifted 1% to a record close prior to the latest tech sector anouncements, with results from Ford and Caterpillar among those adding to the bullish outlook.
The reporting season continues today with NatWest and commodities giant Glencore among those updating investors in London. The banking group will be facing over questions over mortgage rates after several lenders raised the cost of borrowing in the wake of this week's budget and ahead of the Bank of England's expected hike in interest rates next week.
Markets are now fully pricing in a rise in the base rate from 0.1% to 0.25% on Thursday, with a further increase by February as part of a strategy of earlier but fewer hikes to stop inflation expectations becoming too entrenched.
Amazon warns over holiday season pressure
08:00 , Graeme Evans
Amazon CEO Andy Jassy has pledged to do “whatever it takes” to minimise the impact on customers and sellers of the current labour supply shortages, higher wage costs and increased freight and shipping costs.
He added: “It’ll be expensive for us in the short term, but it’s the right prioritisation for our customers and partners.”
This means Amazon expects sales for the fourth quarter will be between $130 billion and $140 billion, with operating income for the key holiday season period in the range of zero and $3 billion, compared with $6.9 billion in 2020.
The update to guidance came as the internet retailer and web services business reported third quarter revenues of $110.8 billion, slightly behind Wall Street expectations despite a rise of 15% year-on-year. Operating profits were $4.9 billion, a 21% decline.
Hargreaves Lansdown equity analyst Nicholas Hyett said: “While staying consistently in the black, Amazon has never been overly focussed on the bottom line.
“That willingness to invest in what the group hopes will be long term success at the expense of short term profits is on display again in these results.”
Apple squeezed by supply chain constraints
08:24 , Graeme Evans
A record fourth quarter for iPhone maker Apple failed to prevent its shares falling 4% in Wall Street after-hours trading last night.
The sell-off came after chief executive Tim Cook highlighted $6 billion of supply constraints in the most recent quarter to reflect the ongoing semiconductor shortages and manufacturing disruptions in Southeast Asia.
The latter of these factors is easing, but Cook still fears overall constraints in the current quarter will be larger than Q4’s $6 billion.
The California-based company posted a September quarter revenues record of $83.4 billion, up 29 percent year-on-year after a 47% jump in iPhone sales. Operating profit rose to $23.8 billion, compared to $14.8 billion a year earlier.
Hargreaves Lansdown analyst Sophie Lund-Yates said: “The most astonishing figure when it comes to Apple is the amount of free cash flow pumping through the company’s veins.
“The group had over $90 billion of free cash flow in the last year, which is what can ultimately be used to pay down debt or pay shareholder returns.
“Unusually for a tech giant, Apple does offer a dividend. You’d be forgiven for wondering if it shouldn’t be a little more generous given the abundance of resources available.”
Apple returned $24 billion to shareholders in the quarter, while last night's results also included a dividend of $0.22 a share.
NatWest leads FTSE 100 decline
08:51 , Oscar Williams-Grut
NatWest shares fell more than 4% during a downbeat end to the week for the wider London market, with the FTSE 100 index 18.62 points lower at 7230.85.
The lender's results met expectations but hopes were clearly for more in the wake of strong figures from Lloyds Banking Group and after a 37% surge for NatWest shares to 20-month highs so far this year. Lloyds shares, in contrast, were up 0.58p to 50.16p.
Media and advertising group WPP added another 2% on top of the 8% seen yesterday after its latest earnings update. The recovery of cyber security firm Darktrace also continued as shares improved 12.5p to 792p.
British Gas owner Centrica rose 0.9p to 61.3p, but the gain failed to prevent the FTSE 250 index from falling 29.31 points to 21,170.56.
NatWest boss says UK economy has been ‘extraordinary’
09:52 , Oscar Williams-Grut
NatWest boss Alison Rose has hailed the resilience of UK businesses as “pretty extraordinary”. Speaking to the Standard, Rose said supply chain issues and staff shortages mean the near future will be “a little bit bumpy”, but stressed the overall supportive backdrop for the UK.
“The credit environment remains very benign. If you think about where we were 12 months ago and the concerns people had, the underlying resilience of UK businesses is pretty extraordinary,” she said.
Premier Foods, John Lewis and others release sustainability updates ahead of COP26
10:29 , Naomi Ackerman
This morning has seen a swathe of sustainability-focused announcements from companies, released to coincide with COP26.
Premier Foods, maker of store-cupboard staples from Mr Kipling cakes to Bisto gravy, said it is on a mission to push into the plant-based sector and plans to triple its animal product-free sales to £250 million by 2030.A series of new products will be released to help reach the target. The FTSE 250 firm also revealed aims to to reach net zero for direct emissions by 2040, and to have a gender-balanced board by 2030.
John Lewis also announced today that it has signed a new £420m five-year revolving credit facility with rates linked to meeting environmental targets.Read the full story here
Clouds lift for airline sector
10:37 , Graeme Evans
The recovery path for the beleaguered airline sector appears to be clearing after Air France-KLM today reported a welcome surge in transatlantic bookings for this Christmas.
As well as an improved outlook, the European carrier revealed positive third quarter earnings for the first time since the start of the pandemic.
Its shares rallied by 4% after the better-than-expected update, with British Airways owner IAG also benefiting ahead of its own quarterly update next Friday.
IAG shares were 1% or 1.84p stronger at 163.94p, while easyJet improved 3.2p to 621.2p as the sector also welcomed the removal of the final seven countries from the UK's red list category for Covid-19 restrictions.
In a note published this week, Liberum's airline analyst Gerald Khoo backed IAG and easyJet shares to reach 215p and 680p respectively despite the threat of higher fuel costs.
After the reopening of US borders for European citizens, Air France-KLM said that bookings “came quickly for November and even more for the Christmas holiday”. It now expects capacity of between 70% and 75% in the current quarter.
IAG's improvement offset a weak session for the London market as investors reacted to the supply chain and cost pressures revealed by Amazon and Apple in quarterly updates.
The FTSE 100 index fell 27.93 points to 7221.46, with NatWest suffering a results-day fall of 8.2p to 223.2p in a session when its rivals Barclays and Lloyds were both 1.5% higher.
British Gas owner Centrica rose 0.3p to 60.72p after regulator Ofgem pledged to review the workings of its energy price cap, but the FTSE 250 index still fell 142.33 points to 23,056.10.
Games Workshop was the biggest faller in the second tier after analysts at Jefferies cut their estimates on the Warhammer fantasy miniatures firm to reflect freight and currency challenges. Their target price is now 12,250p, which compares with 9735p after today's 7% fall took another chunk out of the 83% surge seen in 2020.
“Netflix of wine”
10:39 , Graeme Evans
Naked Wines shares were among the most wanted on AIM today after a US investor described the company as the “Netflix of wine”.
The backing from Light Street Capital founder Glen Kacher sent Naked's shares 15% or 98p higher to 754p, although still short of the 853p seen last month.
The wine subscription business, which posts its half-year results on November 18, provides more than 850,000 members in the US, UK and Australia with access to 235 independent wine makers.
Morrisons told to stay separate
11:23 , Oscar Williams-Grut
The competition watchdog has ordered Morrisons to stay operationally independent while it considers whether to launch an investigation into the supermarket’s recent £7 billion private equity takeover.
The Competition and Markets Authority (CMA) published an initial enforcement notice this morning, which prohibits Morrisons buyer Clayton Dubilier & Rice (CD&R) from integrating the supermarket chain with its businesses. The order does not amount to a full investigation but could proceed one. The CMA said an initial enforcement order was standard practice in a deal of this size.
The order specifically covers MFG, the petrol station business also owned by CD&R. CD&R had been expected to combine parts of the two businesses, offering Morrisons groceries at MFG forecourts.
Bitcoin boosted as inflation fears rise
12:30 , Oscar Williams-Grut
Bitcoin, the world’s biggest cryptocurrency, is hovering near the $61,000 mark today after reaching a fresh all-time high near $67,000 last week.
Analysts think the cryptocurrency’s recent price revival has been driven by the believe among many investors that it can be used to hedge against inflation. JPMorgan said last week: “We believe the perception of bitcoin as a better inflation hedge than gold is the main reason for the current upswing, triggering a shift away from gold ETFs into bitcoin funds since September.”
Is the time right for 25 year mortgage deals?
12:30 , Simon English
MORTGAGE costs are going up as banks get ready for an increase in interest rates from the Bank of England. Is now a good time to re-mortgage?
The common consensus seems to be yes – but move fast.
On Wednesday this week, shortly after Chancellor Rishi Sunak concluded his budget, several lenders upped rates on fixed rate deals. Halifax, NatWest, Santander, HSBC and others all moved promptly on the chance that there is a rate rise as soon as next week.
While those increases by the banks don’t immediately affect those on fixed rate deals, it will later. The typical mortgage will cost hundreds of pounds more a year to service.
FTSE closes lower
17:06 , Oscar Williams-Grut
The FTSE 100 has closed down 12 points at 7237 but is still around 10 points ahead of where it started the week.
NatWest was the biggest faller, down 4.4% despite a strong set of results.
That’s all from us on the blog today. Join us again next week.