Attention turns back to the corporate earnings season after the Chancellor's Budget yesterday, with Lloyds Banking Group and Royal Dutch Shell among those reporting today.
Lloyds posted a much-improved statutory profit of £5.9 billion in the year to date while it also enhanced its guidance for the rest of 2021, a move mirroring the improved economic picture given by Rishi Sunak in his Budget speech.
Royal Dutch Shell has posted third quarter figures but the main focus is on how it responds to calls made by New York hedge fund Third Point to break itself up.
FTSE 100 Live Thursday
Shell earnings add to “break-up” pressure
FTSE 100 Index flat, Glaxo 2% higher
US GDP growth disappoints
ECB holds interest rates unchanged
FTSE closes flat
17:17 , Oscar Williams-Grut
The FTSE 100 has closed near enough flat, down just 4 points at 7249.
WPP topped the index with a gain of 8% after upgrading growth forecasts for the third time in a year. At the other end of the table, Shell slumped 3.5% after missing forecasts on earnings.
That’s all from us on the blog today. Join us again tomorrow.
Markets focus on rates outlook
08:06 , Graeme Evans
The Bank of Canada last night became the latest central bank to act on the risk of higher inflation as it ended its quantitative easing programme earlier than expected.
It also shifted the expected timing of interest rate hikes from the second half to the middle quarters of next year. The move comes as policymakers worldwide consider when to pare back emergency stimulus programmes in response to the improving economic outlook.
Deutsche Bank noted that markets are now increasingly betting that the US Federal Reserve will lift rates by July, with two hikes priced in over the full year.
On the back of these developments, Wall Street markets fell back from their record highs to stand 0.5% lower in the case of the S&P 500. The FTSE 100 index is forecast by CMC Markets to open unchanged at 7253.
There was little movement for the London market in the wake of yesterday's Budget, apart from the rebound for pub chains such as JD Wetherspoon on the back of alcohol duty reforms. Even then, shares only returned to where they were at the start of the month.
UK gilt yields fell, however, after growth forecasts were upgraded for 2022, reducing the government's projected borrowing requirement to below earlier City forecasts.
This comes after Chancellor Rishi Sunak said the country is set to see the fastest growth since 1973, with expansion of 6.5% this year up from 4% projected previously and followed by a bigger-than-expected rise of 6% next year.
The European Central Bank will be in focus today, with policymakers seemingly a long way from deciding when to pare back their current monetary policy stance. Oanda's senior market analyst Jeffrey Halley said: “Europe is no closer to removing the monetary punch bowl to keep the lights on than they were a decade ago.”
Shell under pressure
08:08 , Graeme Evans
Royal Dutch Shell's third quarter adjusted earnings of $4.1 billion were 25% lower than a year earlier, having taken a $400 million hit after Hurricane Ida caused major disruption to its Gulf of Mexico operations.
The figure for the first nine months of the year came in 190% higher on the back of higher oil and gas prices, but the quarterly performance was below City forecasts.
It adds to pressure on the company after Daniel Loeb, the founder and boss of New York hedge fund Third Point, said Shell's board “can and must move faster” to rebuild value.
His company has built a stake worth $750 million in the hope of pressuring the oil giant to consider breaking itself up, a move that would reflect the competing demands of investing in renewable energy as well as capitalising on legacy oil and gas assets.
In a letter to Third Point investors, reported by The Times today, Loeb says the company can't be “all things to all people”.
He added: “In trying to do so, Shell has ended up with unhappy shareholders who have been starved of returns and an unhappy society that wants to see Shell do more to decarbonise.”
The Anglo-Dutch oil giant plans to build low-carbon businesses of significant scale by the early 2030s, but needs its upstream operations to deliver the cash to accelerate the transition to these growth businesses.
Chief executive Ben van Beurden said today: “This quarter we've generated record cash flow, maintained capital discipline and announced our intention to distribute $7 billion to our shareholders from the sale of our Permian assets.
“Today, we also set a new 2030 target to halve the absolute emissions from our operations, compared to 2016 levels on a net basis.”
Lloyds Bank ups guidance on booming mortgage market
08:11 , Simon English
LLOYDS BANK raced to profit of £2 billion in the last three months, partly on the back of a booming mortgage market as Britons sought bigger houses for their families in a Covid world.
All banks have seen mortgage sales leap.
Charlie Nunn, the new Lloyds CEO presenting his first results, said: “The mortgage market has been very strong. There has been low unemployment and low interest rates. People have looked to move outside urban centres to find more space.”
OBR boosts Chancellor's “fiscal playbook”
08:35 , Graeme Evans
The significant upgrade to forecasts by the Office for Budget Responsibility (OBR) increases speculation in the City that the Chancellor is in a position to build up a potential “war chest” ahead of the next election.
Deutsche Bank economists said: “We now have a better sense of Chancellor Sunak's fiscal playbook: tax rises and fiscal prudence now to allow for tax cuts later.
“But, with only around £25 billion in current budget headroom projected, driven primarily by a more optimistic economic backdrop, the Chancellor's biggest risk lies with the strength of the OBR's economic forecasts.
“With the OBR projecting stronger growth next year and beyond, any further spending will largely be determined by how the economy evolves in the next two to three years.”
Capital Economics said the Chancellor was quite restrained in yesterday's Budget given the scale of the upgrade by the OBR, adding that there is a good chance that the Chancellor’s headroom against his new fiscal rules will increase further in future forecasting rounds.
Its chief economist Neil Shearing said this could end up being as large as £50-60 billion by 2024-25.
He added: “This would give the Chancellor room to either increase spending or (perhaps more likely) cut taxes ahead of the next election. Viewed this way, it’s difficult to escape the feeling that this was a Budget designed to meet political rather than economic objectives.”
Oil stocks dent FTSE 100
08:58 , Graeme Evans
Royal Dutch Shell shares fell 1.5% in the FTSE 100 index today, but the weakening of the Brent crude price to $83.86 a barrel looked as much to do with the decline as the company’s third quarter earnings update.
BP shares also fell 1% as the FTSE 100 slipped 12.27 points to 7241, despite a 2% rise for Lloyds Banking Group.
Media and advertising group WPP led the risers board after another upgrade to earnings guidance sent shares up 4%, while there was a further rise of 2% for GlaxoSmithKline after yesterday's upgrade to full-year forecasts. At 1470.4p, the shares are still only back to where they were in early September.
Cyber security firm Darktrace attracted buyers after falling sharply earlier this week on the back of a broker's sell recommendation. Packaging DS Smith also added 2% after revealing in a trading update that it had been able to pass on significant hikes in input costs.
The FTSE 250 index fell 55.27 points to 23,116.77, despite a 6% rise for Magners and Bulmers maker C&C as it returned to profit in June. JD Wethespoon shares added another 1% or 10p to 1049p after rising 5% in the wake of yesterday's pub-friendly Budget.
More on WPP’s ‘blowout’ quarter
09:19 , Oscar Williams-Grut
Media and advertising giant WPP has upgraded its guidance for the third time in a year as it benefits from a booming advertising market.
WPP, which owns creative agencies, ad firms, and PR businesses, said it was now expecting revenue growth of 11.5% to 12% in 2021. The market had been expecting growth of between 8% and 11%.
WPP is benefiting from continued momentum in the ad market. Revenue less pass through cost, the company’s preferred measure, was up 15.7% in the third quarter - well above forecasts of 9.5% growth. Analysts at Citi called it a “blowout” performance.
“Our very strong performance goes well beyond a cyclical recovery, with like-for-like growth over 2019 at 6.9% in the quarter,” CEO Mark Read said.
Airbus shares takeoff in Paris
10:10 , Oscar Williams-Grut
Helicopter sales helped give Airbus the confidence to raise full year earnings forecasts today.
The French aerospace giant said it now expected full-year adjusted earnings before costs to come in at €4.5 billion, compared to an earlier estimate of €4 billion. Delivery forecasts were left unchanged.
Airbus said revenue so far this year was up 17% on last year at € 35.2 billion. The company has been boosted by more deliveries of commercial aircrafts and demand for its helicopters, highlighting its heavy duty Super Puma range, below.
CEO Guillaume Faury said the company was “closely monitoring potential risks to our industry” and “striving to ensure the right industrial and supply chain capabilities are in place”.
Shares rose €1 or 1% to €111 in Paris.
Glaxo shares accelerate
10:40 , Graeme Evans
Having been focused on cheaper booze and the Chancellor's spending plans, investors today took the opportunity to catch up on another of yesterday's big City upgrades.
Their focus was on the under-performing GlaxoSmithKline share price, which has received a boost after chief executive Dame Emma Walmsley raised the drug maker's forecasts for this year following better-than-expected third quarter results.
Her update, which was made just before the Chancellor began his Budget speech, only lifted shares by 0.5% yesterday but there was a major acceleration of 3% today - up 37.6p to 1479.4p - as analysts digested the details of the improved performance.
The results should ease some of the immediate pressure on Dame Emma, who recently unveiled a major strategy review where she promised a step-change in sales and operating profits growth from 2022.
The City continues to take a cautious approach, however, with shares still below the 1,513p level seen in the summer amid disquiet for some investors over how the company plans to split off its consumer healthcare division next year.
Glaxo shares were joined on the FTSE 100 risers board by media and advertising giant WPP after its latest upgrade to forecasts sent shares surging by 5%.
Top flight newcomer Darktrace also attracted buyers after the cyber security firm fell sharply earlier this week on the back of a broker's sell recommendation. Shares rallied 31p to 761.5p.
The decline of 27.4 points to 7225.65 for the FTSE 100 index was driven by Royal Dutch Shell after its shares dropped 3% due to its third quarter earnings miss. A weakening in the Brent crude price to $84 a barrel was a factor, however, as rival BP dropped 2% or 7.95p to 349.65p after a strong run in recent weeks.
The FTSE 250 index fell 62.55 points to 23,111.49, with Mitchells & Butlers suffering a hangover of 7.8p to 252.8p after surging 5% on the back of the pub-friendly budget. Magners and Bulmers maker C&C rose 4% or 11p to 260.6p as it reported a return to profit in June.
Shell hits back at breakup calls
11:45 , Oscar Williams-Grut
Shell boss Ben Van Beurden today mounted a forthright defence against calls to split up his company, saying profits from its oil and gas operations will be vital in funding the transition to a low-carbon future.
The FTSE100 giant’s fightback against an ambush by activist investor Josh Loeb’s Third Point was, however, dented by a big miss in third-quarter profits, despite record cash flow from soaring gas and oil prices.
Shell’s share price fell by more than 3% as it posted adjusted net profit from July-to-September of $4.1billion against consensus forecasts of $5.4 billion.
That was down from $5.5 billion in the previous quarter and came despite a record $17.5 billion cash flow from operations.
Foxtons jumps on soaring sales and rents
12:10 , Oscar Williams-Grut
Foxtons’ revenue from house sales is up 114% to £38 million so far this year, benefiting from the stamp duty holiday that came to an end last month.
In lettings, Foxtons said rents in London had rapidly bounced back to pre-pandemic levels as a surge of movers fought over limited supply.
Momentum in both of the key divisions helped Foxtons’ revenue surge 50% across the group to £103.6 million in the first nine months of the year. Income is 24% above pre-pandemic levels.
Shares dipped 0.4p or 0.8% to 47.6p.
The Standard view on Shell: Time to take going green seriously
12:25 , Oscar Williams-Grut
Shell boss Ben van Beurden argues that a green future is only possible if businesses like his back it. Creating renewable infrastructure at scale requires a level of investment that only a Shell or a BP can muster with their huge cashflow and profits.
This is a popular argument among the supermajors. But in Shell’s case it is academic. The company is a laggard in the energy transition race. Van Beurden today vowed to cut the company’s emissions by 50% by 2030 — but that only came after activists successfully sued Shell in Dutch court. Today’s emissions pledge was light on details as to how Shell will cut emissions. Expect skepticism.
The oil company is not the only business to face these sorts of calls. Elliott, another activist fund, is currently agitating for power company SSE to spin off its renewables business. There will no doubt be others.
Van Beurden made clear today that he will fight the break-up calls. The best defense will be to take transition serious and focus more time and effort on going green.
ECB leaves rates unchanged
13:30 , Oscar Williams-Grut
The European Central Bank has left interest rates unchanged at its latest meeting of the governing council.
“The Governing Council continues to judge that favourable financing conditions can be maintained with a moderately lower pace of net asset purchases under the pandemic emergency purchase programme (PEPP) than in the second and third quarters of this year,” the ECB said in a statement.
“The Governing Council also confirmed its other measures, namely the level of the key ECB interest rates, its forward guidance on their likely future evolution, its purchases under the asset purchase programme (APP), its reinvestment policies and its longer-term refinancing operations.”
The euro is a touch lower against the dollar and pound in the wake of the statement.
US GDP figures disappoint
14:08 , Oscar Williams-Grut
Third quarter GDP growth slowed markedly in the US, new data shows. Figures out this afternoon show the preliminary estimate of economic expansion was 5.7% in the third quarter. That was down from 5.5% in the second quarter.
Richard Flynn, Managing Director at Charles Schwab UK, said: “Today’s disappointing GDP data will increase investor concerns about strength of the U.S. economy. Since the broad reopening of the economy, demand has outpaced the recovery of supply causing shortages and rising inflation. These supply bottlenecks continue to weigh on companies’ future expectations, as both labour and materials have become scarcer and more expensive.
“The mismatch between labour availability and demand for workers has put upward pressure on wages—adding to the significant increases in shipping and sourcing costs brought on by jammed ports and a shortage of freight ships. That in turn has stirred up concern over a potential hit to profit margins in the near term. This reflects analysts’ waning confidence that corporate earnings can continue to outperform expectations.
“Risk has undoubtedly risen for investors, as there are now more questions—including about fiscal and monetary policy—than there are answers.”
US markets open in about 20 minutes. The FTSE is 0.4% lower.
Tesco partners with Gorillas
14:25 , Oscar Williams-Grut
Tesco has partnered with 10-minute grocery delivery app Gorillas. From today Tesco items will be stocked on Gorillas app.
Founded just last year, Germany-headquartered Gorillas has grown rapidly and last week raised $1 billion. It operates a network of ‘dark stores’ that hold items for couriers to deliver to people’s doors in super fast time. It is one of a number of firms to offer the service: the Standard has covered competitor Zapp.
Jason Tarry, Tesco UK & ROI CEO said: “The idea that we can reach our customers in just ten minutes is really exciting. This pilot with Gorillas will help customers get their products right away, supporting those looking to buy food for tonight or last minute forgotten items. We look forward to hearing what our customers think.”
Adrian Frenzel, Gorillas COO said: “We’re thrilled to be announcing this first-of-its-kind commercial and real estate partnership with Tesco. As a fast-paced company at the forefront of the on demand grocery industry, we are always looking for ways to innovate, and this co-location partnership will bring unprecedented value to our customers in the UK who will now have the possibility to be delivered the best of Tesco within minutes thanks to Gorillas.”
Rivals have done similar deals with delivery apps and Asda recently announced its own 10-minute delivery trial.
Tesco shares were up 1.1p to 272.6p.