(Alliance News) - The pound dropped 1.4% overnight Friday, as concern about growing inflationary pressure in the US and elsewhere promoted a sell-off on Wall Street and a rush into the safe-haven dollar.
Sterling was quoted at USD1.3934 early Friday, down almost two cents from USD1.4130 at the London equities close on Thursday, having briefly exceeded USD1.42 earlier in the week.
"The US dollar gained sharply against its major peers and [emerging markets] currencies as a perfect sign of mounting anxiety among investors who are selling their risk holdings and converting back to US dollars waiting for the dust to settle," remarked Ipek Ozkardeskaya, senior analyst at Swissquote. "We have already seen a USD rush at the beginning of the pandemic sell-off, where even gold couldn't offer a piece of mind to investors."
The analyst added: "Looking at the US 10-year yield, we are near a year-high levels, but still below the pre-pandemic range, and well below the prior to the US-China trade war range, where we have seen the 10-year yield reaching the 3.20% mark. So, in reality, it's not the absolute level but the rapid pace of increase that worries risk investors.
"And we know that soaring yields is no good for the economy. So, the Fed should soon intervene to do something about it."
In two days of Congressional testimony, US Federal Reserve Chair Jerome Powell said the US labour market has a long way to go as it recovers from jobs lost in the pandemic, and that the central bank is likely to maintain its ultra-easy monetary policy for the foreseeable future.
Powell stressed that the Fed is prepared to handle whatever comes its way, so "if it does turn out that unwanted inflation pressures arising are persistent, and we have the tools to deal with that."
Commerzbank analyst Esther Reichelt commented early Friday: "What was remarkable about yesterday's moves was that they arose after Fed chair Jay Powell had tried to calm the financial markets this week, stating that any debate about a tightening of monetary policy was premature and that the Fed would remain as expansionary as before for now. Clearly the market does not really believe Powell and there is nothing more dangerous for a central bank than a loss of its credibility."
The weaker pound protected the highly international FTSE 100 index from the larger losses seen in New York and in Asia, starting Friday down just 0.5%.
IAG, which reported a massive swing to loss in 2020, still managed to beat market expectations, and the stock was up 2.4% early Friday.
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: down 0.4% at 6,622.37
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Hang Seng: down 3.6% at 28,980.21
Nikkei 225: closed down 4.0% at 28,966.01
DJIA: closed down 559.85 points, or 1.8%, at 31,402.01
S&P 500: closed down 96.09 points, or 2.5%, at 3,829.34
Nasdaq Composite: closed down 478.54 points, or 3.5%, at 13,119.43
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EUR: down at USD1.2135 (USD1.2230)
GBP: down sharply at USD1.3934 (USD1.4130)
USD: down at JPY106.04 (JPY106.22)
Gold: down at USD1,761.16 per ounce (USD1,778.65)
Oil (Brent): down at USD66.14 a barrel (USD66.90)
(changes since previous London equities close)
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ECONOMICS AND GENERAL
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Friday's Key Economic Events still to come
G20 finance ministers and central bank governors meet
0830 EST US personal income & outlays
0830 EST US advance economic indicators report
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A US air strike has targeted facilities belonging to a powerful Iranian-backed Iraqi armed group in Syria. A spokesman for the Kataeb Hezbollah militia, or Hezbollah Brigades, said one of its militiamen was killed and several others were injured. The official said the assault took place in an area along the border between the Syrian site of Boukamal and Qaim on the Iraqi side. The Pentagon said the strikes served as retaliation for a rocket attack in Iraq earlier this month that killed one civilian contractor and wounded a US service member and other coalition troops. US Defence Secretary Lloyd Austin said after the air strike on Thursday: "I'm confident in the target that we went after, we know what we hit." The strike was the first military action undertaken by Joe Biden's US administration, which in its first weeks has emphasised its intent to put more focus on the challenges posed by China, even as threats persist in the Middle East.
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BROKER RATING CHANGES
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JPMORGAN CUTS ENTAIN TO 'NEUTRAL' ('OVERWEIGHT') - TARGET 1607 (1220) PENCE
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COMPANIES - FTSE 100
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International Consolidated Airlines swung to a huge loss for 2020, as it flew just 34% of 2019's passenger capacity last year. Current plans for the first quarter of 2021 is for capacity of 20% of 2019 levels, IAG said, but this remains "uncertain and subject to review". Total revenue for 2020 slumped 69% to EUR7.81 billion, while IAG swung to a hefty pretax loss of EUR7.81 billion from a EUR2.28 billion profit in 2019. The company turned to an operating loss of EUR7.43 billion from a EUR2.61 billion profit. Before exceptional items, the operating result was a EUR4.37 billion loss, slightly better than the EUR4.45 billion loss forecast by analysts, but swung from a EUR3.29 billion profit in 2019. "Our results reflect the serious impact that Covid-19 has had on our business. We have taken effective action to preserve cash, boost liquidity and reduce our cost base. Despite this crisis, our liquidity remains strong. At 31 December, the group's liquidity was EUR10.3 billion including a successful EUR2.7 billion capital increase and GBP2 billion loan commitment from UKEF. This is higher than at the start of the pandemic," said Chief Executive Luis Gallego. He added: "We know there is pent-up demand for travel and people want to fly. Vaccinations are progressing well and global infections are going in the right direction. We're calling for international common testing standards and the introduction of digital health passes to reopen our skies safely." Given the uncertainty over Covid-19, including the duration of the pandemic, IAG said it is not providing profit guidance for 2021.
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Property portal Rightmove reported a fall in revenue for 2020 as it offered a discount to customers from April to September. Revenue fell 29% to GBP205.7 million, with pretax profit falling to GBP134.8 million from GBP213.6 million. The company noted that market closures in the first half of the year prompted it to offer support to its Agency and New Homes customers, initially with a 75% discount from April to July, followed by 60% and 40% for Agency customers in August and September. Since housing markets have reopened around the UK, the recovery in home moving activity has been "strong". "The UK housing market has, for the most part, shaken off pandemic-related challenges to forge an optimistic start to 2021. In the absence of further economic shocks, we think it is likely that the current shortage of new listings will correct once the immediate lockdown is lifted and will have no lasting impact on estate agency branch numbers," said Rightmove. Chief Executive Peter Brooks-Johnson added that strong activity has continued into 2021 and the company recorded its busiest January ever for traffic. Rightmove declared a final dividend of 4.5 pence, having cancelled 2019's 4.4p final dividend. The final dividend is the only payout Rightmove will make for 2020, versus a total payout of 2.8p for 2019, though it added that it has approved the resumption of its share buyback programme in March 2021.
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RSA Insurance reported "record" underwriting results as it prepares to be acquired and divided up by Intact and Tryg. Total income for 2020 amounted to GBP6.55 billion, down from GBP6.90 billion the year before, while pretax profit edged down to GBP483 million from GBP492 million, which the company chalked up to "market impacts" from Covid-19, bid costs, exits and restructuring. Underlying pretax profit rose 15% to GBP718 million. The insurer reported a 36% increase in underwriting profit to GBP550 million. "We are pleased to report excellent results for RSA in 2020. Underwriting profits are sharply up to new record levels and return on tangible equity has risen above our target range," said Chief Executive Stephen Hester. "We have built a high performing company and 2020's results showcase the value creation thereby achieved. This in turn drove the 52% premium we were able to negotiate in Q4 through an all cash bid from Intact and Tryg. The offer is on track to complete in the coming months, ending a chapter for RSA but not the whole story..." Back in November, RSA Insurance agreed to be sold in a deal with Canada's Intact Financial and Denmark's Tryg that valued the insurer at GBP7.2 billion.
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COMPANIES - FTSE 250
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Pets at Home lifted guidance as it reported strong recent trading. The pet care business said that its performance over the last eight weeks has been ahead of expectations, with continued strong and broad-based growth across all channels and categories. As such, Pets at Home now expects full-year underlying pretax profit, including the previously announced repayment of business rates relief of GBP28.9 million, to be around GBP85 million, which is ahead of previous guidance of at least GBP77 million. "While recent positive progress around vaccinations for Covid-19 reduces the level of uncertainty ahead, our priority remains safeguarding the health, safety and wellbeing of all of our colleagues, partners and customers," said Pets at Home.
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COMPANIES - GLOBAL
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Deutsche Telekom said it expects its earnings to grow further going forward after strong final quarter of 2020. The Bonn, Germany-based telecommunications company said net revenue in 2020 rose 25% when compared to the prior year to EUR100.99 billion, including 29% growth recorded in the final quarter of 2020 to EUR27.62 billion. Net profit, meanwhile, rose by 7.5% year-on-year in 2020 to EUR4.16 billion after more than doubling in the fourth quarter to EUR1.67 billion from EUR654 million. Adjusted earnings before interest, tax, depreciation, amortization, restructuring and lease-related expenses rose by 42% to EUR35.02 billion in 2020. Free cash flow adjusted for restructuring and lease-related expenses amounted to EUR6.3 billion. Deutsche Telekom noted that it has exceeded its guidance for the year, achieving this despite the negative effects of the coronavirus pandemic, which included lower roaming revenue due to travel restrictions, shop closures, and impeded business with corporate customers.
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Friday's Shareholder Meetings
Falanx Group Ltd - GM
nmcn PLC - GM re borrowing limit
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By Tom Waite; thomaslwaite@alliancenews.com
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International Airlines (IAG)
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