Markets Handed Bombshells, as Royal Dutch Avoids Shelling Out

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Thursday 30 April: Yesterday’s optimism was short-lived, with investors being sucker-punched from the latest US claimant figures and ECB announcements. Today’s news was a timely reminder to markets that the economic pain is sure to outlast COVID-19’s. Last week 3.8 million Americans filed jobless claims and Lagarde announced that the Eurozone economy shrank 3.8% in Q1, with France and Italy both formally entering recession as GDP shrunk 5.8% & 4.7% respectively in two countries amongst the worst affected by COVID-19. Returning to the US, jobless figures were both high and higher than expectations, on top of this US personal spending declined by 7.5% during March which is the largest decline on record and personal income fell 2%. Again this isn’t great considering the brunt of the impact has come at the end of the quarter and Lagarde is aware of this, bluntly stating that the eurozone GDP could contract as much as 15%.

The FTSE began today hitting 7-week highs before slipping to it’s worst day this month. Despite the late barrage the index has had its best month in 2 years. The early market moves were driven by another raft of results before the wider picture sunk in for investors. Reckitt have posted stellar Q1 figures with a double-digit revenue rise driven by hygiene and health products. They have nudged 2020 expectations higher but concede the outlook is uncertain. Total sales climbed 12% to £3.54bn in the quarter ending March 31, which on a LFL basis was 13% higher. Shares closed 3.5% higher closely followed by Flutter Entertainment, the parent of Betfair and Paddy Power as they confirmed the acquisition of Canadian Stars Group will go ahead next week following shareholder approval.  

At the other end of the table sat Royal Dutch Shell was just mining its own business for the majority of the session before Hargreaves Lansdown pipped it to biggest loser, ensue muted applause. The invest platform saw shares dive after co-founder Stephen Lansdown sold £160m worth of shares. The mining giant has made headlines today after announcing its first dividend cut since World War 2. RDS Q1 dividend has been slashed, much like oil prices, from 47c to 16c. The oil and gas giant has been put under huge pressure from lower demand volumes and huge drops in the price of oil & gas. During the quarter they produced 3.7 million barrels of oil equivalent p/day, down 1% from last year. Shares closed over 11% lower.

Lloyds Banking shares also struggled today after reporting a sharp fall in Q1 profit, attributable to the huge increase in credit loss impairments, in a move we have seen across many banks in their latest market updates. In the same period last year pre-tax profit was £1.6bn but it has suffered a 95% decline to just £74m. The lender has stressed that their loan book remains robust and well positioned but this does little to ease the pain or worry right now. Shares settled 7.25% lower on Thursday.

Sainsbury’s has today warned that the COVID-19 impact could amount to a £500m hit on profits. Their annual results have shown a 0.1% decrease despite the jump in grocery sales during the pandemic, on a LFL basis this translates to an annual sales decline of 0.6%. Promisingly pre-tax profit improved by £50m to £255m and the final dividend axe meant the total dividend has been reduced by 70% to 3.3p p/share.

British American Tobacco (BAT) has stated that after a strong performance operationally in 2019 they expect earnings growth in 2020 despite the difficulty of predicting the impact from COVID-19. Despite the pandemic BAT’s factories have on the whole remained open at full capacity and they have begun the year well with volume growth, with to date limited impact on consumer demand. Although sales in global travel retail have dropped off, this represents less than 1% of group sales. They have noticed little impact upon demand, pricing or availability for customers and this backs up high single-figure EPS growth for 2020. BAT shares dropped 2% during the session.

St James’s Place was 5.6% lower today, after reporting a drop in funds under management over Q1 after its performance was battered by COVID sell-offs. Funds under management stood at £101.67bn down 1.8% from the same period last year, and from the end of 2019 funds are down 13%. With regard to the dividend, they are withholding 1/3 of the 2019 final dividend and have declared a second 2019 interim dividend equivalent to two thirds. Going forward they are withdrawing the recommendation of the final dividend and will pay only one in 2020, with the decision on this to be made next February.

Glencore shares dropped 5% today after they lowered 2020 production guidance from the COVID-19 pandemic and mixed Q1 output. Copper production in the three months to the end of March were 9% lower, gold dropped 1% and coal was down 4%. Ferrochrome, lead and cobalt output all dropped by 3%, 17% and 44% respectively.

As we leave, Wall St. bourses are lower, with the Dow and S&P both c.1.4% lower. Safe haven gold has remained flat and the yen against the dollar has also stood firm from yesterday evening. The poor figures from the US has helped the pound regain some ground against the currency.

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