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London open: HSBC a heavy weight on FTSE, but Greggs on a roll
London stocks had another subdued start on Tuesday ahead of jobs data, the reopening of Wall Street after the long weekend and after results from HSBC disappointed.
The FTSE 100 index dropped 26 points or 0.4% to 7,193.49 after more than half an hour of trading. Since ascending to around four-month highs at the end of last week, the UK benchmark has suffered from a bout of vertigo.
Sterling was flat against the dollar and euro at 1.2928 and 1.1423 respectively.
There was a short-lived spike as Bloomberg reported that UK and European officials were working on a new legal text for “backstop” plan to avoid a hard border in Ireland. Brexit Secretary Stephen Barclay and Attorney General Geoffrey Cox are holding talks in Brussels this week ahead of the important 27 February House of Commons vote.
The exodus of companies from Britain as the government sails close to the cliff edge with its exit negotiations saw Honda confirm on Tuesday that it will close its factory in Swindon, Wiltshire, in 2021, with loss of 3,500 jobs. This follows the decision from Nissan to pull production of its new model from the UK.
The company denied Brexit was the reason, however, with Ian Howells, Honda’s European chief, telling the BBC: “We are in a position where out investment and focus needs to go somewhere else, it can’t be in the UK,” he said, blaming the move on the “global outlook”.
In other key domestic news, UK labour market data is due out at 0930 GMT, with economists forecasting the unemployment rate to have held at 4.0% in December, even as growth in both base and headline average weekly earnings accelerated.
The rate of growth in core average earnings is seen picking-up from a quarterly annualised pace of 3.3% for November to 3.4% in December.
The City also remains heavily focused on US-China trade talks, with investors crossing their fingers that the apparent momentum built up in Beijing last week will continue this week. Talks will resume in Washington on Tuesday, with follow-up sessions at a higher level later in the week, the White House said overnight.
Optimism about progress on a trade agreement between the US and China was being tempered by anxiety about a potential new trade spat between the US and European Union.
“Europe and particularly Germany are already experiencing a slowdown in growth momentum,” said Jasper Lawler at London Capital Group. “Serious trade issues concerning vehicles, predominantly made in Germany, could easily be the straw that breaks the camel’s back. Concerns over the health of the eurozone and German economy will remain in focus today as investors look towards ZEW economic sentiment data. Sentient unexpectedly rose last month, despite the challenging outlook. Another increase in sentiment could help propel the euro comfortably back over $1.13.”
In company news, HSBC was causing a big drag after FTSE 100’s largest company by market value posted a 1.0% drop in adjusted net profits for the fourth quarter to reach $3.39bn, falling well short of a consensus estimate for $4.4bn. That was despite a 5.0% rise in adjusted revenues to $12.56bn, which was also short of expectations.
“Clearly HSBC’s focus on China and Asia is a double-edged sword,” said Neil Wilson at Markets.com. “There are still huge returns and opportunity in these markets, but the bank’s exposure to this region means the recent slowdown in China in particular, as well as fears about what the trade landscape will look like going forward, can bite.”
The mining sector was mixed, but Anglo-Aussie giant BHP was in the red as it reported an 8% fall in first-half profits on the back of lower copper earnings and production disruption. Underlying profit from continuing operations fell to $4.03bn from $4.40bn, missing estimates of $4.209bn. However the dividend was maintained at 55 cents a share, two cents higher than forecasts.
InterContinental Hotels was higher after it reported 19% growth in earnings for 2018 as it grew its estate by the fastest rate in a decade. Through its many hotel brands, ranging from Holiday Inn, Crowne Plaza and Kimpton to newer chains Avid, Vocoders and Regent resorts, the FTSE 100 group grew revenue 6% on an adjusted basis to $1.8bn, adjusted operating profits 6% to $805m and adjusted earnings per share to 290.5 cents.
Greggs was on a roll, a vegan sausage roll in fact, after it reported an “exceptionally strong” start to 2019. Total sales were up 14.1% in the first seven weeks of the year, with LFL sales up 9.6%.
