- FTSE 100 flat.
- US PMI data better than expected.
- Chancellor in a tight spot ahead of Spring Statement.
- Shell doubles down on LNG leadership and shareholder payouts.
- Kingfisher profit guidance disappoints as cost pressures mount.
- Brent Crude gains gather steam- tariff shift demand positive but supply negative.
Derren Nathan, head of equity research Hargreaves Lansdown:
“The FTSE 100 has opened flat today, pausing for breath despite strong gains on Wall Street yesterday. US markets are beginning to show some belief that President Trump’s strong arm negotiating tactics on tariffs might not be quite as punitive for the US economy as feared There are growing hopes that if they are more targeted, as rumoured, they might helpshore up domestic industry, while securing better terms for the US on the global trading stage. Yesterday’s better-than-expected US Purchasing Managers Index data from S&P Global (54.3 vs 50.8 expected) may go some way to calming fears of a downturn in the world’s largest economy. However, investors are expected to remain on edge, with futures indicating an uncertain start to trading.
Investors in London-listed shares shouldn’t read too much into one trading session. Year to date, the FTSE is still up around 4.6% with US stocks broadly down over the same period. The FTSE benefits from wide geographic exposure. But growth in the UK is proving harder to come by. We’re not in a recession, but growth’s been less than 1% for each of the last 11 quarters and unexpectedly strayed into negative territory in January. Combine that with stubborn inflation, borrowing costs and higher than forecast levels of government borrowing, Chancellor Rachel Reeves really has her work cut out to conjure up any growth catalysts in tomorrow’s Spring Statement.
In a short statement ahead of its capital markets day, oil & gas giant Shell revealed that it’s upping its shareholder distribution of operating cash flows from the 30-40% range through the cycle up to 40-50%. Dividend growth of 4% per year is being targeted but it’s share buybacks that will be the focus of increased payouts. And it’s also trying to maximise the cash generation that drives shareholder distributions.
Further cost cuts and lowered investment spend are also on the cards. That may explain why there was scant detail on the group’s renewables plans. Shell looks set to remain very much an oil & gas company for some time to come, with gas playing an ever-bigger role as overall production looks set to rise 1% per year to 2030, with liquids holding flat. Shell doesn’t just drill though, it also distributes, and with that in mind it’s hoping to grow LNG sales by 4-5% annually over the same period.
There’s little here to appease environmentalists, but there may at least be some relief that it has not rolled back any of the climate targets set out in last year’s Energy Transition Strategy. Unlike rival BP, this would appear to be more of an evolution than a reset. Given the shares have more than doubled over the last five years, there’s something to be said for not fixing something that isn’t broken.
Kingfisher’s full-year results came in broadly as expected, with headline pre-tax profit (PTP) dropping 7% to £528mn. The B&Q and owner has been turning the screw on its competitors and eked out market share growth in all regions, but it is profit that investors really care about. There’s only so long that discounting can be sustained for. France in particular was impacted, with retail profit slumping over 30%, with Poland being the bright spot. However, the UK still dominates and here performance was broadly flat. With higher labour costs around the corner and consumer sentiment under pressure, the Group has come out with conservative guidance for this year’s pre-tax profit in the £480mn-£540mn range, 6% behind forecasts at the mid-point.
Brent Crude has consolidated Monday’s gains and now trades over $73 per barrel, as President Trump’s more focussed approach to tariffs threatened a 25% levy on U.S. imports from countries buying oil from Venezuela, which could restrict flows to key refining hubs in China, India, Spain and the US. Conversely, the scope for less of a scatter-gun approach should provide some optimism on the demand front.
