FTSE slides as Diageo gets a hangover, BP jumps on dividend cut

Equity markets got off to a solid start this month driven primarily over improvements in the latest manufacturing PMI’s as well as optimism that US lawmakers would be able to agree a fresh stimulus plan in the next couple of weeks.

The gains in US markets were once again led by the Nasdaq, with Microsoft a notable gainer after President Trump softened his tone over the company’s possible acquisition of the US operations of TikTok.

Asia markets have followed on in that vein with a strong start to the week with the Reserve Bank of Australia leaving rates unchanged in the wake of the fresh crisis unfolding in the state of Victoria.

European markets have seen a rather mixed open, though we have started to roll over a touch as investors digest another day of earnings announcements, with the DAX coming under pressure after Bayer said that the current economic environment was likely to crimp its outlook from crop protection, as well a weaker sales outlook from its consumer divisions.

BP shares have got off to a flyer after announcing this morning that it was cutting its dividend in half, while at the same time reporting a $6.7bn loss for Q2, which was slightly better than expected. The decision to cut the dividend has been a long time coming, the only surprise it has taken a change of CEO and a huge slump in the oil price to shake the company out of its complacency.

In reality it would have been extraordinarily difficult to justify paying such a high pay out while cutting jobs and selling assets at the same time. The pain in restructuring the business needs to be spread evenly and it’s good that management have finally acknowledged that. Even with the cut the dividend is still a quite healthy 5%, with the shares higher on the back of the better than expected loss, and the boost from the company’s trading operations

In April, Diageo pulled its guidance for the rest of the year as well as cancelling the last part of its buyback program. The company didn’t pull the interim dividend; however, it did boost liquidity by issuing £1.9bn of euro and sterling bonds, saying that most parts of its business had been adversely affected by the pandemic, though there was some evidence of a pickup in China.

Today’s full year numbers have sent the shares to the bottom of the FTSE100, after they showed the extent of the hit to company sales with the closures of pubs, bars and restaurants with net sales declining 8% to €11.75m, while operating profits fell 47% to €3.5m. Even a better than expected performance in the US wasn’t enough to spare the company the effects of lower profits, despite higher domestic demand from households.

EasyJet shares have enjoyed an early lift his morning after reporting Q3 sales, that came in below estimates, however optimism about the outlook has raised optimism about the outlook after the company reported 84% occupancy levels on its flights in July. Higher than expected demand for September has prompted the airline to lift its capacity to 40%, up from a planned 30%. EasyJet posted a meagre £7m in revenue in Q3 compared to £1.76bn a year ago.

Metro Bank is also in the news ahead of its first half numbers tomorrow, paying £12m for peer to peer lender RateSetter. This is a risky move for the troubled bank at a time when there is a much higher degree of risk of these sorts of loans going bad in these uncertain times.

Direct Line’s shares have seen a lift after reporting its latest H1 numbers which showed a 9.5% decline in profits before tax to £236.4m. In force policies showed a small decline of 1.7%, however the dividend was raised to 7.4p, from 7.2p.  

US markets look set to open modestly lower after yesterday’s new records for the Nasdaq, with the S&P500 closing at its best levels since February.

Microsoft shares are also likely to be in focus after President Trump softened his tone about a potential buyout of TikTok’s US operations.

We have the latest Q3 numbers from Disney where we’ll get to see whether the company has made further inroads into the streaming market, with respect to new Disney+ subscriptions. The content certainly appears to be improving, the success of Hamilton helping boost the numbers up to towards 60m subscriptions, while plans to add the Marvel franchise films like X-Men in August is likely to add to its attraction. It still remains well short of Netflix and Amazon’s content; however, the company does have the pockets to play the long game.   

Disney’s biggest problem is around the closure of their theme parks, movie production and the length of time they may have to wait until they can reopen and restart in terms of somewhere anywhere near full capacity. We’ve already seen that where the parks have re-opened that footfall is much lower as consumers avoid large scale events in crowded places. The new streaming service Disney+ is unlikely to fill the gap given the small margins and the fact that it’s also one of the cheapest and the content is still quite limited in its scope.

Dow Jones is expected to open 30 points lower at 26,634.

S&P500 is expected to open 8 points lower at 3,288.