ITV and glencore pull their dividends, Bank of England tweaks forecasts

US markets continued to move higher yesterday, with the Nasdaq once again posting a new record high, after the latest ISM non-manufacturing survey showed a big rise in new orders for July. While this shows economic activity is experiencing some sort of comeback the underlying employment component was still quite weak, with most eyes on today’s weekly jobless claims and tomorrow’s July payrolls report.

This optimism failed to ignite the same optimism in the Asia session, with investors more cautious after US Secretary of State Mike Pompeo said that the US administration wanted to ban Chinese apps like TikTok and WeChat from US app stores.

European markets have also picked up on this more cautious outlook, opening mixed as investors digest the latest earnings numbers, as well as this morning’s latest central bank decision from the Bank of England.

While the DAX has moved higher, due to a positive earnings update from Siemens, the FTSE100 has slipped back due to weakness in mining and bank stocks which make up more than 40% of the UK benchmark.

Terrestrial broadcaster ITV published its latest numbers for the 6 months to the 30th June this morning, and they weren’t particularly well received as the company pulled its dividend. 

When ITV reported its Q1 numbers in May the company said advertising revenue declined 42% for April, as large advertisers pulled back in the wake of the economic lockdown at the end of March, and the beginning of Q2. The rest of the quarter wasn’t any different with a 43% decline, due to the cancellation of some big sporting events including Euro 2020. Total advertising revenues for the half year fell 21% to £671m.

Broadcast revenue also saw a decline of 17% to £824m, with ITV Studios, normally an outperformer seeing a 17% decline to £630m due to having to pause its production capabilities due to various lockdown measures.

Overall there wasn’t that much to cheer even if advertising trends have improved in July and August, notably with respect to travel companies advertising getaways, and car and indoor furnishing companies boosting ad spend. Despite this July revenue was still down 23% from a year ago.

The company says it will continue to focus on reducing costs by £60m on a temporary basis, with a view to making around half of those savings permanent, while also deciding not to pay the interim dividend. The company also pulled its guidance for the rest of the year.

Aviva shares have come out of the blocks fairly sharpish this morning after H1 operating profit beat estimates, though it was still down 12% at £1.225bn. First half net premiums declined 4% to £13.22bn, while reinstating the interim dividend of 6p a share. New CEO Amanda Blanc also indicated that the company may look at focussing on its more core markets, of UK, Ireland and Canada, while paying less attention to its weaker geographies. The longer term dividend policy was also put under review as the company looks at reducing its debt levels.

Mining giant and commodities trader Glencore shares have fallen sharply after the company announced that it was scrapping its 2020 dividend, due to a sharp rise in net debt. Its first half net loss came in at $2.6bn, although its trading operations performed well, after bets on the oil market earlier this year paid off. 

Earlier this week real estate investment trust Hammerson announced that it was in advanced discussions on the terms of a possible disposal of its 50% stake in its VIA outlets business to its joint venture partner APG, as well as considering a possible rights issue.

This morning we got the details of this as management announced the company was looking to raise £552m by way of the rights issue, as well as £274m by way of the disposal of its 50% stake in VIA outlets. Hammerson, which owns some big retail parks including Bicester Village, Birmingham’s Bullring, Brent Cross shopping centre and Croydon’s Centrale is looking to bolster its finances, reduce its debt levels, and enable it to ride out the effects of the Covid-19 pandemic on its shopping mall real estate. The rights issue will be priced at 15p, a 94.6% discount to yesterday’s closing price, with its two major shareholders agreeing to take up 34% of the issued share capital. The shares would then be consolidated on a five to one basis.

The company also announced a loss of £1.1bn for the six months to June, as it took £377m of impairment charges, while also announcing that net rental income had fallen 44% to £87.3m.

There was no surprises from today’s Bank of England rate meeting as the central bank left monetary policy unchanged, citing an unusually uncertain economic outlook, and an unemployment rate of 7.5% by year end.

They did tweak their policy forecasts for GDP and inflation, revising the economic damage for the lockdown to the downside for this year to -9.5% from -14.5%, however they also modified the extent of the economic rebound in 2021 to the downside as well, from 15% to 9%.

Its inflation forecasts were more noteworthy, projecting 0.25% CPI for 2020, and then a sharp recovery to 1.75% in 2021. This stands in stark contrast to their May predictions of 0.6% and 0.5% respectively. This seems a stretch, if as they predict unemployment stays high, and the recovery is as muted as they say.

If anything, their unemployment targets may be a little on the optimistic side, along with their predictions of the strength of any recovery. Their predictions for credit losses of around £80bn also seem a little on the low side, given the potential for future localised outbreaks and lockdowns. 

The central bank also continued to flog the dead horse of negative rates, saying that they continued to monitor the sustainability of negative rates.

We already know from the experience of Japan and Europe the damage negative rates does to the banking system overall, and the UK with its huge financial sector is unlikely to be any different. If anything negative rates could weaken the UK financial sector even further, thus destabilising the economy even more.

In any event there was nothing particularly dovish about any of these comments with the pound only slightly firmer, just below the March peaks at 1.3200. 

US markets look set to open slightly higher ahead of the latest weekly jobless claims numbers which are expected to be broadly unchanged on last week. Continuing claims, on the other hand are expected to start edging back up again, above 17m, in a sign that the recent rebound in the labour markets is starting to run out of steam, after the recent sharp rises in infection rates across the US sunbelt states.

In company news Beyond Meat is likely to be in focus after reporting a 192% rise in retail revenues in its latest Q2 numbers. Its revenue growth was driven by a move into retail revenues, after lockdowns hit its target market of restaurants and office cafeterias which were shut down. Net revenue rose 69% with losses rising to $10.2m, after the company spent $5.9m in diverting its products towards supermarkets and away from restaurant sector. The shares fell in post market trading.

Viacom CBS latest Q2 numbers are also expected before the bell, with profits expected to come in at $0.94c a share.   

Dow Jones is expected to open 13 points higher at 27,214.

S&P500 is expected to open unchanged at 3,327.