Early Morning Call: watching GBP and FTSE 250 ahead of UK Autumn budget

Indices overview

Indices in the Asia-Pacific region mostly fell overnight, following the lead of US equity markets. Hong Kong’s Hang Seng was the worst performer in the region, dragged down by its technology sector.

In Japan, trade deficit widened to ¥2.16 trillion in October, from ¥2.09tn the previous month. Economists had anticipated a deficit of ¥1.61tn. This was the 15th straight month of deficits, and the longest stretch since 2015, as imports rose more than expected, by 53.5% year-on-year (YoY), while exports rose by a much softer 25.3%.

The Australian S&P/ASX 200 outperformed the region, as the unemployment rate unexpectedly fell to 3.4% in October from 3.5% the previous month. Economists has forecast a rise to 3.6%. Employment increased by 32,200 to a new record high of 13.62 million, as full-time employment gained 47,100 while part-time employment fell by 14,900.

A modest rebound is expected in Europe, after major indices posted declines in yesterday’s session. In the UK, the market awaits the Chancellor of the Exchequer’s Autumn Statement at midday. Jeremy Hunt is expected to unveil widespread spending cuts and tax rises.

Earnings

Royal Mail’s parent company International Distribution Services posted an operating loss of £163 million, or revenue of £5.83bn, down from just over £6bn a year ago.

Burberry says quarterly sales rose by 11%, and operating profit rises 6% to £238mn.

Thyssenkrupp warned this morning it sees 2022-23 sales falling significantly, dragged down by an expected normalisation of prices for steel and materials as well as higher energy costs. ThyssenKrupp also expects adjusted operating profit to more than halve to a high triple-digit million euro amount at best, down from €2.1 billion.

For the fourth quarter, ThyssenKrupp posted an increase in sales of 12%, but EBIT is down 31% and order intake fell by 27%. The group says it will propose a dividend of 0.15 euros per share for the past financial year, which would mark the first payout in four years, on the back of the past strong price increases for steel and materials.

Siemens posted fourth quarter (Q4) industrial profit of €3.16bn, up 38%, beating forecasts for €2.79bn. Sales increased 18% to €20.57bn, higher than the €19.13bn forecast, while orders during the period rose to a better than expected €21.82bn. The group expects revenues to grow by 6% to 9% during its 2023 fiscal year.

Yesterday evening, NVIDIA shares fell by around 2.5% in extended hours, after the group posted mixed third quarter (Q3) earnings. The chip designer posted earnings of 58 cents per share. Analysts had expected EPS of 70 cents. Revenue in the third quarter rose 31% from a year ago, to $5.93bn, beating consensus, thanks to a strong demand in its data centre business.

However, NVIDIA's gaming business, a segment that once drove its revenue, was hit by weak consumer demand. Revenue was down 51% from a year ago. Investors were also disappointed by the group's guidance. NVIDIA forecasts current- uarter revenue at $6bn, plus or minus 2%, versus expectation of $6.09bn.

Cisco shares rose by nearly 3% yesterday evening, after the group raised its revenue and profit forecast. Excluding items, Cisco earned 86 cents per share, two cents above expectation. Cisco revenue also beat expectations, coming at $13.60bn.

The group now expects annual revenue growth of 4.5% to 6.5%, and adjusted earnings between $3.51 and $3.58. It previously forecast revenue growth of 4% to 6% for the year and earnings of $3.49 to $3.56, excluding items.

The company also announced it is parting with about 5% of its workforce. The restructuring plan will begin in the second quarter of fiscal year 2023.

Commodities

On the commodity market, Brent and WTI are trading lower this morning, as geopolitical tensions ease, while the rising number of Covid cases in China, the world’s largest crude importer, reignited demand concerns.

EIA inventories showed yesterday a decline in crude oil stocks of 5.4 million barrels. Gasoline stocks rose by 2.2 million barrels and distillate stocks decreased by 900,000 barrels.