Early Morning Call: FTSE 100 opens the week higher; ABF raises profit forecast

Indices overview

Equity markets fell overnight in the APAC region, following the lead of the US session on Friday. Last week was the worst weekly performance this year for US indices.

Is confidence in the economy gradually improving in the eurozone? This is what economists anticipate. The euro area's economic sentiment indicator is expected to increase for a fourth straight month in February, to 101, from 99.9 the previous month. Last month most of the sub-indicators of the index rose, but one showed continued signs of weakness: the construction sector.

In the US, the market awaits durable goods orders for the month of January. Economists forecast a 4% fall on a month-on-month (MoM) basis. The index seems to have become more volatile in recent months. In December it rose 5.6%, its biggest month-on-month rise since July 2020. Likewise, the 4% drop expected would be the largest monthly fall since April 2020. Durable goods orders will be released at 1.30pm.

A bit later at 3pm we expect pending home sales, also for January. A month-on-month gain of 1% is expected. In December the index posted its first positive variation in seven months. Two straight months of gains have occurred since mid-2020.

Earnings

Associated British Foods released a trading update for the first half (H1) of its fiscal year. The group says it expects adjusted operating profit to be broadly the same as the first six months of last year. This is an improvement on the group’s previous expectations of a lower operating profit. And the situation is set to continue to improve during the second half of the year, as inflation is becoming less volatile and some commodity costs have started to decline.

As for Primark, ABF expects H1 sales to rise 19% to £4.2 billion.

Watch out for Dechra Pharmaceuticals stock at the open. The group said this morning it now expects full-year (FY) underlying operating profit at the lower end of analyst forecasts, saying that trading patterns in the US at the start of this year have been unpredictable.

Later this week, a few big names on the FTSE 100 are due to report their full-year earnings, starting with Ocado tomorrow. Apart from the last three months where the stock has been trading sideways, 2022 has been another difficult year for Ocado. The share price has been divided by seven in a period of twenty months, from February 2021 to October 2022, reflecting the four profit warnings issued by the group last year alone.

Also, on the cards tomorrow are Abrdn, Travis Perkins and St James's Place, followed on Wednesday by Persimmon, Reckitt Benckiser and Aston Martin Lagonda.

Thursday is the busiest day of the week in terms of earnings in the UK, we'll get reports from LSE Group, Taylor Wimpey, Haleon - the newly spun off consumer division of GSK - and ITV.

After a massive drop of its share price this time last year followed by an almost continued slide to support level end of September, ITV has been recovering until now. Recently ITV reported a boom in viewership, lifted by the football World Cup and the launch of its new streaming platform, ITVX.

In the US, we expect Zoom Video Communications to report its earnings for the fourth quarter tonight after the US closing bell. The market anticipates earnings of 81 cents per share. This would be the lowest earnings per share (EPS) for the group since the second quarter (Q2) of 2020. Revenue is forecast to reach $1.1bn, broadly unchanged on the previous quarter, and up 2.6% on a yearly basis.

Zoom was one of those stocks that benefited immensely from the pandemic, then very quickly fell from grace, and is now getting closer and closer to its IPO price of nearly four years ago. A couple of weeks ago, Zoom announced it was parting with around 1,300 of its employees, that's about 15% of the group's workforce, joining the ever-growing club of tech companies having to adjust their staff count after having massively hired in the previous years.

Also this week in the US, tomorrow we'll get a quarterly report from HP, while Wednesday sees reports from Dollar Tree, Salesforce and Snowflake, followed on Thursday by Broadcom, Best Buy and Costco Wholesale.

The Wall Street Journal (WSJ) revealed overnight that Pfizer is in early talks to acquire another drugmaker: Seagen. No price tag has been formally announced, although the WSJ says Seagen is valued at about $30bn.

It is not the first time Seagen has attracted a competitor. Last year, it was nearly acquired by Merck, in a deal worth around $40bn, but the two groups failed to reach a final agreement.

Commodities

Last Friday, the Baker Hughes survey showed a drop in total rig count to 753 from 760 the previous week, entirely due to the number of oil rigs in operations, down seven to 600.