Good week for the FTSE 100, Samsung shocks with big profit decline and Shell flags £2 billion hit from windfall taxes

“As New Year starts go, 2023 is looking sprightly for the FTSE 100 with the index having risen every session so far. While the cumulative gains only add up to 2.3% year-to-date, small steps forward are a winner given the difficult backdrop,” says Russ Mould, Investment Director at AJ Bell.

“Leading the market higher on Friday were commodity producers including Anglo American, Glencore and Endeavour Mining. Retailer Next gave up some of yesterday’s gains, while Standard Chartered also slid back after spiking on Thursday amid confirmation that First Abu Dhabi Bank had been thinking about a takeover offer, but that’s no longer on its agenda.

“The big news on the markets was Samsung Electronics’ massive drop in profit, suggesting that economic woes are having a negative impact on demand for semiconductors and electronics products.

“A 60% drop in operating profit quarter-on-quarter is shocking and a comment from Samsung that part of the problem was weaker sales of smartphones casts a dark cloud over phone maker Apple, which is expected to report its latest numbers at the end of the month. The other key negative factor was customers seeking to reduce stockpiles, which led to reduced demand for more supplies from Samsung.

“LG Electronics also revealed a big decline in quarterly profit (down 91% quarter-on-quarter and year-on-year) which suggests weaker demand for televisions and home appliances. This is perfectly understandable given inflationary pressures on consumers around the world and how they’re having to rethink their spending habits.

“US jobs numbers will take centre stage later today and any signs that the labour market remains strong could put markets in a spin as it would further reduce the chances of the Federal Reserve pausing rate hikes or even cutting them.

“The main indices in the US were all weak on Thursday but pre-market indicative prices suggest a small recovery today. That all depends on the jobs data, naturally.

“There are growing concerns that earnings forecasts are still too high for US stocks, leaving them vulnerable to a further correction on top of last year’s washout for the S&P 500 and Nasdaq.”

Shell

“In its usual teaser of quarterly results Shell has a classic good news/bad news combination to offer shareholders.

“First the good news: the company’s large liquefied natural gas business is expected to have delivered a very strong performance despite lower output on plant outages. This demonstrates just how robust LNG pricing is right now as countries scramble to replace Russian gas.

“Now for the bad news: lower oil prices will hit the oil products part of the business and Shell has quantified the material impact of freshly introduced windfall taxes in the UK and Europe – which are now expected to run into the billions.

“It would be disingenuous for Shell to gripe too much about these new levies given recently departed Ben van Beurden argued they were ‘inevitable’ back in October. Though Shell subsequently said it would review £25 billion worth of investment in the UK and it will be interesting to see the stance new CEO Wael Sawan takes on the issue.

“Sawan faces a tough task as he looks to lead Shell through the next phase of the energy transition amid the sometimes competing aims of energy security and lower emissions.

“His predecessors’ big bet on natural gas could prove to be a positive legacy as gas may provide a staging post as the world moves from more polluting fuels like oil and coal to renewables and other forms of clean energy.”

These articles are for information purposes only and are not a personal recommendation or advice.