FTSE lower after divergent fortunes for Microsoft and Alphabet, Lloyds sticks with full year guidance despite key profit measure coming in below and Reckitt buyback can’t compensat

“Despite gains in the US and Asia overnight on some solid US corporate earnings and news of Beijing launching a big stimulus package, the FTSE 100 was modestly lower on Wednesday morning,” says AJ Bell Head of Financial Analysis Danni Hewson.

“Microsoft and Alphabet both delivered better than expected earnings although there was some divergence in the reaction, with the former higher and the latter lower on their respective numbers. Microsoft’s head start in AI seems to be paying off, while Alphabet appears to be in catch-up mode on both this and cloud computing.

“The UK’s flagship index was not helped by a lukewarm reaction to results from some of its heavy hitters and strength in the mining sector was unable to fully make up for it.

“As tensions remain heightened in the Middle East, US Federal Reserve chair Jerome Powell is set to deliver an address in Washington tonight which will be closely monitored by twitchy markets.”

Lloyds

“After Barclays’ third quarter numbers spooked investors in bank shares yesterday, Lloyds delivered a more reassuring update with, crucially, and unlike its rival, no downgrade to full-year expectations for the key net interest margin metric.

“The confidence in the full-year forecast came despite the net interest margin coming in a touch below expectations for the three-month period to 30 September, which may explain why there is some lingering scepticism reflected in the reaction to today’s statement.

“The forward guidance at least suggests Lloyds may be managing the competitive pressures in the deposit market a bit better than Barclays, even if it is still affected by people realising they need to move the cash they do have into higher-interest savings accounts.

“Also notable was the relatively upbeat forecast for impairments – Lloyds, for now, managing to keep bad debts under some kind of control. The key question for investors is how long the company can continue to enjoy some sort of benefit from the higher cost of borrowing and if or when the strain on household finances becomes so acute the level of loans gone bad starts to balloon.

“The company has a decent amount of headroom over and above its capital buffers and, while it is under the glare of a watchful regulator, it may try and reward patient shareholders with a generous buyback when it unveils full year results in February.”

Reckitt Benckiser

“News of a £1 billion share buyback is not enough to blind shareholders to an uncertain start for new Reckitt boss Kris Licht with like-for-like sales growth coming in slightly below expectations and its Nutrition business having a rough quarter.

“To be fair Nutrition is suffering in comparison with the same period of last year when a US competitor faced temporary supply issues with its infant formula, but the specialist in health and hygiene branded goods saw a pretty significant drop in volumes across the board, compensated for by rising prices.

“There may be concern in the market that this reflects a shift in consumer behaviour with people switching out of the likes of Nurofen and Finish dishwasher tablets into own-brand alternatives.

“While for drinks, snacks and other food items people might be willing to push the boat out and still buy their favourite brands – can the same hold true for cleaning products and over-the-counter medicine? If not then Reckitt risks losing any reputation for pricing power.

“Licht has a job on his hands to demonstrate Reckitt can continue to thrive in a tough consumer environment. Having stuck with full-year targets, he will be under significant pressure to achieve them when he unveils the 2023 results next year.”

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