Scottish and Southern Profits Warning

Artjom Hatsaturjants at Accendo Markets, commented this morning:

Scottish and Southern Profits Warning

FTSE 100 Index called to open +6pts at 7279, opening a smidge higher from Tuesday’s close and still testing a weeklong falling highs resistance. Bulls need a break above 7285 overnight highs to break out of the sideways movement; Bears require a breach of 7247 to attempt another challenge of 6-month lows. Watch levels: Bullish 7300, Bearish 7240.

Calls for a positive open come on the back of strong momentum from Wall St, where equities gained thanks to rising Energy prices (with markets worried over impact of Hurricane Florence) and buoyant Tech sector ahead of Apple’s reveal of new products later in the afternoon. That said, Asia was in a much more downbeat mood, trading lower as concerns over escalating trade tensions and emerging markets’ FX woes weighed on sentiment.

Additional support for the FTSE comes in the form of weaker GBP, pushed lower on the news that conservative Brexiteers are openly plotting a challenge to Theresa May’s leadership. Expect sparks to fly today during PMQs in Parliament.

Oil prices are holding strong overnight rally on the back of a massive drawdown in API crude oil inventories (8.6m draw against a more modest 2.7m est.). Meanwhile, gold is once again below the $1200 handle on the back of USD’s trade tensions-derived strength.

In corporate news this morning SSE warned that warm weather and high gas prices so far this year negatively impacted its Q1 operating profit to the tune of £80m, with potential hit to FY results. Half-year op. profit now expected to be around half of previous year’s.

Galliford Try FY revenue +11% YoY, pre-tax profit +145% (+28% pre-exceptional), dividend -10% to align with dividend cover strategy. Completions +10%, but order book declined -8.4%. Notes good trading in the regions, but South-East seeing some weakening due to economic uncertainty.

Dunelm FY underlying revenue +9.9% YoY, pre-tax profit -6.7%, EBITDA -1.8%, dividend +1.9%. Results broadly in line with market consensus. Notes challenging retail environment, but trading has been in line with expectations.

Sports Direct confirms trading in line with expectations of 5-15% higher underlying EBITDA (excl. House of Fraser). Announced ambition to transform House of Fraser into “Harrods of High Street”. Superdry appointed Brigitte Danielmeyer (ex-head of womenswear at Tommy Hilfiger) as Chief Product Officer to drive company’s brand innovation.

Safestore Q3 like-for-like revenue +5.6% YoY at constant FX, closing occupancy +4.9%, average storage rate +0.7%. Reports increasing momentum in UK business and reiterates FY guidance.

In focus today will be the Prime Minister’s Questions (12:30am). With the House of Commons back from summer recess, Theresa May is sure to be grilled by lawmakers regarding her Chequers plan. As GBP is getting whipsawed by Brexit news from the EU side of the trenches in recent days, expect more Sterling impact when PM faces inevitable hostility from hardcore Brexiteers in Parliament.

In macro news today, look to US Producer Prices (1:30pm) which, while not as influential as consumer prices, can provide some inflationary guidance that could influence Fed policymakers who are looking for 2 more interest rate hikes this year. Producer Prices are seen softening to 3.2% YoY in August, thought the more relevant core metric appears to have not changed since July.

Oil macro data will come into focus in the afternoon, with OPEC Monthly Report (12:30pm) closely examined by investors for indicators of international crude production, while DOE Oil Inventories (3:30pm) are expected to deliver another, albeit smaller, drawdown this week. Watch FTSE Energy names for reaction.

In speakers today, we have several Fed members making appearances, including Bullard (2:30pm, dovish, non-voter) speaking to CFA Society in Chicago and colleague Brainard (5:45pm, centrist, voter) giving a speech on monetary policy outlook in Detroit.

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