“Markets were calmer on Friday with only minor movements in Asia and Europe. The UK saw the FTSE 100 slip 0.6% to 7,407, dragged down by weakness in pharmaceutical and healthcare stocks following AstraZeneca’s coronavirus-related warning. Other sectors at risk of seeing earnings disappoint because of coronavirus were also down, namely miners and luxury goods,” says Russ Mould, Investment Director at AJ Bell.
“The pound nudged up 0.1% against the US dollar at $1.3054 and Brent Crude oil traded 0.4% higher at $56.57 per barrel.
“Next week could see economic news have a heavy influence on the markets with numerous data points being released. These include retail sales, unemployment and inflation levels in the UK, housing market activity in the US and machinery orders in Japan."
“Last year was a good one for AstraZeneca, having twice raised sales guidance. This positive earnings momentum has led to a fairly decent set of full year results which highlight its progress including regulatory approval for several new medicines.
“Unfortunately the coronavirus threatens to disrupt earnings in China, one of its key markets. It is being cautious and assuming there will be an impact to earnings, which is the right thing to do.
“AstraZeneca has somewhat reinvented itself in recent years after suffering from over-reliance on blockbuster drugs in the past. Losing patent protection on many of these drugs caused a big headache for management and the company’s earnings. It reacted by focusing more on developing treatments that are harder for rivals to replicate.
“Now in a much better place, AstraZeneca should be able to weather any coronavirus-related storm. Perhaps a more worrying issue on the horizon is the US political anger on drug pricing. Such pressures are likely to intensify as the US Presidential election campaign gathers speed. The pharmaceutical industry seems like an easy target as politicians try and find ways to secure votes. Lowering drug prices would be seen as a major victory in the public’s eyes.”
Royal Bank of Scotland
“While the renaming of Royal Bank of Scotland to NatWest makes sense given the latter is the company’s biggest brand, it is clear the company is looking to escape the sins of the past with the change.
“It also represents events moving full circle given the much smaller RBS acquired NatWest at the start of this century, kicking off the aggressive expansion under disgraced former boss Fred Goodwin which eventually ended in disaster and a state bailout.
“From an investor perspective the main transgression in this set of results is a modest cut to the ordinary dividend, even if this is supplemented by a hefty special payout.
“That was not the only disappointment in the numbers; the company’s net interest margin – the key measure of bank’s profitability – remains under pressure amid a very competitive market and a low interest rate environment. The outlook statement is also far from cheery and its return on equity target has been downgraded.
“New CEO Alison Rose continues a restructuring effort pursued by her predecessors over the last decade, with a plan to strip out capital from the investment banking business.
“Although the PPI issue is in the rear view mirror and the company looks to have settled its historic legal issues in the US, it faces significant restructuring costs in 2020 and a hit from regulatory changes affecting its personal banking business.
“Ultimately, the fact the business is still heavily owned by the state and that interest rates remain on the floor look set to remain thorns in Rose’s side.”
These articles are for information purposes only and are not a personal recommendation or advice.
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