Stocks mixed on conflict and US earnings nerves

(Alliance News) - Global markets got off to a muted start to the week, with tensions in the Middle East, and some trepidation ahead of US corporate earnings keeping a lid on equities.

London's FTSE 100 did manage to achieve a gain, however, with utility stocks, oil majors and shares recovering from recent difficulty lifting the blue-chip benchmark.

The FTSE 100 index rose 32.10 points, 0.4%, at 7,631.70. Wealth manager St James's Place, up 3.7% and cigarette maker British American Tobacco, rising 1.7%, were among its better performers. The stocks had fallen 22% and 3.6% on Friday.

The FTSE 250 was up 47.80 points, 0.3%, at 17,502.02, and the AIM All-Share was down just 0.66 of a point, 0.1%, at 689.01.

The Cboe UK 100 was up 0.4% at 761.96, the Cboe UK 250 climbed 0.1% to 15,176.58, and the Cboe Small Companies added 0.2% to 12,839.54.

In European equities, the CAC 40 in Paris was up 0.1%, while the DAX 40 in Frankfurt was slightly lower.

"A mute start to the week for European indices suggests a sense of nervousness, particularly as the US reporting season gets underway and investors worry about a cautious tone in corporate outlooks," AJ Bell analyst Russ Mould commented.

Stocks in New York are set for a mixed open. The Dow Jones Industrial Average is called up 0.3%, the S&P 500 up 0.2% but the Nasdaq Composite is called down 0.1%.

The New York corporate earnings calendar has third-quarter results from Bank of America, Goldman Sachs and pharmaceutical firm Johnson & Johnson on Tuesday. Morgan Stanley, Tesla and Netflix follow on Wednesday, before AT&T on Thursday.

Swissquote analyst Ipek Ozkardeskaya commented: "The first set of bank results released last Friday looked good, although the outlook remained dark and cloudy. Together, JP Morgan, Citi and Wells Fargo posted a [third quarter] profit – which soared by around 34% on the back of higher net interest income thanks to the Federal Reserve's meaningfully higher interest rates. The bank shares jumped after the results, but gains were given back on a morose economic outlook for the next quarters, uncertainties over clients' capacity to pay back loans in the environment of rising interest rates and slowing economic growth.

"But this earnings season will likely remain under the shadow of mounting geopolitical tensions in the Middle East and a broad-based discomfort and lack of appetite that comes along with it."

More than one million people have fled their homes in Gaza in scenes of chaos and despair as Israel bombarded the Hamas-ruled Gaza Strip and continued amassing troops Monday in preparation for a full-blown ground invasion.

Israel declared war on the Islamist group a day after waves of its fighters broke through the heavily fortified border on October 7, shooting, stabbing and burning to death more than 1,400 people, most of them civilians.

Hamas backer Iran and Lebanon's Hezbollah, which is also supported by Tehran, have warned that an invasion would be met with a response.

US Secretary of State Antony Blinken was due back in Israel on Monday after a crisis tour of Middle Eastern countries in a frantic attempt to avert a wider crisis in the volatile region.

US President Joe Biden is considering a trip to Israel in the coming days, US media reported on Sunday evening, following large-scale attacks on Israel by the militant Palestinian organization Hamas last weekend.

US and Israel are discussing a Biden visit in the coming week, outlets including Axios and broadcaster CNN reported citing officials from both countries.

The upshot of the events in the Middle East has been a rise in the oil price.

Brent oil was trading at USD90.79 a barrel early Monday afternoon, rising from USD89.59 late Friday. It crossed above USD91.00 in the early hours. The price is up sharply from USD84.22 a barrel at the European equities close on Friday, October 6, before the Hamas attack.

Swissquote's Ozkardeskaya noted there has been some reluctance to send Brent markedly above the USD90 a barrel mark.

"There is resistance into the USD90 per barrel psychological level; a potential implication of Iran in Gaza would bring a severe disruption to world's oil supply in the medium run. Iran doesn't want tensions to rise but they say that they can't sit and watch if Israel enters Gaza. Here, as well, technicals will have little say if fundamentals dictate a further rally. Yet, unlike gold, price swings in crude oil have important implications for the world economy: rising energy prices threaten to disrupt the central banks' war against inflation, and weigh on an already-bad-looking global economy. Therefore, a move above USD90 [per barrel] is possible, but a sustainable move above USD100pb seems challenging," the analyst added.

BP and Shell rose 0.7% and 1.5% in London, tracking oil prices higher.

Utility stocks were also on the up. Severn Trent climbed 2.2% and United Utilities added 1.4%. Jefferies lifted the duo to 'buy'.

At the other end of the FTSE 100, online grocer and warehouse technology firm Ocado lost 4.6%. Barclays cut the stock to 'underweight' from 'equal weight'.

Hipgnosis Songs Fund gave back 11%. It pulled a previously declared interim dividend, hurting the music intellectual property rights investor's shares further ahead of key votes on its future.

Hipgnosis said it now expects to receive "significantly lower retroactive payments" of songwriter royalties for 2018 to 2022. Due to the expected decision by the US Copyright Royalty Board for that period, Hipgnosis plans to reduce its retroactive accrual to USD9.9 million from the USD21.7 million it had accrued at the end of March.

To ensure compliance with a covenant of its revolving credit facility, Hipgnosis will withdraw its interim dividend payment. It also will discuss the royalties issue with its lenders.

The decision comes ahead of the company's annual general meeting in 10 days, which will see shareholders vote on two key motions, a planned disposal and the company's continuation.

AJ Bell's Mould commented: "Investors will decide the future of Hipgnosis Songs Fund at a continuation vote on 26 October. It's not looking good, given how the value of the company continues to decline and now it isn't even paying a dividend – shocking given how income was meant to account for a key part of investment returns. It's hard to see how the board of directors can put up with this chaos – perhaps it is time to oust the management team and bring in someone else."

Audioboom fell 8.3%. It said revenue is down more than 10% so far in 2023, sending the company into loss, even on an adjusted basis, but it expects a better fourth quarter and 2024.

Revenue in the nine months that ended September 30 was USD45.8 million, down 12% from USD57.1 million a year before. It said the decline was the result of the loss of the 'Morbid' podcast, which left the Audioboom network in May of last year, and a weak advertising market.

This left Audioboom with an adjusted loss before interest, tax, depreciation and amortisation of USD1.7 million for the nine months. For all of 2022, Audioboom recorded positive adjusted Ebitda of USD3.6 million, though at the pretax level, it had a loss of USD429,000.

Turning to the fourth quarter, which began this month, Audioboom said it expects revenue of at least USD19 million, up slightly from USD18.3 million a year before. It also expects to return to positive adjusted Ebitda in the current quarter.

Looking further out, Audioboom said it expects "record revenue" in 2024, leading to "a return to strong adjusted Ebitda positivity".

Sterling was quoted at USD1.2154 early Monday afternoon, higher than USD1.2135 at the London equities close on Friday. The euro traded at USD1.0532, up from USD1.0498. Against the yen, the dollar was quoted at JPY149.55, down versus JPY149.66.

Gold was quoted at USD1,916.63 an ounce, lower than USD1,922.99 on Friday.

By Eric Cunha, Alliance News news editor

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