The FTSE edged lower this morning, after Alcoa's disappointing first-quarter revenues and renewed fears about the Greek economy left the blue-chip index vulnerable to selling pressures.
Asian shares fell for the first time in three days and metal prices weakened after the quarterly revenues of Alcoa, largest aluminium producer in the US, failed to impress. A report released after the closing bell last night showed the company's Q1 revenue coming in at $4.89 billion, missing the $5.23 billion average estimate shown in a Bloomberg survey. This weak top-line performance is due to low demand from end markets - the companies that require aluminium to make or package their products. Alcoa is considered to be an economic bellwether, since its products are used in almost everything from soda cans to jet planes.
'Alcoa's revenue is weaker than you would expect and a pickup in the end markets is still not there,' said John Stephenson of First Asset Investment Management. 'While the economic recovery seems to be moving forward, maybe it won't be quite as robust as people hoped.'
Alcoa also reported a narrower net loss of $201 million (or 20 cents a share) in the first quarter, compared with a net loss of $497 million (61 cents a share) in the same period a year earlier. When excluding certain one-off items, however, Alcoa produced earnings of 10 cents a share - 1 cent higher than Bloomberg's average estimate. Whereas in the past investors have focused predominantly on earnings, this report indicates that investors are currently paying more attention to revenue performance.
A reality check from Moody's Investors Service also weighed on sentiment today. The ratings agency warned that the generous rescue package for Greece, which consists of €30 billion from its eurozone neighbours and €10 billion from the IMF, doesn't do anything to resolve the country's structural problems - leaving Greece still at risk of a downgrade.
Sarah Carlson, Moody's lead analyst for Greece, said the country faces 'significant execution risk' in implementing its plan to reduce its budget deficit. 'More specificity of the nature of the EU assistance if it were necessary is helpful, if nothing else, for calming down the markets,' Carlson said. 'The amount of money that a government spends on interest payments relative to the revenues that it takes in is a very important variable that we look at, and one of the things that affects that is the cost of borrowing.'
These developments naturally encouraged investors to increase their exposure to the so-called safe-haven US dollar, which in turn weighed on commodity prices and resource shares.
Unsurprisingly, miners took the most points off the FTSE this morning, with copper producer Antofagasta and platinum miner Lonmin the sector's worst performers, down 2.9% to 1015p and 2.8% to 2053p.
The FT also reported that there were rumours about the future of Rio Tinto and BHP Billiton's joint iron ore venture being in doubt. Rio's shares fell 1.5% to 3880p on the news, while BHP Billiton retreated 1% to 2249p.
Banks were also a drag on the index, as Lloyds Banking Group underperformed the sector with a 1% drop to 63.84p. RBS, meanwhile, made the headlines this morning with a statement that it will wait until after the election before selecting a preferred bidder for its sale of 318 branches. Its share price was practically unchanged at 44.88p. Barclays declined 0.5% to 362.8p while Standard Chartered, which focuses on emerging markets, bucked the negative trend with a 0.1% rise to 1774p.
Retailers' shares moved against the tide as well this morning, following a report from the British Retail Consortium (BRC) which showed domestic retail sales rising sharply last month, boosted by Easter shopping. The total value of sales rose 6.6% in March from a year ago, and like-for-like sales climbed 4.4%. However, the BRC warned that sales were not as strong when excluding Easter trading, implying that the positive trend in sales is not sustainable.
Kingfisher's shares climbed 2.2% to 237.7p while Next jumped 1.4% to 2335p. Home Retail continued to build on the prior day’s gains, up 0.6% to 296p. Lower down the market, department store Debenhams slid 2.2% to 76.65p, despite reporting a better-than-expected pretax profit of £123.6 million in the 26-week period ending 27 February. On a less exciting note, the company said it expects trading conditions in the second half of this year to be 'broadly neutral'.
Pharmaceutical firms, considered a defensive play during uncertain periods, were also in demand today, with AstraZeneca and GlaxoSmithKline up 0.5% to 2948.5p and 0.9% to 1280.5p respectively.
By 10:45am (London time) the FTSE 100 Index was trading 18.55 points (-0.32%) lower at 5759.10, while the broader FTSE 250 was 46.75 points (-0.45) below its previous close at 10435.01. At the same time, June Dow and S&P 500 futures traded between 0.25% and 0.30% below fair value, indicating the market currently expects the US stock market to open in negative territory this afternoon.
Investors should watch out for the US import price index and trade balance, scheduled for release at 1:30pm (London time). Anyone trading crude oil will also want to look out for the American Petroleum Institute's inventory report, due at 9:30pm this evening. In terms of companies, technology bellwether Intel will unveil its first-quarter figures today, while JPMorgan Chase, Google, Bank of America and General Electric will report their quarterlies later this week.
