Early Morning Call: FTSE 100 opens lower as Rio Tinto profits fall and Lloyds' credit losses rise

Equity market overview

US indices posted losses in excess of 2% in yesterday’s session, led by technology stocks.

APAC equity markets followed suit overnight, with Japan’s Nikkei 225 recording the worst performance. Hong Kong’s Hang Seng showed little reaction to the release of the region’s growth data. Fourth quarter (Q4) GDP fell 3.5%, but the economy is expected to expand between 3.5% and 5.5% in 2023.

In New Zealand, the Reserve Bank of New Zealand (RBNZ) raised its official cash rate by 50 basis points (bp) to 4.75%, a 14-year high, and expects to keep tightening further as inflation remains too high. New Zealand's annual inflation is currently running near three-decade highs of 7.2%, close to an estimated peak of 7.3%.

The RBNZ continues to expect the official cash rate to peak at 5.5% in 2023.

Europe main indices open lower this morning, after posting losses of about 0.5% yesterday. At 9am, Germany Ifo business climate is expected to rise for a fifth straight month to 91.2 in February, one point more than the previous month.

Yesterday the ZEW economic sentiment rose more than forecast to 28.1, a one-year high.

Tonight, the market awaits the release of the Federal Reserve (Fed) minutes. At its last meeting, the Federal Open Market Committee (FOMC) decided to raise the federal funds rate by 25 basis points to the range of 4.5 - 4.75%, with chair Jerome Powell arguing that the disinflationary process had started.

The tone seemed dovish at the time, however, the market now wants to know whether board members discussed higher rate hikes. Since that meeting, US consumer price index (CPI), although decelerating to 6.4% year-on-year (YoY), was higher than the 6.2% forecast.

Corporate news

Lloyds Banking Group reported flat annual profit for 2022 of £6.9 billion, in line with analyst forecasts compiled by the bank. The bank announced a final dividend of 1.6 pence per share and a share buyback of up to £2 billion, taking total shareholder returns for 2022 up to £3.6 billion.

Rio Tinto posted full-year (FY) earnings after the Australian market close. Underlying profit fell 37.9% to $13.28bn, missing expectations of $13.96bn. The miner suffered from weaker iron ore prices due to slowing demand from top consumer China.

But like BHP on Tuesday, Rio Tinto said China consumption showed signs of rebounding although the economy remained volatile.

The group, however, lowered its capital investments guidance for 2023 to $8 billion from a prior estimate of between $8 billion and $9 billion. It also halved its dividend, announcing a final dividend per share of $2.2500, to be compared with $4.17 last year. It still offers one of the best dividends on the FTSE 100.

Stellantis' operating profit grew 17% in the second half to €10.95bn, topping analysts’ expectations of €9.63bn. The company also announced a €4.2bn dividend on 2022 results, or €1.34 per share, and said it would propose a share buyback program worth up to €1.5 billion to be performed by the end of this year.

In the US, Coinbase reported a loss for the fourth quarter, as the crypto sector was hit by the fall of FTX last November. The crypto exchange posted a loss of $2.46 per share on revenue of $629 million. That is marginally better than EPS of $2.51 and $588m in revenue anticipated by analysts. A year ago, revenue reached $2.5bn.

Coinbase's trading volume plunged to $145bn in the fourth quarter, compared with $547bn a year earlier. Retail traders also pulled back significantly, with their trading volume in the quarter plummeting nearly 89% to $20bn.

Subscription and services revenue however rose about 33% to $282.8m in the period, benefiting from hefty interest rate hikes. The crypto exchange forecast revenue in that segment to rise to between $300m and $325m, above Wall Street estimates.

NVIDIA is set to report earnings tonight after the US closing bell. The market expects earnings of 81 cents per share, a 61.5% drop compared to the same quarter a year ago. Revenue is anticipated to increase by about 21% to $6.01nn.

New US trade rules and export limitations introduced in 2022 have put the group's revenues under pressure. Investors await an update on the new graphics card NVIDIA is rumoured to launch in April, one that is likely to become the fastest of its kind in the gaming world.