Tesco's profit warning shocks market

The FTSE has managed to shrug off any negative sentiment from last night’s US trading and is up 12 points in the first couple of hours trading.

A Tesco sign
Source: Bloomberg

Tesco has shocked the markets by announcing another profits warning, slashing its dividend by 75% and rushing in the new CEO Dave Lewis a month before he was originally due to start. All this smacks of desperation and the change in dividend will see the 6% yield plummet down to just 1.5%, a move that is likely to trigger aggressive selling from those who had previously been investing for the income.

Unsurprisingly UK food retailers dominate the list of stocks falling in the FTSE with Sainsburys, Morrisons and Marks & Spencer all tumbling.

Persistent rumours continue to linger that Pfizer has not completely given up hope of acquiring AstraZeneca, as the shares have added another 2.4% in morning trading. 

As the days tick down to September's Scottish independence vote a number of polls now indicate that the 'yes votes' have seen their chances greatly improved following the second of the two debates. This is in contrast to the IG binary bet which is still suggesting an 83% possibility of a 'no vote', a very different picture when people are putting money where their mouth is. 

The week has seen a continuation of mixed messages from the European Central Bank and eurozone nations (Germany) as the debate over when stimulus can be added, before or after further austerity, rages on. This morning’s eurozone inflation figures have, as expected, dropped to 0.3%. Considering the weak inflation figures we had seen from both Germany and Spain yesterday this was always on the cards.  

US markets closed lower across the board last night as the wobbles from global equity markets dented the confidence of Wall Street traders. Future indications are already pointing towards the S&P 500 retaking the 2,000 level in today’s trading. It is worth remembering that Monday will see US markets closed as the nation celebrates Labor Day, and the looming long weekend may encourage a bout of good old fashioned profit-taking before the close tonight.  

Ahead of the open we expect the Dow Jones to start 38 points higher at 17,117.

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