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.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.