Must read: FTSE 100, US earnings, Bank of England, DS Smith

Our head of investment looks at some of the key stories affecting share prices Monday morning.

EUROPEAN MARKETS 

After a sharp slide on Wall Street on Friday when the Dow shed 630 points, negative momentum has carried forward to the European market open with the major bourses trading in the red. Tensions in Ukraine have escalated following multiple explosions in the centre of the capital, Kyiv for the first time in months.

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The FTSE 100 is under pressure, trading below the key 7,000 handle with energy firms SSE (LSE:SSE) and Centrica (LSE:CNA) leading the declines. Smith (DS) (LSE:SMDS) is the top performer on the UK index thanks to a positive earnings update.

US EARNINGS SEASON PREVIEW 

Focus is on US earnings season which kicks off on Friday with results from the banking sector. Wall Street is expected to suffer a notable decline in quarterly profits as the global market volatility and economic uncertainty have resulted in a slump in deal making, partially offset by rising net interest margins thanks to interest rate increases from the Fed. The US dollar is also expected to be a major theme throughout earnings season stateside with the currency’s appreciation likely to weigh on international sales which account for approximately 40% of S&P 500 revenues.

BANK OF ENGLAND 

The Bank of England said it is on standby to raise its daily government bonds purchases ahead of the final day of its emergency intervention programme on Friday. The central bank originally said it would buy up to £5 billion a day of long-dated gilts but it looks like it is expanding that daily limit to £10 billion from today. 

The Bank of England was forced to prop up the government bond market after the Chancellor’s mini-budget sparked a sell-off for the pound and gilts, posing a major risk to some of the UK’s biggest pension funds amid rising collateral calls on LDIs (liability driven investments). The central bank’s action has helped to calm government debt markets but there are concerns about what happens next week after the Bank of England’s support package ends with question marks around whether dysfunction will return to the market.

DS SMITH 

Smith (DS) (LSE:SMDS) said its full-year overall performance is expected to come in ahead of its previous expectations. Adjusted operating profit (earnings after operating expenses are paid) is expected to reach at least £400 million for the half year versus £276 million in the same period last year. The FTSE 100 packaging company said trading continues to be very good and consistent with trends described in its AGM trading statement. 

Like many stocks this year, DS Smith has suffered a sharp slide in its share price, down over 30% since the start of January even after today’s share price surge. However, this decline fails to capture its robust fundamentals with a solid earnings outlook thanks to strong sales and its focus on reducing costs by minimising the amount of cardboard used in each packaging as well as optimising transport and storage of cardboard. 

DS Smith is still dealing with the fallout from inflation with rising input costs across the industry with a particularly notable jump in energy costs which have offset some of its efficiency initiatives. But the firm has hedged 90% of its gas costs for next year and 80% for the year after, offsetting this increase by passing extra costs onto consumers through higher prices.