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(Alliance News) - Stocks in London are seen opening lower on Tuesday, as a cautious start to the week continues, with focus shifting to US politics.
Tuesday is polling day for the US midterm elections. The Republicans are favourites to win the House of Representatives, though the Senate race will be closer. The elections are a key test for Democratic President Joe Biden.
"The control of US Congress hangs in the balance today as the mid-term elections are set to take place, but already the markets appear to be pricing in a Republican victory. Although the final polls pointed to an increasingly competitive political landscape, worries about the economy are looming large in this campaign, hinting that there could be trouble for Democrats in the Congressional race and in the fight for seats up for grabs in the Senate, especially with Biden remaining unpopular," Hargreaves Lansdown analyst Susannah Streeter commented.
Biden made a final appeal on the eve of Tuesday's midterms for Democrats to protect democracy by defeating Donald Trump's Republicans in an election that polls show could upend power in Washington. Former president Trump, who has never accepted the truth of his 2020 loss, ratcheted up the hints that he would be entering the fray for 2024.
Elsewhere on Tuesday, Kantar's UK grocery market survey is out at 0800 GMT, and eurozone retail sales are due at 1000 GMT.
In early UK corporate news Primark-owner AB Foods announced a buyback plan, Direct Line slightly lowered its outlook, and Persimmon said the UK housing market is showing signs of weakens amid rising interest rates.
In Europe, automaker Renault gave a strategy update and announced a business spin-off.
Here is what you need to know ahead of the London market open:
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MARKETS
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FTSE 100: called down 0.6% at 7,258.99
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Hang Seng: down 0.5% at 16,519.75
Nikkei 225: up 1.3% at 27,872.11
S&P/ASX 200: closed up 0.4% at 6,958.90
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DJIA: closed up 423.78 points, 1.3%, at 32,827.00
S&P 500: closed up 36.25 points, 1.0%, at 3,806.80
Nasdaq Composite: closed up 89.26 points, 0.9%, at 10,564.52
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EUR: firm at USD0.9994 (USD0.9940)
GBP: higher at USD1.1470 (USD1.1459)
USD: higher at JPY146.90 (JPY146.56)
GOLD: lower at USD1,669.44 per ounce (USD1,678.79)
OIL (Brent): lower at USD97.63 a barrel (USD98.97)
(changes since previous London equities close)
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ECONOMICS
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Tuesday's key economic events still to come:
1000 GMT EU retail trade
0900 GMT UK BoE Chief Economist Huw Pill speaks
US midterm elections
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UK Prime Minister Rishi Sunak is considering raising state pensions and benefits in line with inflation in a move that would likely usher in deeper public spending cuts elsewhere and higher tax rises. The PM and Chancellor Jeremy Hunt are considering imposing up to GBP60 billion in tax rises and spending cuts in the autumn budget on November 17. Treasury sources insisted no decisions have been taken, but did not deny a report in the Times stating they would avoid real-terms cuts on pensions and benefits. The move could cost a combined GBP11 billion next year, but would prevent a rebellion from some Tory MPs and avert at least some criticism of the challenging decisions being unfair. Members of Sunak's cabinet including Michael Gove have previously warned against going back on the manifesto commitment of maintaining the pensions "triple lock" as inflation soars past 10%. But with Hunt considering up to GBP35 billion of the "fiscal tightening" any extra spending would leave more severe savings and higher tax hikes required elsewhere. The chancellor was understood to be considering a stealth raid on inheritance tax by extending a freeze on the inheritance tax "nil-rate band" from 2025-27 to 2027-28. The Financial Times, which first reported the plans, said the move could raise at least half a billion pounds for the Treasury.
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UK retail sales slowed in October as retailers brace themselves for consumers opting for pre-loved gifts and strict budgets this Christmas to cope with soaring bills. Like-for-like retail sales during October grew by 1.2% year-on-year, driven by inflationary pressures and masking falling sales volumes as shoppers bought fewer items per visit, British Retail Consortium figures showed. It came as separate figures from Barclaycard also showed that card spending was up 3.5% on last October – higher than September's 1.8% but well below the 8.8% rise in consumer inflation. The BRC-KPMG retail sales monitor for October revealed that total sales grew by 1.6% over the month, compared with 1.3% in the same period last year. This is below the three-month average of 1.7% and the 12-month average growth of 2.7%. Sales across almost every category online and in store fell year-on-year as consumers adjust to shrinking household incomes. Furniture, food and health products saved the day on the high street as shoppers prepared for colder days at home, but online retailers saw sales decline in every category apart from furniture as consumers headed to bricks and mortar shops more frequently in search of bargains.
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Millions of people on low incomes will start to receive payments of GBP324 into their bank accounts from Tuesday as part of the UK government's cost-of-living support. The Department for Work & Pensions will start making the payments directly into eligible people's bank accounts from Tuesday.
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BROKER RATING CHANGES
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Societe Generale starts Segro with 'buy'
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Liberum raises Hammerson to 'hold' ('sell') - price target 20 (15) pence
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Berenberg starts Babcock International with 'buy' price target 425 pence
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COMPANIES - FTSE 100
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Associated British Foods posted an annual earnings surge and said like-for-like sales at its Primark high street retail chain in the UK are now in-line with pre-virus levels. AB Foods said revenue for the financial year that ended September 17 climbed 22% to GBP17.00 billion from GBP13.88 billion. Pretax profit jumped 48% to GBP1.08 billion from GBP725 million. AB Foods upped its payout by 7.9% to 43.7 pence from 40.5p. In addition, it announced a GBP500 million buyback programme to be completed in the current financial year. At Primark, annual sales totalled GBP7.7 billion, up 43% at constant currency. "UK like-for-like sales and market shares now broadly in line with pre-Covid levels," AB Foods said. Primark is facing rampant cost inflation, however. AB Foods Chief Executive George Weston said: "We have decided to hold prices for the new financial year at the levels already implemented and planned and to stand by our customers, rather than set pricing against these highly volatile input costs and exchange rates. As a result, in the current financial year, we expect significant growth in group sales from pricing in Food, as well as from some pricing and from space expansion at Primark. Our outlook remains unchanged. We continue to expect group adjusted operating profit and adjusted earnings per share to be lower than the financial year just closed."
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Persimmon back its annual volume target but did note the housing market is seeing some sign of distress in the face of rising UK interest rates. Rising rates are "clearly impacting mortgage lending and customer behaviour", hitting Persimmon's weekly sales rates. The average net private weekly sales rate per outlet for the period from the start of July to November 7 weakened to 0.60 from 0.78 a year prior. "The group has continued to manage the balance of inflationary pressures well, as higher selling prices mitigate the impact of cost inflation of between 8% and 10%," Persimmon said. It still expects to meet its 2022 volume target of 14,500 to 15,000 homes, that is despite "some increased risk from recent elevated cancellation rates". On payouts, Persimmon ruled out a special distribution for 2022, though its set out plans for a new capital allocation policy. "Ordinary dividends will be set at a level that is well covered by post-tax profits, thereby balancing capital retained for investment in the business with those dividends. Any excess capital will be distributed to shareholders from time to time, through a share buyback or special dividend," it said. Persimmon added: "For the 2023 financial year and onwards, dividends will be paid out semi-annually, with an interim dividend for 2023 expected to be paid in the second half of 2023."
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COMPANIES - FTSE 250
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Direct Line said it has traded largely in line with expectations amid a "challenging market backdrops in Motor and Home". Motor new business sales were weaker in the third quarter to September 30, as the insurer took pricing actions to maintain margins. Group adjusted gross written premiums fell 8.1% annually to GBP567.4 million from GBP617.2 million. In Motor alone, they fell 13%. In Home, they dropped 10% while the in the arm Commercial insurance arm, they increased 14%. "Trading across the group was broadly in line with our expectations given the challenging market backdrops in Motor and Home, whilst we continued to deliver strong growth in Commercial. The pricing actions we have taken to restore margins in Motor led to a reduction in new business sales; however, we were encouraged to see this improve steadily across the quarter as the market hardened. Having restored our Motor targeted written loss ratios, based on our claims assumptions, we maintained these throughout Q3, with inflation developing in line with our expectations," Chief Executive Penny James said. Looking ahead, Direct Line now expects a combined operating ratio, normalised for weather of around 98% "or moderately above" for 2022, the guidance lowered from a range of 96% to 98%. A ratio below 100% indicates an insurer is making underwriting profit, so the lower the better. A ratio of 98% would be only barely profitable.
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Oxford Instruments backed yearly guidance as it reported improved half-year earnings. The manufacturing and research company said revenue in the six months to September 30 rose 18% to GB200.5 million from GBP170.1 million. Pretax profit increased 24% to GBP26.6 million from GBP21.4 million. It declared a 4.6p per share dividend, up 4.5% from 4.4p a year earlier. "Our pipeline remains robust across all our end markets. We anticipate higher production in the second half, combined with the positive impact of recent price increases as we convert our record order book. This provides good visibility for an expected improvement in trading in the second half, with full-year trading at constant currency remaining in line with expectations," Oxford Instruments said.
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OTHER COMPANIES
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The Irish government has further trimmed its stake in AIB Group, Minister for Finance Paschal Donohoe said. Ireland now holds a 57% stake in the lender, down from 62% before the more recent disposal. Goldman Sachs International, Goodbody Stockbrokers and JP Morgan Securities acted as joint bookrunners for the process. Shares were sold at EUR2.96 each, with EUR396.6 million of proceeds generated for the Irish government. AIB CEO Colin Hunt said: "We very much welcome the decision and subsequent transaction undertaken. It is another important development in the process of returning the state's investment in the group and a normalisation of the share register. AIB owes the Irish taxpayer an immense debt of gratitude for its support during the financial crisis." The Irish government stepped in to buy a stake in the company in 2009 amid the global financial crisis. The state pumped a total of EUR29.4 billion into Bank of Ireland, AIB Group and Permanent TSB over 2009 to 2011.
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Renault set out a series of ambitious medium-term financial targets and also announced plans to list its electric vehicle-focused unit Ampere next year. It plans an initial public offering for the unit in Paris in the second half of 2023. Renault will keep a "strong majority" of Ampere's equity but it will also have the support of "potential strategic cornerstone investors", one of them potentially being US semiconductor company Qualcomm. In addition, Renault said it plans to restore its dividend in 2023. The payout will "gradually grow, in a disciplined manner" thereafter. Renault eyes an operating margin above 8% in 2025 and above 10% by 2030. It expects to generate on average EUR2 billion per year in annual free cash flow in the years 2023 and 2025. This figure is forecast to rise to EUR3 billion per year in 2026 to 2030. In addition, Renault said it is "is open to capitalize on the financial valuation" of its Alpine-branded F1 team's assets.
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By Eric Cunha; ericcunha@alliancenews.com
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