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(Alliance News) - Stocks in London are set to end the week on a brighter note on Friday in spite of disappointing economic data from China, as comments from US Federal Reserve policymakers allayed fear of a potential full-percentage-point interest rate hike.
In early UK company news, fashion retailer Burberry said its sales growth in the first quarter was held back by lockdowns in mainland China. Sales and support services firm DCC reiterated confidence in achieving a year of profit growth following a strong first quarter. Luxury carmaker Aston Martin Lagonda plans to raise GBP653 million in equity, after rejecting a GBP1.3 billion investment offer.
IG says futures indicate the FTSE 100 index of large-caps to open up 11.33 points, or 0.2% at 7,064.90 on Friday. The FTSE 100 index closed down 102.80 points, or 1.4%, at 7,053.57 on Thursday.
For the 13 weeks ended July 2, Burberry's retail revenue increased 5.4% to GBP505 million from GBP479 million in the same period a year before, driven by stronger sales outside of China from the Europe, Middle East, India & Africa region and higher tourist spend in the Americas.
However, comparable store sales growth was 1%, compared to a 90% increase a year prior, hindered by Covid-related lockdowns in mainland China. Excluding that region, comparable store sales grew 16%.
Looking ahead, Burberry has started its GBP400 million share buyback, and is expected to be completed by the end of the financial year.
Aston Martin proposed an equity raise of GBP653 million, with investment fund PIF, the Yew Tree Consortium and fellow car maker Mercedes-Benz expected to invest GBP335 million in total.
Aston Martin will raise the funds through a placing of 23.3 million shares at a price of GBP3.35 each for GBP78.0 million, followed by an underwritten rights issue to raise GBP575 million. The stock closed on Thursday at GBP4.21.
Proceeds from the fundraise will go towards the repayment of existing debt, improvement of the company's cash flow generation and to provide a liquidity cushion for what remains a challenging operating environment, Aston Martin said.
At the end of June, industry publication Autocar reported that Aston Martin was seeking to raise funds, but due to GBP1.2 billion of outstanding loans and bank drafts, it would be unable to raise funds by taking on more debt. Autocar also reported that the fundraising could include bringing a significant new investor in, potentially offering a position on the company's board as an inducement.
On Friday, Aston Martin will be given two seats on the board, assuming it has a 10% stake in the company following the equity raise. Meanwhile, the Mercedes stake will slip to 9.7% from 11.7% currently, despite it taking up its full entitlement of shares.
Aston Martin also confirmed that it rejected an offer from Investindustrial Group Holdings and Geely International Hong Kong - collectively the Atlas Consortium - for an equity investment of up to GBP1.3 billion, comprising a GBP203 million firm placing and subsequent GBP1.11 billion underwritten rights issue.
"The board of Aston Martin believes that the proposal markedly overestimated the company's new equity capital requirements, would have been heavily dilutive for existing shareholders, and comprised a number of execution obstacles," the company stated.
DCC continued to expect its financial year ending March 31, 2023 to be "another year of profit growth", following a robust performance in the first quarter.
DCC said operating profit for the three months ended June 30 was in line with expectations and is well ahead of the same period a year before, driven by a strong performance from DCC Energy and DCC Healthcare.
Elsewhere, London investors continued to focus on US interest rate policy.
"With the Federal Reserve July meeting less than two weeks away, and the unwelcome nature of the stronger-than-expected inflation numbers, markets had increasingly convinced themselves that instead of raising rates by 75bps that the Fed might be tempted to go further by 100bps," said Michael Hewson of CMC Markets.
On Thursday, data showed the US producer price index soared 11.3% on an annual basis in June, the largest increase since a record 11.6% jump earlier this year, in March. This was faster than the 10.9% growth clocked in May and defied expectations of a slowdown to 10.7%. The report followed data on Wednesday showing consumer prices rose by 9.1% in June, a 40-year-high pace.
"The risk of this outcome was tempered by comments from Federal Reserve Governor Christopher Waller, who said that he thought the market was getting ahead of itself by 100bps. This appeared to be a softening of his tone from his comments a few weeks ago when he said the Fed was 'all in' on inflation," Hewson added.
Waller on Thursday signalled a possible full percentage point interest rate hike - a move not seen for more than 30 years and a further indication of the Fed's determination to rein in sky-high inflation.
Waller previously expressed support for another 75 basis point hike at the policy meeting later this month, but said Thursday he will be watching key reports on retail sales and housing coming in before then.
"If that data come in materially stronger than expected it would make me lean towards a larger hike at the July meeting to the extent it shows demand is not slowing down fast enough to get inflation down," Waller said in a speech to an economic conference.
In China, data from the National Bureau of Statistics showed that its economy grew just 0.4% in the second quarter of 2022 from a year before, marking a two-year low pace of annual growth, with Covid lockdowns and an embattled property market nudging a government target further out of reach.
This print fell short of FXStreet-cited expectations of a 1.0% rise.
GDP for the second quarter in the world's second-biggest economy was also down 2.6% compared with the first three months of this year, the National Bureau of Statistics said.
"Domestically, the impact of the epidemic is lingering," the NBS stated, noting shrinking demand and disrupted supplies.
"The risk of stagflation in the world economy is rising," the statement added.
In Asia on Friday, the Japanese Nikkei 225 index closed up 0.5%. In China, the Shanghai Composite was down 1.0%, while the Hang Seng index in Hong Kong was 2.0% lower. In Sydney, the S&P/ASX 200 ended down 0.7%.
Against the yen, the dollar was quoted at JPY138.79 in London, down from JPY139.09.
On Thursday, stocks in New York ended broadly lower after a disappointing start to the US earnings season. The Dow Jones Industrial Average closed down 0.5%, the S&P 500 down 0.3% while the Nasdaq Composite closed marginally higher.
Banking earnings continue on Friday with Citigroup and Wells Fargo publishing second-quarter updates alongside asset manager BlackRock.
Sterling was quoted at USD1.1813 early Friday, up from USD1.1803 at the London equities close on Thursday. The euro traded at USD1.0015 early Friday, slightly higher against USD1.0010 late Thursday.
German Foreign Minister Annalena Baerbock has ruled out a relaxation of the sanctions imposed on Russia since the invasion of Ukraine.
Even such a step would not secure the gas supply from Moscow, "but we would be doubly subject to blackmail," she said in a discussion with citizens in the city of Bremen on Thursday.
The Western states have gradually tightened their sanctions on Russia since the beginning of the war. However, politicians from the left-wing party Die Linke and the far-right Alternative for Germany have called for a relaxation because the measures also burden the German economy.
Gold stood at USD1,703.43 an ounce early Friday, lower than USD1,707.30 on Thursday afternoon. Brent oil was trading at USD99.62 a barrel early Friday, up from USD96.82 late Thursday.
In the international economics calendar on Friday, there's EU trade balance data at 1000 BST before the US shares retail sales data and industrial production in the afternoon.
By Dayo Laniyan; dayolaniyan@alliancenews.com
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