(Alliance News) - Stocks in London were called flat on Tuesday with a mixed session in Asia unable to inspire, as investors await an inflation reading due from the eurozone.
In early corporate news, drug maker GSK will up to USD3.3 billion for a new US acquisition, B&M European Value Retail has found a new chief executive, and water works Pennon performed in line with expectations.
IG futures indicate the FTSE 100 index is to open up just 1.34 points at 7,601.40 on Tuesday. The blue-chip index closed up 14.60 points, or 0.2%, at 7,600.06 on Monday.
In Tokyo on Tuesday, the Nikkei 225 ended down 0.3%. The Shanghai Composite was up 1.1%, while the Hang Seng in Hong Kong was 1.1% higher. The S&P/ASX 200 in Sydney lost 1.0%.
China's manufacturing sector improved in May, data showed Tuesday, as some factories gradually resumed work after the easing of strict Covid lockdowns.
The purchasing managers' index – a key gauge of manufacturing activity – edged up to 49.6 points from April's 47.4, which was the worst reading since early 2020. However, the reading remained stuck below the 50-point mark separating growth from contraction.
Oanda's Jeffrey Halley said: "A less-worse-than-expected set of data has prompted a modest rally in China equities today, holding the promise of an accelerating recovery in June if the virus situation remains benign. That's a big if."
The figures come as Beijing's zero-Covid policy aimed at stamping out infections with lockdowns and mass testing is challenged by a surge in the fast-spreading Omicron variant. Dozens of cities, including Shanghai and Shenzhen, have been either fully or partially sealed off in recent months.
"Asia markets have undergone a mixed session, in the aftermath of these numbers, and while things may be improving in the Chinese economy, the continued rise in oil prices is likely to act as a drag on economic activity, after EU leaders agreed a deal to block 90% of oil imports by the end of this year," CMC Markets analyst Michael Hewson said. "As a result of this drag, European markets look set to open cautiously lower."
Brent oil quoted at USD123.85 a barrel, up sharply from USD120.20. Gold stood at USD1,854.60 an ounce, down from USD1,857.80.
EU leaders agreed late Monday to ban more than two-thirds of Russian oil imports, tightening economic screws on the country even as Moscow's forces made gains in the eastern Donbas region of war-ravaged Ukraine.
The compromise deal, meant to punish Russia for its invasion three months ago, cuts "a huge source of financing for its war machine," European Council chief Charles Michel tweeted.
"Maximum pressure on Russia to end the war," he said.
Leaders of the 27-nation bloc had met to negotiate the long-sought deal earlier Monday in Brussels, amid concerns raised by Hungary and other neighbouring countries reliant on Russian fuel.
The agreement also includes plans for the EU to send EUR9 billion in "immediate liquidity" to Kyiv, Michel announced.
In London, GSK has agreed to pay USD2.1 billion upfront, with potentially a further USD1.2 billion coming, to acquire Boston, Massachusetts-based Affinivax.
Affinivax is a clinical-stage biopharmaceutical company focused on developing a novel class of pneumococcal vaccines.
"The proposed acquisition further strengthens our vaccines R&D pipeline, provides access to a new, potentially disruptive technology, and broadens GSK's existing scientific footprint in the Boston area," GSK's Chief Scientific Officer Hal Barron said.
The deal is expected to close in the third quarter of 2022.
GSK also reaffirmed for 'new GSK' - the part remaining after the spin-off of its consumer arm - its full-year 2022 guidance and the medium-term outlook for 2021 to 2026 of more than 5% sales and 10% adjusted operating profit compound annual growth rate at constant currency.
B&M European Value Retail has promoted its current chief financial officer to take over from departing Chief Executive Simon Arora.
Current CFO Alex Russo will succeed Arora in "due course", B&M said.
"The board will now consider the most appropriate handover plan. A process to recruit a successor to Alex as CFO has already begun. In the meantime, both Simon and Alex will remain in their existing roles in order to minimise disruption to the business. A further announcement will be made when appropriate," B&M added.
Turning to its results, B&M reported flat annual profit despite a decline in revenue.
For the 52 weeks ended March 26, pretax profit was stable at GBP525 million, while revenue slipped to GBP4.67 billion from GBP4.80 billion the year prior.
B&M recommended a final dividend of 11.5 pence, slipping from the 13.0p final payout offered last year. The total dividend was cut to 16.5p from 17.3p.
Outgoing CEO Arora said: "The retail industry is facing inflationary pressures whilst our customers are having to cope with a significant increase in the cost of living, making spending behaviour in the year ahead difficult to predict. However, we have seen before that during such times customers will increasingly seek out value for money, and B&M is ideally placed to serve those needs."
Water utility Pennon Group said its annual results were in line with internal expectations.
For the year ended March 31, pretax profit slipped to GBP127.7 million from GBP132.1 million the year before. Total revenue improved to GBP792.3 million from GBP624.1 million.
Pennon said the revenue growth was driven by non-household demand and contract wins from Pennon Water Services, while the FTSE 250-listed firm bemoaned that growth in underlying earnings was being more than offset by increased interest charges on index-linked debt.
"Performance across the group continues to be operationally resilient, delivering against South West Water and Bristol Water's business plan commitments, and driving growth at Pennon Water Services, realising benefits for all stakeholders," it said.
Pennon raised its final dividend by 9.6% to 26.83p, taking its total dividend to 38.53p, an 8.2% increase on the 35.61p paid for the year prior.
Secure Trust Bank said Tuesday it has agreed to offload a GBP84.7 million loan portfolio to Intrum UK Finance.
STB's subsidiary Debt Managers held the portfolio, agreeing to sell it for GBP94.0 million.
"Secure Trust Bank expects that the sale will generate a net profit benefit in the current financial year and release around GBP72 million of risk weighted assets, with the associated capital release being reinvested into Secure Trust Bank's remaining specialist lending businesses and for other general corporate purposes," the lender added.
Gold Fields has agreed to buy Toronto-based Yamana Gold in an all-share offer valued at around USD6.7 billion.
Yamana shareholders will receive 0.6 of a new Gold Fields share for each Yamana share held. The transaction represents a premium of 34% to the 10-day volume weighted average traded price of Yamana shares on the New York Stock Exchange of USD5.20 on Friday last week, based on Gold Fields American depositary shares' 10-day average of USD11.59.
US markets were closed on Monday for the Memorial Day holiday. In London on Monday, Yamana shares closed down 2.1% at 404.16 pence. Shares in Gold Fields closed 3.0% higher at ZAR190.80 on Monday in Johannesburg.
Yamana shareholders will receive either newly issued shares in Gold Fields, which are listed on the Johannesburg Stock Exchange, or newly issued Gold Fields' American depositary shares, which trade on the NYSE.
The Yamana board has unanimously approved the takeover and is recommending the deal to its shareholders.
Attention in the EU now turns to this morning's eurozone inflation print - due at 1000 BST.
CMC's Hewson said: "When EU CPI pushed up to record highs of 7.5% in April, and with core prices at less than half of that at 3.5%, there had been some talk that inflation in the euro area was starting to plateau.
"Given the CPI numbers that we saw from Germany and Spain yesterday, this view seems rather quaint, especially when considering what is happening with PPI prices, which are over 3 times higher. We also have the European Central Bank starting to prepare the markets for a possible 25bps rate hike at the July meeting in response to this inflation surge, however it’s doubtful that such a small move when rates are already negative at 0.5% will do that much good."
On an annual basis, the consumer price index in Germany rose by 7.9% in May, accelerating from a 7.4% increase in April. The latest reading beat the market forecast, cited by FXStreet, of 7.6%.
"Given the huge jumps seen in both Spain and German CPI yesterday, today's headline EU CPI number for May could well push above 8% this morning, thus making the ECB's job in regaining credibility even more difficult. What price a 50bps rate move in July? Core prices are expected to rise from 3.5% to 3.6%, however it can only be a matter of time before core inflation starts to surge, as inflation becomes more embedded," Hewson added.
The pound was quoted at USD1.2598 early Tuesday in London, falling from USD1.2640 at the London equities close on Monday.
The euro stood at USD1.0737, soft from USD1.0780. Against the yen, the dollar was trading at JPY127.96, firm on JPY127.60.
Wall Street returns from its long weekend on Tuesday, after sitting out Monday as the country celebrated Memorial Day. On Friday, the Dow Jones Industrial Average closed up 1.8%, the S&P 500 up 2.5% and the Nasdaq Composite up 3.3%.
The economic events calendar on Tuesday also has UK mortgage approvals at 0930 BST.
By Paul McGowan; paulmcgowan@alliancenews.com
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