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(Alliance News) - London's FTSE 100 has been called to open lower on Tuesday, following declines for Asian equities and a sizeable drop for US tech shares overnight.
Equity markets have been unnerved by lingering US interest rate worries and rising tensions in the Middle East so far this week.
Swissquote analyst Ipek Ozkardeskaya said Monday's US retail sales reading makes a Federal Reserve rate cut "hard to justify".
"A stronger-than-expected retail sales data from the US cemented the idea that the US economy remains too strong for the Federal Reserve to cut the rates in summer," Ozkardeskaya said.
Data from the US Census Bureau showed retail sales ticked up more than expected in March.
Advance estimates of US retail and food sales rose 0.7% in March from February and were 4.0% higher on-year.
Focus was also on a UK labour market reading early Tuesday and what it could mean for the Bank of England.
Also on Tuesday, numbers showed the China's economic growth in the first quarter beat market expectations. According to the National Bureau of Statistics, China's gross domestic product expanded by 5.3% annually in the first quarter of 2024, beating FXStreet-cited market consensus of 5.0%.
In early UK corporate news DS Smith backed a takeover from International Paper, while Hostmore did some deal-making of its own, striking an agreement to acquire its franchisor TGI Fridays Inc.
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: called down 1.2% at 7,868.93
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Hang Seng: down 2.3% at 16,223.43
Nikkei 225: down 1.9% at 38,471.20
S&P/ASX 200: down 1.8% at 7,612.50
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DJIA: closed down 248.13 points, 0.7%, to 37,735.11
S&P 500: closed down 1.2% at 5,061.82
Nasdaq Composite: closed down 1.9% at 15,885.02
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EUR: down at USD1.0607 (USD1.0636)
GBP: down at USD1.2420 (USD1.2458)
USD: up at JPY154.56 (JPY154.32)
GOLD: up at USD2,369.91 per ounce (USD2,348.01)
(Brent): up at USD90.33 a barrel (USD89.20)
(changes since previous London equities close)
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ECONOMICS
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Tuesday's key economic events still to come:
10:00 BST eurozone trade balance
11:00 BST Ireland trade balance
18:00 BST UK Bank of England Governor Andrew Bailey speaks
14:15 BST US industrial production
18:15 BST US Federal Reserve Chair Jerome Powell speaks
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The UK unemployment rate rose in the three months to February, numbers showed, while year-on-year growth in average earnings topped expectations. According to the Office for National Statistics, the UK jobless rate picked up to 4.2% in the three months to February from 4.0% in the three months to January. January's three-month reading was upwardly revised slightly from 3.9%. According to market consensus cited by FXStreet, a jobless rate of 4.0% was expected for the period to February. The ONS noted average growth in regular earnings, so excluding bonuses, cooled slightly to 6.0% in the three months to February from 6.1% in the same period to January. Including bonuses, average earnings rose 5.6%, in line with the growth seen in the three months to January, and above consensus of a 5.5% climb. Growth in bonus-included real pay, so factoring in inflation, picked up to 1.6% in the three months to February from 1.5% in the period to January. Numbers in March had showed annual UK consumer price inflation cooled to 3.4% in February, from 4.0% in January. A UK inflation reading on Wednesday is expected to show the rate of inflation eased further to 3.1% last month, according to FXStreet.
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UK Chancellor of the Exchequer Jeremy Hunt will insist the UK economy "is on the up" as he travels to the US for the International Monetary Fund spring meetings. Hunt will seek to further strengthen UK-US economic ties and stress the importance of standing together with allies "at times of instability across the globe". Ahead of his trip, Hunt said: "At times of instability across the globe, we are reminded that we are stronger when we stand together. The US is our most important strategic ally, and we are both at the forefront of keeping the world safe. "Our economic relationship sees one trillion dollars (GBP800 billion) invested in one another's countries and I will be looking to deepen it further during my time in New York." Official data, last week, estimated gross domestic product rose 0.1% in February, raising hopes the country was emerging from recession.
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UK Prime Minister Rishi Sunak is set to urge Israeli counterpart Benjamin Netanyahu to show restraint on Tuesday after the thwarting of an Iranian attack over the weekend. Britain joined the US and other allies in shooting down Iranian attack drones on Saturday night, and has subsequently joined the US in urging calm in the region. Sunak had been due to speak to Netanyahu on Monday, but with the Israeli prime minister locked in a war cabinet, this proved not to be possible. In a Commons statement, Sunak said he would "express our solidarity with Israel in the face of this attack" and "discuss how we can prevent further escalation". Foreign Secretary David Cameron is also expected to visit Israel soon, and on Monday urged Tel Aviv to be "smart as well as tough" by not escalating the conflict with Iran.
Israel is still considering its response to Saturday night's attack, which saw Iran launch around 350 drones and missiles, but on Monday night said the barrage "will be met with a response".
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BROKER RATING CHANGES
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Barclays cuts Phoenix Group to 'underweight' (overweight) - price target 500 (600) pence
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HSBC raises Savills to 'buy' (hold) - price target 1,260 (825) pence
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COMPANIES - FTSE 100
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DS Smith agreed to a GBP5.8 billion all-share takeover from New York-listed packaging and pulp products maker International Paper. Investors in packaging firm DS Smith stand to receive 0.1285 new International Paper shares in connection to the deal, valuing each DS Smith share at 415 pence. That would represent a 0.9% premium to its 411.33p closing price on Monday, and is 48% higher than its closing price of 281p on February 7, the day before DS Smith said it received a takeover approach from London-listed peer Mondi. The deal values DS Smith's equity at GBP5.8 billion. The enterprise value, so including debt, is GBP7.8 billion. DS Smith said Tuesday: "DS Smith has recently received proposals from both International Paper and Mondi... A combination with either of International Paper or Mondi addresses a number of the factors set out above and would deliver a compelling strategic, industrial and financial rationale for a combination with DS Smith." It added: "In assessing the proposal received from International Paper, the DS Smith board has given consideration to the proposed financial terms of the combination and the anticipated strategic and financial benefits (including synergies) that are expected to be delivered. Amongst other factors, the DS Smith board has focused on both the near term and longer term value that the combination is expected to deliver to DS Smith shareholders as well as the implications for all of DS Smith's stakeholders."
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B&M European Value Retail said it expects annual profit at the "top end" of its guidance, hailing a year of "strong operational execution". For the 53 weeks ended March 30, group revenue rose 10% GBP5.5 billion. Revenue in B&M UK climbed 8.5% to GBP4.41 billion, in France it surged 19% to GBP514 million, and Heron Foods it increased 15% to GBP560 million. The retailer's Heron Foods arm largely sells frozen goods. B&M said it saw "volume growth and positive like-for-like" over the course of the year, which also benefitted from an extra week. It expects adjusted earnings before interest, tax, depreciation and amortisation will rise 9.8% to GBP629 million, the top end of its GBP620 million to GBP630 million range. Chief Executive Alex Russo said: "The business and team are well set up for the year ahead, our pipeline remains on track to open not less than 45 UK B&M stores in each of the next two financial years and our French and Heron businesses continue to demonstrate significant profitable growth potential."
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COMPANIES - FTSE 250
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Bootmaker Dr Martens said Kenny Wilson will step down as chief executive and said it expects to report annual earnings in line with expectations. Wilson will be replaced by the firm's Chief Brand Officer Ije Nwokorie before the end of the current financial year, which runs until late-March. Dr Martens said: "Kenny and Ije will work together to ensure a smooth handover." It added: "Ije will remain as CBO in the meantime, with his focus being on the brand and driving demand ahead of the important [autumn winter 2024] season." Dr Martens said that for the year just ended March 31, it expects results "in line with guidance and consensus expectations". It said an expected pick-up in the direct-to-consumer division materialised in the fourth-quarter, with high single digit growth compared to a 3% annual constant currency sales decline in the third-quarter. For the new year, it is taking a "prudent view". It expects US wholesale revenue to fall by double-digits, meaning it suffers a "significant" GBP20 million pretax profit reduction on-year. In addition, it is seeing "single-digit inflation in our cost base". It also plans to "invest in retaining and incentivising talent". Dr Martens added: "Together these equate to a year-on-year [pretax profit] headwind in the region of GBP35 million. As previously communicated, we do not anticipate increasing prices further this year, and therefore in FY25 we are unable to offset cost inflation as we have in prior years." It has a "worst case scenario" of financial 2025 pretax profit of around one-third of the level of the year just gone.
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OTHER COMPANIES
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Fashion retailer Superdry, on the back of announcing it was "in the advanced stages of preparing a restructuring plan", announced an equity raise and a plan to delist from the London Stock Exchange. Its C-Retail unit, which owns its leasehold portfolio, is launching the restructuring plan. "The restructuring plan is a key element of the company's turnaround plan that is intended to help the company deliver its new, more financially sustainable, target operating model," it added. Superdry will raise either EUR8 million through an open offer, or GBP10 million in a placing. It added: "Shareholders will be asked to approve both different options and, assuming shareholders do so, Superdry's independent directors, in consultation with Julian Dunkerton and Peel Hunt (the company's financial advisers), will in due course choose the option to be adopted by Superdry." Superdry deems it best to implement its turnaround "away from the heightened exposure of public markets". "The company believes it can achieve significant annual cost savings from the delisting that will contribute to delivering its target operating model," it added. If approved by shareholders, it will delist in July.
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Hostmore said it has struck a GBP177 million deal to combine with hospitality business and its own franchisor TGI Fridays. TGI Fridays owns the eponymous US-themed casual dining brand and operates through franchising and licensing deals in the US and 43 international markets. The deal will see Hostmore shareholders owning a 36% stake in the combined unit, with current shareholders in TGI Fridays owning the remainder. Hostmore is currently the largest TGI Fridays franchisee globally, operating 89 stores across the UK. The combined firm will be renamed TGI Fridays PLC, trading on the London Stock Exchange's Main Market. It would be classed as a reverse takeover. Hostmore said: "Hostmore shareholders expected to benefit from the improved operating model of the combined group and the stronger valuation multiples typically ascribed to global franchisor businesses."
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By Eric Cunha, Alliance News news editor
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