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(Alliance News) - Stock trading in London is set for a tepid start as UK market participants return from holiday on Tuesday, catching up with Monday's losses in Europe, as investors continue to mull over hawkish remarks from the head of the US central bank.
In early UK company news, Bunzl raised its full-year margin guidance, Dechra Pharmaceuticals said it has bought a California-based veterinary pharmaceutical manufacturer, and Joules insisted it remains in "positive" talks with Next over a potential investment.
IG says futures indicate the FTSE 100 index of large-caps will open down 18.11 points, or 0.2%, at 7,409.20 on Tuesday. The FTSE 100 closed down 52.43 points, or 0.7%, at 7,427.31 on Friday.
"If the market price action of the last few days is any guide, the penny finally appears to have dropped that the Federal Reserve is willing to risk a recession to get inflation under control," said Michael Hewson, chief market analyst at CMC Markets.
"Powell's message from last week's speech at Jackson Hole on Friday couldn't have been any clearer, that the Fed would keep going until the job is done, the pity being it took so long for investors to take notice, as stock markets dropped, and bond yields spiked higher," he said.
Wall Street ended lower on Monday, with the Dow Jones Industrial Average down 0.6%, the S&P 500 down 0.7% and the Nasdaq Composite down 1.0%
Powell's comments also sparked dollar strength. Sterling was quoted at USD1.1711 early Tuesday, lower than USD1.1764 at the London equities close on Friday.
The euro traded at USD0.9998 early Tuesday, however, flat than USD0.9997 late Friday. The single currency was finding some support after the European Central Bank's chief economist said it should continue to raise interest rates at a "steady pace".
Lifting interest rates in increments that were "neither too slow nor too fast" was important due to the "high uncertainty" around future inflation, as the war in Ukraine and rocketing energy prices shake the eurozone, ECB Chief Economist Philip Lane said in a speech in Barcelona.
Influential ECB board member Isabel Schnabel called for policymakers to show "determination" in the fight against inflation in a speech at the annual central banking symposium in Jackson Hole last week.
In early UK company news, London-based distribution firm Bunzl upped its margin guidance after strong first-half trading.
Revenue for the first half of 2022 rose 16% to GBP5.65 billion from GBP4.87 billion a year before. Revenue was driven by product cost inflation and continued volume recovery in the base business, and growth from acquisitions.
"The base business saw very strong revenue growth across North America, Continental Europe and UK & Ireland, driven by strong product cost inflation. This was complemented by volume recovery in Continental Europe and UK & Ireland, due to the reduced level of Covid-19 related restrictions compared to the prior year," it said.
Pretax profit improved 7.6% to GBP296.6 million from GBP275.7 million.
Bunzl said inflation was "somewhat supportive" to margins, though the reduction of Covid-19 sales meant they still narrowed to 7.3% from 7.5%. Still, Bunzl now expects its full-year operating margin to be higher than historical levels and only slightly below 2021.
"At constant exchange rates, the group continues to expect very good revenue growth in 2022, driven by good organic revenue growth and the positive contribution of acquisitions announced in the last 12 months. Growth of the base business is expected to be only partially offset by the further normalisation of sales of Covid-19 related products, albeit these are expected to remain ahead of 2019 levels," it added.
Bunzl declared an interim dividend of 17.3p, up 6.8% on the 16.2p paid out a year before.
Dechra Pharmaceuticals said it has bought California-based veterinary pharmaceutical manufacturer Med-Pharmex for USD260.0 million.
Med-Pharmex has been a "long-term acquisition target", it said, and will bolster Dechra's operations in the US.
"The US market is highly consolidated, therefore this is a unique opportunity to add several new products to our portfolio, enter the US FAP market and improve the manufacturing footprint for our North American business," said Dechra Chief Executive Ian Page.
Dublin-headquartered healthcare services business Uniphar reported interim revenue growth.
Revenue for the six months to June 30 rose 2.8% to EUR991.8 million from EUR964.9 million. Pretax profit edged down to EUR20.3 million from EUR20.7 million, however, as exceptional costs rose to EUR5.8 million from EUR3.1 million.
"Uniphar delivered a strong performance during the first six months of 2022 leveraging its scalable platforms to help mitigate the impact of inflationary pressures and global economic uncertainty," it said.
Cost inflation remains a concern and will be a key focus through this year and the next, it said.
Joules said it continues in "positive" discussions with Next over a possible investment, despite Sky News over the weekend reporting that talks had stalled.
Sky News said it has learnt the two companies are not close to agreeing the terms of an investment from Next, and the FTSE 100-listed retailer had not received enough financial information to allow it to make a formal offer to the Joules board.
There were also doubts that Next would want to proceed with a deal at 33p per share or more given Joules shares closed at 25.5p on Friday. The stock has fallen 82% since the start of 2022.
Earlier in August, the two confirmed they were in talks over a potential equity investment. The move, if it goes ahead, will see Next inject about GBP15 million into Joules, the AIM-listed company said at the time, noting the price will be "at no less than Joules' current market price".
Joules on Monday said: "There can be no certainty that these discussions will lead to any agreement, and further announcements in this regard will be made if and when appropriate."
Against the yen, the dollar was quoted at JPY138.50, up from JPY137.31.
In Asia on Tuesday, the Japanese Nikkei 225 index closed up 1.1%. In China, the Shanghai Composite was down 0.4%, while the Hang Seng index in Hong Kong was down 0.5%. The S&P/ASX 200 in Sydney closed up 0.5%.
Gold was quoted at USD1,733.41 an ounce early Tuesday, lower than USD1,736.54 on Friday. Brent oil was trading at USD104.53 a barrel early Tuesday, up from USD99.59 late Friday.
In the economic calendar on Tuesday, there are UK mortgage approvals at 0930 BST and German inflation at 1300 BST.
By Lucy Heming; lucyheming@alliancenews.com
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