(Alliance News) - Stocks in London are set to kick off the new week on the back foot, as Russia's move to stop gas deliveries to Europe is giving investors pause, amid growing fears of an energy crisis.
Markets in Europe ended Friday on a positive note, after a solid US jobs report, but Wall Street suffered from heavy selling in the afternoon.
"The late day reversal in US markets didn't appear to have any obvious catalyst, although the reports that Russia was suspending gas deliveries via the Nord Stream 1 pipeline indefinitely could have played a part, given that the announcement came after the European close on Friday," CMC Markets analyst Michael Hewson said.
"This late US weakness looks set to translate into a sharply lower European open as we look ahead to a big week for the European Central Bank, as they look to navigate a way through a crisis that could put the finances, as well as the borrowing costs of some of the weaker members of the currency bloc under huge strain."
Russia has halted gas deliveries to Germany via a key pipeline for an indefinite period, after saying Friday it had found problems in a key piece of equipment, a development that will worsen Europe's energy crisis.
Gazprom said Friday that the Nord Stream pipeline, due to reopen at the weekend, would remain shut until a turbine is repaired.
In a statement, Gazprom said it had discovered "oil leaks" in a turbine during a planned three-day maintenance operation. Gazprom added that "until it is repaired...the transport of gas via Nord Stream is completely suspended".
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, added: "Gazprom said that a leak was detected, and that the pipeline could not operate before it's fully repaired. But of course, the decision suspiciously came slightly after the G7 countries agreed to impose a price cap on Russian oil, probably around the Russian production cost.
"It's unsure whether the plan would work, as there are doubts that some of Russia's big clients like China, India, or even Turkey would follow G7 in this unprecedented decision. But they may have to, as most of the world's oil is transported by Western shipping companies, and if they can't transport the Russian oil anymore - unless people pay the price that Europeans want them to, there would be no oil for them."
Here is what you need to know ahead of the London market open:
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FTSE 100: called down 80.49 points, or 1.1%, at 7,200.70
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Hang Seng: down 1.3% at 19,202.94
Nikkei 225: closed down 0.1% at 27,619.61
S&P/ASX 200: closed up 0.3% at 6,852.20
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DJIA: closed down 337.98 points, or 1.1%, at 31,318.44
S&P 500: closed down 42.59 points, or 1.1%, at 3,924.26
Nasdaq Composite: closed down 154.26 points, or 1.3%, at 11,630.86
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EUR: lower at USD0.9897 (USD1.0027)
GBP: lower at USD1.1465 (USD1.1575)
USD: higher at JPY140.38 (JPY140.05)
GOLD: lower at USD1,712.50 per ounce (USD1,713.90)
OIL (Brent): higher at USD95.39 a barrel (USD94.00)
(changes since previous London equities close)
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Monday's key economic events still to come:
US Labor Day. Financial markets closed.
Canada Labour Day. Financial markets closed.
1000 CEST EU eurozone services PMI
1100 CEST EU retail trade
0950 CEST France services PMI
0955 CEST Germany services PMI
0945 CEST Italy services PMI
0915 SAT South Africa whole economy PMI
0915 CEST Spain services PMI
0900 CEST Switzerland GDP
0900 BST UK SMMT vehicle registration figures
0930 BST UK services PMI
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Data from Caixin and S&P Global showed a slowdown in private sector activity in China. In the services sector, the seasonally adjusted headline business activity index dips down 55.0 points in August from 55.5 in July, as new business activity still expanded at a strong, but softer rate, due to improvements in customer demand and the receding effect of Covid-related restrictions. The seasonally adjusted composite output index meanwhile slipped to 53.0 points in August from 54.0 points in July, marking the softest increase in output for three months.
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The au Jibun Bank Japan services purchasing managers index fell into contraction at 49.5 points in August, down from 50.3 in July, as the surge in Covid-19 infections caused a reduction in business activity and demand, with new business stagnating in August after three months of growth. The rise in infections also triggered a drop in business optimism to a three-month low. The au Jibun Bank Japan composite PMI output index also dropped to contraction levels, at 49.4 in August from 50.2 in July.
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Gazprom said Friday that a gas pipeline to Germany due to reopen at the weekend would remain shut until a turbine is repaired, cutting off indefinitely a key supply route to Europe. In a statement, Gazprom indicated it had discovered "oil leaks" in a turbine during a planned three-day maintenance operation. Gazprom added that "until it is repaired...the transport of gas via Nord Stream is completely suspended". Resumption of deliveries via the pipeline which runs from near St Petersburg to Germany under the Baltic Sea, had been due to resume on Saturday. Gazprom said it had discovered the problems while carrying out maintenance with representatives of Siemens, which manufactured the turbine in a compressor station that pushes gas through the pipeline.
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The UK will learn Monday who will be its next prime minister, with Liz Truss the favourite to succeed Boris Johnson and take charge as the country battles a spiralling cost-of-living crisis. The result will be announced at 1230 BST, after foreign minister Truss and her rival, former finance minister Rishi Sunak, spent the summer rallying support among the Conservative Party members who cast the final vote. If she wins, Truss will become the UK's third female prime minister following Theresa May and Margaret Thatcher. The 47-year-old has consistently been ahead of 42-year-old Sunak in polling among the estimated 200,000 Tory members eligible to vote.
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Faced with recession fears, the OPEC+ countries are expected to agree a modest increase in oil production at a meeting on Monday, with some experts even forecasting a cut to support prices. The 13 members of the Organization of the Petroleum Exporting Countries cartel, led by Saudi Arabia, and their 10 partners, led by Russia, are meeting to adjust their quotas for October. Talks are due to start at 1200 GMT. Far from their highs near USD140 a barrel, Brent North Sea crude and US WTI crude prices suffered their third consecutive monthly decline in August amid a gloomy global economic outlook.
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BROKER RATING CHANGES
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RBC raises Impact Healthcare REIT price target to 135 pence (130p) - 'outperform'
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RBC cuts Johnson Service Group price target to 105 pence (125p) - 'sector perform'
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Berenberg cuts Tyman to 'hold' ('buy') - price target 250 pence (240p)
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COMPANIES - FTSE 100
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Dechra Pharmaceuticals said annual growth was driven by an improved performance across all its key markets, prompting a double-digit dividend rise. In the financial year that ended June 30, Dechra reported pretax profit of GBP77.6 million, up from GBP74.0 million the year prior. Revenue increased to GBP681.8 million from GBP608.0 million. Its total dividend was raised to 44.89p from 40.50p. Says veterinary pharmaceutical market, particularly in the Companion Animal Products - which represents 75% of total revenue - is "resilient and in growth".
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AstraZeneca gets two treatment approvals - one in the US and one in China. US regulators approves Imfinzi to treat adults with locally advanced or metastatic biliary tract cancer. Says approval was based on Topaz-1 Phase III trial, which showed Imfinzi plus chemotherapy reduced the risk of death by 20% versus chemotherapy alone. In China, Astra gets approval for Forxiga to treat chronic kidney disease in patients at risk of progression with and without type-2 diabetes. Notes approval based on positive results from the DAPA-CKD Phase III trial.
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COMPANIES - FTSE 250
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Vistry Group and Countryside Partnerships agreed to a merger, with Vistry offering 0.255 of a share and 60 pence cash for each Countryside share. Notes offer represents 249p per Countryside share, valuing it at about GBP1.25 billion. Countryside shareholders will own about 37% of enlarged firm. "The combination would create one of the country's leading homebuilders, comprising a top tier housebuilder and a leading partnerships business, with capability across all housing tenures, and delivering much needed affordable housing," Vistry says. Vistry Chief Executive Greg Fitzgerald says proposed merger has "highly compelling strategic rationale". Countryside board unanimously recommends deal.
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Aston Martin Lagonda Global Holdings confirms plan for GBP575.8 million 4-for-1 rights issue. Notes Saudi Arabia's sovereign wealth fund, the Public Investment Fund, Lawrence Stroll's Yew Tree Consortium, and fellow car maker Mercedes-Benz Group AG are taking up their full entitlements, amounting to 45% of the total rights issue. Issuing 559 million new shares as part of rights issue. The fully committed and underwritten raise is part of a larger GBP653.8 million equity raise, announced back in July. Aston says: "The board believes the proposed capital raise will serve to further support the company's re-affirmed medium-term targets of approximately 10,000 wholesales, approximately GBP2 billion revenue and approximately GBP500 million adjusted Ebitda by 2024-25, and strongly positions it for positive free cash flow generation from 2024."
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OTHER COMPANIES
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London-based e-commerce firm Zamaz starts trading in London after direct listing. Also secures GBP15 million convertible loan note facility from Atlas Capital Markets to fund its growth strategy. It adds: "As a cornerstone investor, Atlas is underpinning the company's continuing development post-admission, providing innovative 'private investment in public equity' structured funding, which can help to enhance shareholder returns." Zamaz acquires or licenses and operates small and medium-sized brands on global marketplaces.
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By Paul McGowan; paulmcgowan@alliancenews.com
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