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(Alliance News) - Stock prices in London look set to start the new week on the back foot, with particularly weak economic data from China stoking fears that rising virus cases will hamper the economic rebound from last year's tight restrictions.
In early company news, BHP is considering selling its petroleum business to Australia's Woodside. Ultra Electronics agreed to a takeover offer from former London listing Cobham. Meggitt continues to favour Parker-Hannifin to rival suitor TransDigm.
IG futures indicate the FTSE 100 index is to open 44.91 points lower at 7,173.80 on Monday. The index of large-cap stocks closed up 25.48 points, or 0.4%, at 7,218.71 Friday.
"This morning's weakness in the latest economic data from China amid concerns over the recovery appears to have acted as a drag on sentiment in Asia, and this looks set to translate into a sharply lower European open," CMC Markets analyst Michael Hewson said.
In Tokyo, the Nikkei 225 index closed 1.6% lower on Monday. In China, the Shanghai Composite was up slightly, while the Hang Seng index in Hong Kong was down 1.2%. The S&P/ASX 200 in Sydney closed down 0.6%.
Growth in China's retail sales and industrial production slowed in July, official data showed Monday, with a rebound of Covid-19 dragging on demand while recent floods disrupted businesses.
The world's second-largest economy staged a rapid recovery from last year's coronavirus outbreak, beating back the virus with mass testing and strict lockdowns. But a flare-up across the country due to the Delta variant has threatened the good news on growth with renewed localised lockdowns and extensive travel restrictions.
Retail sales rose 8.5% year-on-year in July, the National Bureau of Statistics said on Monday, below a Bloomberg consensus forecast of analysts. This figure was also below 12% growth in June, likely reflecting the virus resurgence in dozens of places last month, according to analysts.
"The spread of domestic outbreaks and natural disasters have affected the economy of some regions, and economic recovery remains unstable and uneven," NBS spokesman Fu Linghui told a press briefing on Monday.
Industrial production rose 6.4% in July, easing from the prior month's 8.3% growth, the NBS said.
Oxford Economics commented: "As the spread of the Delta variant is hurting activity and sentiment, we expect quarter-on-quarter GDP growth to slow again in the third quarter. Household consumption in particular will suffer a setback from the re-imposition of stringent Covid-related restrictions.
"We expect a consumption recovery in Q4 if the current wave in China is contained, supporting a pick-up in GDP growth, with the unwinding of excess savings providing an impetus to the recovery."
Turning to neighbour Japan, the country's economy grew 0.3% in the three months to June, slightly more than expected despite a surge in virus cases and new restrictions, data showed Monday.
The growth came after a contraction in the world's third-largest economy in the previous quarter, driven by a slowdown in consumption after the government introduced stay-at-home requests as infections surged.
Economists surveyed by Bloomberg had forecast just 0.1% quarter-on-quarter growth.
The data released by the cabinet office also showed a slight upwards revision for the first quarter, when the economy shrank 0.9%, compared to a previous estimate of 1.0.
"If it were not for the fact that Japan's confirmed daily Covid-19 case count has now exceeded 20,000, the highest since this pandemic began, we would have found today's second quarter release more uplifting," ING said.
ING continued: "Even then, the 0.3% quarter on quarter growth recorded for the second quarter was fairly modest by the standards of some other economies - equivalent to 1.3% at an annualised rate. We have seen far stronger growth elsewhere - the US for example, where growth was recorded at a 6.5% annualised rate in the same quarter."
Against the yen, the dollar was trading at JPY109.37, down from JPY109.76.
In London, BHP Group and Woodside Petroleum both confirmed that they are in talks with regarding the possible acquisition by Woodside of BHP's petroleum business.
"BHP confirms that we have initiated a strategic review of our Petroleum business to re-assess its position and long-term strategic fit in the BHP portfolio. A number of options are being evaluated. One option is a potential merger of the Petroleum business with Woodside Petroleum and a distribution of Woodside shares to BHP shareholders," BHP said.
The division is worth about USD14.7 billion, according to Bloomberg.
In other M&A news, Ultra Electronics said it has reached an agreement with Cobham.
Cobham will pay GBP35.00 per share in cash for Ultra, valuing the firm at about GBP2.57 billion, which includes a 16.2 pence interim dividend declared earlier by Ultra.
Ultra closed at GBP31.52 each in London on Friday.
The deal follows a number of earlier proposals, Ultra said, the first of which was made on June 29 at a price of GBP28.00 per share.
Cobham had said on June 25 that it was considering a combination with Ultra. Later that day, Ultra confirmed it had held early talks but said it had terminated discussions.
On Monday, Ultra said: "Cobham recognises the specific importance of Ultra's contribution to the UK's economy and national security and therefore Cobham and Cobham Group Holdings have agreed with Ultra in the cooperation agreement that they will offer legally binding and enforceable commitments to HM government in respect of the Ultra group."
Aerospace contractor Cobham was a FTSE 250 company before it was bought by private equity firm Advent International in January 2020.
Meggitt said it continues to recommend the takeover approach from Parker-Hannifin.
A court and general meeting date has been set for September 21 to approve the 800 pence per share Parker-Hannifin offer, which was made on August 2 and is worth about GBP6.3 billion.
Meggitt made clear that its directors continued to "recommend unanimously" to shareholders the offer.
Regarding the rival approach from TransDigm, for 900p per share, a date will be set by the UK Takeover Panel for the Cleveland, Ohio-headquartered aerospace manufacturer to clarify its intentions, Meggitt noted.
Future PLC has acquired consumer media subscriptions business Dennis for about GBP300 million.
The media company said Dennis will be "materially earnings enhancing" and the deal will be funded from existing debt facilities.
As part of the acquisition, Future is acquiring the The Week, MoneyWeek, Kiplinger, Science & Nature, IT Pro, Computer Active, PC Pro, Minecraft World, and Coach. Whilst the current owners, Exponent Private Equity LLP, will retain Viz, Fortean Times, Cyclist and Expert Reviews.
Dennis generated revenue of GBP104.8 million in 2020, a 12% rise on 2019.
Future Chief Executive Zillah Byng-Thorne said: "The materially earnings enhancing acquisition is highly complementary to our longstanding 'US first' mindset and provides an attractive opportunity to scale our recently created 'Wealth' vertical, whilst diversifying our presence in our 'Knowledge' and 'B2B Pro Technology' verticals."
The announcement confirmed a report by Sky News on Saturday.
In New York on Friday, equities rounded off a strong week with another green session but the rally was slowed by a particularly weak consumer confidence print. The Dow Jones Industrial Average closed marginally higher, the S&P 500 up 0.2%, and the Nasdaq Composite up slightly.
The preliminary University of Michigan Consumer Sentiment Index for August slumped to 70.2 from 81.2 in July and way off market consensus, according to FXStreet, of 81.2.
The pound was quoted at USD1.3853 early Monday, down from USD1.3859 at the London equities close Friday. The euro was priced at USD1.1793, a hair lower from USD1.1795.
Brent oil was quoted at USD69.59 a barrel Monday morning, down from USD70.94 late Friday. Gold was trading at USD1,775.30 an ounce, flat against USD1,775.40.
The economic calendar is thin for the rest of Monday, with NY Empire state manufacturing survey at 1330 BST.
By Paul McGowan; paulmcgowan@alliancenews.com
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