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(Alliance News) - European equities opened in negative territory on Thursday, as hawkish Federal Reserve minutes unsettled global markets, with promising updates from the UK retail sector unable to lift sentiment in London.
The FTSE 100 index was down 74.53 points, or 1.0%, at 7,442.34 early Thursday. The mid-cap FTSE 250 index was down 306.57 points, or 1.3%, at 23,464.61. The AIM All-Share index was down 11.58 points, or 1.0%, at 1,199.36.
The Cboe UK 100 index was down 1.1% at 738.19. The Cboe 250 was down 1.1% at 20,932.03, and the Cboe Small Companies down 0.2% at 15,565.58.
The CAC 40 in Paris was down 1.6%, and the DAX 40 in Frankfurt was 1.3% lower.
"There was definitely a hawkish tilt in the FOMC minutes from the December meeting released yesterday. The minutes suggested that March is a live meeting (and investors started pricing in an about 75% probability of a rate hike in March), as the economy is in good shape and inflation is high. This also opens the window for not just three rate hikes this year (which is our base case and what Fed signalled in the December dots) but four if the Fed hikes once per quarter as was the case when the hiking cycle started for real after the financial crisis," analysts at Danske Bank commented.
Conditions for a US interest rate hike could be met "relatively soon" if the labour market continues to improve, minutes released on Wednesday from the Fed's December policy meeting showed
Federal Open Market Committee members flagged persistent price pressures and agreed that the inflation goal had been met. The labour market has made "rapid progress" and some participants even viewed current conditions as consistent with maximum employment.
Overnight on Wednesday, US technology stocks were particularly hurt by the hawkish tone. Scottish Mortgage Investment Trust, which has stake in major US tech stocks, was down 4.1% in early trade in London on Thursday.
In Asia, Tokyo's Nikkei 225 slumped 2.9% on Thursday. The Shanghai Composite in China closed down 0.3%, though the Hang Seng in Hong Kong saw a late rally, closing 0.6% higher. The S&P/ASX 200 in Sydney lost 2.7%.
The pound fell to USD1.3509 early Thursday from USD1.3562 at the London equities close on Wednesday. The euro stood at USD1.1306, down from USD1.1326. Against the yen, however, the greenback fell to JPY115.69, versus JPY115.90.
B&M European Value Retail was the best large-cap performer in early trade in London. up 1.8%. The discounting retailer said it saw a "very strong golden quarter".
Total revenue in the third quarter ended December 25 was largely flat at GBP1.40 billion, inching up 0.1% at constant currency.
Annual like-for-like revenue in its UK fascia stores alone fell 6.2%, though it grew 14% from two years earlier, before the onset of the pandemic.
"The group has delivered a very strong golden quarter, with our two-year like-for-like performance demonstrating strong retention of new customers. Our decision to take receipt of imported Christmas stock early in the season meant we were able to provide customers with great products at great prices," Chief Executive Simon Arora said.
"The consistency of performance in the core B&M UK business reflects the growing appeal of our stores as a destination visit for seasonal products, as well as the strength of our supply chain."
B&M said it now expects annual adjusted earnings before interest, tax, depreciation and amortisation guidance in the range of GBP605 million to GBP625 million. This is ahead of current analyst consensus of GBP578 million.
In addition, it plans to reward over 24,000 employees with an extra week's pay in January, as well as a discretionary bonus, the retailer said.
Next shares fell 2.1%. The fashion and homewares retailer lifted profit guidance, outlined plans for a special dividend, and reported a largely promising festive period. However, the FTSE 100 company listed a series on uncertainties that could hurt trading in 2022.
Next said full price sales in the eight weeks to December 25 were up 20% from pre-pandemic times. The figure was GBP70 million ahead of guidance, it noted.
Following its decent Christmas trading, Next has lifted profit guidance. It now expects pretax profit of GBP822 million for the financial year ending in January, which would be a 9.8% hike from pre-pandemic times. Its previous outlook was for pretax profit of GBP800 million. Pretax profit in the year that ended January 30, 2021 was GBP342 million.
For the year about to end, Next expects full price sales growth of 13% from two years earlier, also GBP70 million ahead of forecasts. For the following year, so the financial ending January 2023, it expects full price sales to rise 7.0% annually.
"Our headline sales growth expectations of 7.0% sounds uncontroversial. However, forecasting sales for the year ahead is unusually difficult and the buoyancy of recent months makes it all the harder," Next said.
The Christmas period was not without difficulty, however. Next said stock levels were "materially lower than planned" and it saw a hit to delivery service levels due labour shortfalls.
Next declared a 160 pence special dividend which will be paid by the end of this month. It will return to its "pre-pandemic ordinary dividend cycle in the year ahead", Next said.
Looking ahead, the company reported "five areas of uncertainty in the wider economic environment". They include travel, pent-up demand and savings, essential goods inflation, Next goods inflation, and the tax and interest rates environment.
Interactive Investor analyst Richard Hunter commented: "A Next trading statement would not be complete without the company listing the challenges to come and factors which could upset the financial apple cart."
Elsewhere in the London-listed retail sector, Made.com shares rose 2.4%.
The sofa seller said gross sales rose 38% to GBP434 million in 2021, up 79% on a two-year basis.
Made noted some factory disruption meant 20% of key furniture lines were not available during the peak autumn trading period. Factories have since reopened and shipping disruption is easing.
It also expects average lead times of three to four weeks to be achieved in the first half of 2021.
Among mid-caps, Greggs shares were 2.2% lower. The baker Greggs said annual sales have increased, and it will promote its retail and property director to chief executive, replacing Roger Whiteside in May. Greggs also is considering a special dividend.
The baker expects to be in a position to make an distribution of GBP30 million to GBP40 million this calendar year.
"A decision on the size and timing of any special dividend distribution is expected to be made in the first half of 2022, subject to trading conditions," the company said.
In the year that ended January 1, sales amounted to GBP1.23 billion, up 52% annually from GBP811 million and rising 5.3% from GBP1.17 billion two years earlier.
Annual like-for-like sales were down 3.3% from pre-pandemic times, though in the fourth quarter alone, they rose 0.8%.
The company's seasonal lines, featuring its Festive Bake and mince pies, were popular once again, Greggs said.
"We enter 2022 with a strong financial position that will support our ambitions to accelerate the rate of growth in our shop estate whilst developing new digital channels and extending the trading day. Whilst conditions in the first few months of 2022 are likely to remain challenging, we are confident that we are well placed to make progress on the many attractive opportunities that lie ahead," outgoing CEO Whiteside said.
Greggs expects annual results to top previous expectations. It hailed "good" operational cost control in the final quarter but warned inflationary pressures are to "remain elevated in 2022".
Greggs, which has been addressing CEO succession as Whiteside approaches retirement age, said it has named Roisin Currie as his replacement. Currie's appointment is effective from May.
Currie is currently retail & property director and is a former Asda supermarket executive. Whiteside will step down from the board at the end of May's annual general meeting.
On AIM, M&C Saatchi advanced 6.9%. The ad agency confirmed it has received a preliminary takeover approach from Main Market-listed acquisition vehicle AdvancedAdvT.
Vin Murria, the executive chair of AdvancedAdvT, also is an M&C Saatchi director, so M&C Saatchi said it will form an independent committee to consider any offer made. AdvancedAdvT, which is backed by Marwyn Investment Management, announced on Wednesday that it had bought a 9.8% stake in M&C Saatchi, spending GBP24.0 million.
"No proposal has been received but the board has been told to expect one in the near term. Accordingly, there can be no certainty that an offer will be made, nor as to the terms on which any offer might be made," M&C said.
"The board confirms that the new strategy announced in Q1 2021 is already delivering, with the company's performance consistently exceeding expectations, demonstrated by a succession of positive trading upgrades."
AdvancedAdvT was trading 1.0% lower.
Angus Energy advanced 11% as it unveiled a strategic review and formal sales process.
The AIM listing said its market capitalisation does not reflect its strategic value. It is a "valuation mismatch" that other smaller energy companies have also experienced, Angus said.
Angus explained it has received an indicative non-binding offer for some or all of its 51% stake in the Saltfleetby gas field in East Lincolnshire, UK.
"Additionally, the board has received indications that certain parties may be interested in making an offer for the company," Angus added.
A barrel of Brent oil was quoted at USD80.48 early Thursday, down from USD81.20 late Wednesday. Gold slumped to USD1,798.65 an ounce, from USD1,823.20.
Thursday's economic calendar has Germany inflation data at 1300 GMT. Eurozone producer prices are at 1000 GMT and US initial jobless claims are due at 1330 GMT followed by ISM's services PMI at 1500 GMT.
By Eric Cunha; ericcunha@alliancenews.com
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