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(Alliance News) - Stocks in London are set to fall on Tuesday, with pandemic lockdowns in China giving investors another reason to sell as Russia's bloody assault on Ukraine continues.
In London, Imperial Brands and Inchcape said they have started processes to exit their Russian operations in the wake of the conflict, with car dealer Inchcape describing the ownership of its business interests in Russia as "no longer tenable".
In economic date, the Office for National Statistics said the UK labour market continued to recovery from Covid-19 at the start of 2022. The unemployment rate in the three months to January was 3.9%, down from 4.1% in the three months to December.
Growth in average total pay - which includes bonuses - was 4.8% and growth in regular pay, stripping out bonus payments, was 3.8%. But when adjusted for inflation, growth in total pay was 0.1% and regular pay fell on the year before by 1.0%, likely to heighten concerns about a cost-of-living squeeze in the UK.
IG says futures indicate the FTSE 100 index of large-caps to open down 85.37 points, or 1.2%, at 7,108.10 on Tuesday. The FTSE 100 closed up 37.83 points, or 0.5%, at 7,193.47 on Monday.
Nearly 30 million people were under lockdown across China on Tuesday, as surging virus cases prompted the return of mass tests and hazmat-suited health officials to city streets on a scale not seen since the start of the pandemic.
China reported 5,280 new Covid-19 cases on Tuesday, more than double the previous day's tally, as the highly transmissible Omicron variant spreads across a country that has tethered tightly to a "zero-Covid" strategy.
Shenzhen – the southern tech hub of 17.5 million people – is three days into a lockdown with many factories closed and supermarket shelves emptying, while China's largest city Shanghai is under a lattice of restrictions that fall short of a citywide shutdown.
"No one wanted to see new lockdowns as we were only about to get back on the recovery track," remarked Naeem Aslam, chief market analyst at AvaTrade.
Stocks in China tumbled on Tuesday. The Shanghai Composite ended down 5.0%, while the Hang Seng index in Hong Kong was down 5.3% in late trade.
Amid Covid disruption, economic data on Tuesday showed unemployment in China rose and youth unemployment spiked in the first months of the year. The unemployment rate in cities edged up to 5.5% by the end of February, compared with 5.1% in December, the National Bureau of Statistics said.
But Beijing reported better-than-expected retail sales and industrial output in January and February. Retail sales for the first two months rose 6.7% on-year, it said. This was well above the 3% forecast by Bloomberg analysts.
China's economic indicator releases combine data for January and February to avoid distortions from the Lunar new year holiday, which can fall in either month depending on the year.
Industrial production was up 7.5% for the first two months, beating analysts' expectations of a 3.9% growth.
Elsewhere in Asia on Tuesday, the Japanese Nikkei 225 index closed up 0.2%. The S&P/ASX 200 in Sydney closed down 0.7%.
In the US on Monday, Wall Street ended mostly lower, with the Dow Jones Industrial Average ending slightly higher, the S&P 500 down 0.7% and the Nasdaq Composite down 2.0% as traders look ahead to Wednesday's interest rate decision from the Federal Reserve.
China lockdown fears compounded an already fragile mood as the Ukraine conflict rages on. There were hopes on Monday as Ukraine and Russia started a fourth round of talks, but negotiations have been put on hold until Tuesday.
Ukrainian presidential advisor Mykhailo Podolyak described the top level delegations as taking a pause to sort out technicalities, but that discussions among working groups were still under way.
Ukraine is demanding an end to the war and the withdrawal of Russian troops. Moscow wants Kiev to recognize the annexed Black Sea peninsula of Crimea as Russian territory and the eastern Ukrainian separatist regions as independent states.
In London, tobacco firm Imperial Brands said full-year constant currency net revenue growth is now seen between flat and 1%, after evaluating the financial fallout of an exit from its Russian assets and operations and the suspension of operations in Ukraine.
The company said it has started negotiations with an unnamed "local third party" about a transfer of its Russian assets and operations. "We believe that, in the current circumstances, an orderly transfer of our business as a going concern would be in the best interests of our Russian colleagues," said Imperial, which has 1,000 employees in the country.
In the 2021 financial year, Russia and Ukraine represented in total around 2% of net revenue and 0.5% of adjusted operating profit.
Car dealership chain Inchcape also gave an update on its Russian operations, saying it has decided that the ownership of its business interests in Russia is "no longer tenable".
Elsewhere in London, plumbing and heating products supplier Ferguson bumped up its shareholder returns after a strong first half, despite battling inflationary pressures.
Net sales in the six months to January 31 rose to USD13.31 billion from USD10.31 billion a year before, boosting net income to USD996 million from USD429 million. Inflation in the period was "in the mid teens", but despite this the firm reported gross margin expansion and good cost control.
Ferguson raised its interim dividend by 15% to USD0.84 and said it is increasing its share buyback programme by USD1.0 billion to USD2.0 billion.
"Our associates delivered another excellent performance with continued market share gains and strong price realization while navigating industry supply chain pressures," said Chief Executive Kevin Murphy.
He added: "Markets remain supportive and we anticipate solid revenue growth in the second half as we begin to lap tougher comparatives. We continue to be mindful that first half tailwinds on gross margin will likely moderate but we are confident in our full year expectations."
Ferguson is set to move its primary listing to New York from London on May 12 and so will be removed from the FTSE 100 index.
Business information publisher and events organiser Informa swung back to profit in 2021, with the firm confident over the year ahead as Covid restrictions are relaxed.
Revenue for 2021 rose to GBP1.80 billion from USD1.66 billion the year before, with the firm swinging to a pretax profit of GBP137.1 million from a staggering loss of GBP1.14 billion in 2020.
"Through the 2021 transition year, as the world progressively began to start living alongside Covid-19, the group's focus gradually shifted from stability and security to revitalisation and growth," said Informa.
The firm said it is continuing to see a return in confidence and levels of activity in Live and On-Demand events. To date, the majority of brands that have run in 2022 have been in North America and the Middle East, with major brands in Europe traditionally scheduled from the second quarter.
For 2022, Informa aims to achieving revenue between GBP2.15 billion and GBP2.25 billion with adjusted operating profit of GBP470 million to GBP490 million.
"The robust return of Live and On-Demand Events, combined with consistent and improving growth at Taylor & Francis, and continued expansion in B2B Digital Services, gives us confidence of further growth and acceleration in 2022," said Chief Executive Stephen Carter.
The dollar was on the front foot, reflecting Tuesday's risk adverse mood and anticipation ahead of a likely US interest rate rise this week. A Federal Reserve policy decision is due on Wednesday.
Sterling was quoted at USD1.3036 following the UK jobs data, lower than USD1.3059 at the London equities close on Monday.
The UK labour market is still tightening, said Pantheon Macroeconomics, but a slowdown may soon be on the cards.
"Looking ahead, however, we continue to think that the labour market will not tighten materially further from here. Labour demand will be hit by the increase in employers’ National Insurance contributions in April. In addition, the workforce should start to grow at its typical pre-Covid rate soon, as immigration recovers and some people who stayed in education or left the labour market due to Covid return," said Pantheon's Samuel Tombs.
The euro traded at USD1.0995 early Tuesday, firm against USD1.0991 late Monday. Against the yen, the dollar rose to JPY118.04 versus JPY117.98.
Brent oil was trading at USD101.68 a barrel, falling from USD105.30 late Monday. Gold was quoted at USD1,933.32 an ounce, lower than USD1,957.83 on Monday.
Tuesday's economic calendar has US producer prices at 1230 GMT.
By Lucy Heming; lucyheming@alliancenews.com
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