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(Alliance News) - Stocks in London are set to pull back on Thursday as all eyes turn to the Bank of England after aggressive monetary policy tightening by the US Federal Reserve.
In early UK company news, there was M&A activity as London-focused property investors Capital & Counties Properties and Shaftesbury agreed the terms of their all-share merger. Elsewhere, online clothing retailers boohoo and Asos reported challenging trading and margin pressure.
IG says futures indicate the FTSE 100 index of large-caps to open down 20.61 points, or 0.3%, at 7,252.80 on Thursday. The FTSE 100 closed up 85.95 points, or 1.2%, at 7,273.41 on Wednesday.
The Fed on Wednesday ended days of speculation as the US central bank enacted its most aggressive interest rate hike in almost 30 years - three quarters of a percentage point - in a bid to tame rampant inflation.
The Federal Open Market Committee took the level of its benchmark funds rate to a range of 1.5% to 1.75%, the highest since just before the Covid pandemic began in March 2020. It was the first 75-basis-points increase since November 1994.
According to the 'dot plot' of individual members' expectations, the Fed's benchmark rate will end the year at 3.4%, an upward revision of 1.5 percentage points from the March estimate. The committee then sees the rate rising to 3.8% in 2023.
Stocks in New York ended higher despite money becoming more expensive.
CMC Markets's Michael Hewson pointed to market relief as the Fed retained flexibility over July's rate hike.
"This refusal to confirm a 75bps move for July appears to have taken some of the steam out of yields and given stocks a boost," said Hewson.
New York ended higher on Wednesday, with the Dow Jones Industrial Average up 1.0%, the S&P 500 up 1.5% and the Nasdaq Composite up 2.5%
With the Fed out the way, focus now shifts to the BoE, which releases its latest UK interest rate decision at midday.
The Bank Rate currently stands at 1.00%, and a 25 basis point hike this week would take this to 1.25%. BoE Governor Andrew Bailey has said the central bank needs to tread the "narrow" path between inflation and risks to growth.
Sterling was quoted at USD1.2149 early Thursday ahead of the meeting, higher than USD1.2050 at the London equities close on Wednesday.
"The British pound is likely to be highly volatile against the dollar especially, and the path of the least resistance is skewed to the downside," said Naeem Aslam of AvaTrade.
In early UK company news, Informa more than doubled the scope of its share buyback programme following "robust" trading.
It has scaled up its buyback programme to GBP725 million from GBP300 million, saying this is expected to see the company maintain the current level of buybacks through to year-end.
The move on shareholder returns came as the events organiser and business information publisher said trading through the first five months of 2022 has been "robust", with underlying revenue growth of more than 40%. Informa is on track to deliver at the upper end of full-year guidance for both revenue and adjusted operating profit, it said.
Capital & Counties Properties and Shaftesbury have agreed the final terms of their all-share merger to create a central London-focused property investor with a combined portfolio value of GBP5.0 billion.
Shaftesbury shareholders will receive 3.356 new Capco shares for each Shaftesbury share held, giving Shaftesbury shareholders a 53% stake in the combined company and Capco shareholders 47%. The pair had first confirmed they were in merger talks back in May, and those percentages haven't changed. Capco itself already holds a 25% stake in Shaftesbury.
The combined company will be called Shaftesbury Capital PLC and will own property in the West End of London, including in Covent Garden, Carnaby Street and Chinatown.
Car dealership chain Inchcape said recent trading has exceeded expectations, primarily driven by its Distribution business.
"We also have greater confidence in relation to our second half performance based on the strength of order books in our markets and an improved outlook for supply," it added.
As a result, Inchcape expects to deliver full-year pretax profit from continuing operations between GBP350 million and GBP370 million, well above a company-cited consensus figure of GBP301 million.
Fast fashion retailer boohoo reported a decline in revenue and margins, though backed full-year guidance.
Revenue for the three months to May 31 was down 8% year-on-year at GBP445.7 million. Compared to the pre-pandemic period in its 2020 financial year, however, sales were up 75%. boohoo blamed the annual decline on "lockdowns driving prior year comparative strength".
On an annual basis, boohoo suffered a chunky 26% decline in US sales, while UK sales were down 1%.
"We have seen promising signs from the group's sales performance in the UK, which has improved month-on-month in the period and we are looking ahead towards our key summer trading season as holidays ramp up and customers look to the latest fashion from across our brands," said Chief Executive John Lyttle.
Gross margin in the period was 52.8%, down 220 basis points on a year before, but noted this "improved through the quarter".
Peer Asos reported flat sales over the same period and cut its outlook, as it flagged inflationary pressures are "increasingly impacting our customers shopping behaviour."
In addition, the online fashion retailer promoted Chief Commercial Officer Jose Calamonte to chief executive and Non-Executive Director Jorgen Lindemann to the role of chair.
Sales in the three months to May 31 were marginally lower at GBP983.4 million versus GBP987.9 million a year before. UK sales rose 4% and US sales were up 21%, contrasting with boohoo's outturn, while EU sales slipped 5% and rest-of-world declined 20%.
Gross margin declined by 310 basis points to 44.0%.
Looking ahead, Asos said full-year sales are now expected to grow in a range of 4% to 7%, "reflecting market volatility and an increased returns rate". It expects to take a gross margin hit of between 150 basis points and 200 basis points amid elevated returns. Adjusted pretax profit was given in a new range of GBP20 million to GBP60 million.
In January, and before the outbreak of war in Ukraine, Asos had guided to revenue growth around 10% to 15% and adjusted pretax profit of GBP110 million to GBP140 million.
"It is too early to tell for how long the current pattern of customer behaviour will continue but we are taking swift and decisive steps to minimise the impacts whilst continuing to deliver against the strategic initiatives we laid out in November that will ensure that ASOS builds for the long-term," said Chief Operating Office Mat Dunn.
Asos, freshly moved from AIM to the London Main Market, is set to join the FTSE 250 index on Monday next week.
Online beauty products seller THG also was in the news early Thursday. Belerion confirmed that it, together with King Street Capital Management LP, does not intend to make a takeover offer for the firm.
THG, in its own statement, noted that all recent approaches have been unsolicited. These were also "unacceptable and significantly undervalued the company". THG said it did not consider it appropriate to provide due diligence access to any of these parties.
"While THG is clearly aware of the macro-economic challenges, the company continues to perform well, and in line with its own expectations," said THG.
The euro traded at USD1.0423 early Thursday, higher than USD1.0395 late Wednesday. Against the yen, the dollar was quoted at JPY134.38, down from JPY134.60.
In Asia on Thursday, the Nikkei 225 index in Tokyo closed up 0.4%. In China, the Shanghai Composite was down 0.4%, while the Hang Seng index in Hong Kong was down 1.4%. The S&P/ASX 200 in Sydney ended down 0.2%.
Gold was quoted at USD1,830.82 an ounce early Thursday, higher than USD1,821.35 on Wednesday. Brent oil was trading at USD119.27 a barrel, lower than USD120.95 late Wednesday.
Besides the BoE, the economic events calendar on Thursday has the latest US jobless claims numbers at 1330 BST.
By Lucy Heming; lucyheming@alliancenews.com
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