(Alliance News) - European stocks were treading water early on Monday, with caution abounding after China doused hopes of a near-term end to its punishing zero-Covid strategy.
Investors also were gearing up for Tuesday's US mid-term elections, a key test for President Joe Biden two years ahead of the next presidential election.
The FTSE 100 index opened up just 2.57 points at 7,337.41. The FTSE 250 was up 74.41, or 0.4% at 18,415.98, and the AIM All-Share was up 2.52 points, 0.3%, at 817.57.
The Cboe UK 100 was down 0.2% at 733.95, the Cboe UK 250 was up 0.3% at 15,865.10, and the Cboe Small Companies was flat at 12,454.42.
Stocks in mainland Europe were essentially unchanged. The CAC 40 in Paris was fractionally lower, while the DAX 40 in Frankfurt was marginally higher.
China's exports shrank in October, the first such decline since mid-2020, customs authorities said, as a domestic slowdown and the threat of global recession hit international trade.
Exports fell 0.3% year-on-year in October, according to the General Administration of Customs, a steep reversal from September's 5.7% increase and well below analysts' expectations.
Over the weekend, China said that it will "unswervingly" stick to its zero-Covid policy. The doubling down had followed recent market optimism that Beijing would cast aside some of its economically damaging virus curbs.
National Health Commission spokesperson Mi Feng confirmed on Saturday that Beijing would "stick unswervingly to...the overall policy of dynamic zero-Covid".
"At present, China is still facing the dual threat of imported infections and the spread of domestic outbreaks," Mi said at a press briefing.
"The disease control situation is as grim and complex as ever," he said. "We must continue to put people and lives first."
China reported its highest daily Covid caseload in six months on Monday. The country logged over 5,600 new Covid cases – almost half in Guangdong province, a manufacturing hub in the country's south home to major ports.
Covid-19 measures are hitting Apple, the US technology company said, as it warned of an iPhone production hit.
Apple said Covid restrictions have "temporarily impacted" production at the world's largest iPhone factory in central China, warning that customers will now face longer wait times ahead of the holiday season.
Foxconn, Apple's principal subcontractor, locked down its massive factory in Zhengzhou last month after a spike in infections – in line with China's zero-Covid policy.
Despite strong demand for Apple's products ahead of the holiday season, "we now expect lower iPhone 14 Pro and iPhone 14 Pro Max shipments than we previously anticipated", Apple said.
The pound made headway against the dollar early Monday, though UK government finances remain in focus.
The pound was quoted at USD1.1389 early Monday in London, up from USD1.1301 late Friday.
With just 10 days until an autumn statement, UK Chancellor Jeremy Hunt is looking at ways to plug a black hole in UK government finances. The autumn statement is delivered on November 17, though ministers must present to Office for Budget Responsibility crucial parts of the plan so an economic forecast can be prepared in time.
Hunt is looking at tax rises and spending cuts totalling up to GBP60 billion as he aims to address the black hole in the public finances. PA reported that Treasury sources confirmed that up to GBP35 billion of the "fiscal tightening" could come in the form of reduction in spending, signalling a further squeeze on hard pressed services.
The euro traded at USD0.9967 early Monday, higher than USD0.9915 at the European equities close on Friday. Against the yen, the dollar was lower at JPY147.03, versus JPY147.16.
"The dollar long squeeze on Friday was likely triggered by optimism on China's Covid rules. We suspect this is too premature, and macro factors continue to point to dollar strength. But there are two key risk events for the dollar this week: US CPI and mid-term elections," analysts at Dutch bank ING commented.
Biden's Democrats losing Congress will be "dollar negative", ING added. The Republicans go into Tuesday's polling day as favourites to win the House of Representatives, though the race to secure the Senate is expected to be much closer.
Gold was quoted at USD1,673.45 an ounce early Monday UK time, up slightly from USD1,672.83 at the London equities close on Friday. Brent oil was trading at USD97.84 a barrel, up from USD97.52.
In London, Paddy Power-owner Flutter shares rose 4.8% on the back of an arbitration victory against Fox. The ruling concerned Fox's right to acquire just shy of a 19% stake in US fantasy sports and online betting provider FanDuel.
The duo argued over the consideration for the stake, with Fox believing it should only acquire the holding at the same price Flutter paid back in December 2020. However, Flutter on Monday said an arbitration confirmed the fee that Fox would pay for the stake would be based on a FanDuel valuation of USD20 billion.
With annual compounding, this equates to a valuation for FanDuel of USD22 billion and a cost of USD4.1 billion for Fox to acquire an 18.6% stake, Flutter said.
In April 2021, Fox filed an arbitration suit against Flutter to enforce its right to buy an 18.6% stake in FanDuel, at the same price Flutter paid roughly five months earlier. But Flutter said Fox's position was "incorrect" and that both companies agreed to a fair market valuation as of July 2021.
It would be a "windfall to Fox" if Flutter sold the FanDuel stake at an USD11.2 billion valuation, Flutter said in April of last year.
Frasers added 4.3%. The Sports Direct owner announced a GBP70.0 million buyback, which begins on Monday and runs until the company reports interim results next month.
Energean climbed 3.5%. The gas exploration and production company lauded a "a commercial gas discovery" from exploration at its Zeus-01 well in Israel. Findings indicate the structure contains 13.3 billion cubic meters of recoverable natural gas resources, compared to pre-drill estimates of 10 billion to 12 billion.
On AIM, Joules tumbled 20% as the retailer said it is in talks with founder Tom Joule and also its own lender for a "bridge financing proposal".
It warned it will be unable to pay a short-term revolving credit facility, due for repayment at the end of the month, should it not secure bridge financing.
"The company also remains in discussions with its lender in relation to a waiver of certain financial covenants in its existing facilities and on its medium-term financing, including a review of covenants, to support the turnaround plan," Joules said. It also is in talks for an equity raise.
Recent trading has been unimpressive, falling short of expectations in the 11 weeks to October 30.
"The group believes this, in large part, reflects the challenging UK economic environment which has negatively impacted consumer confidence and disposable income. In addition, whilst dresses, menswear and more formal product categories have performed well, larger core categories such as outerwear, wellies and knitwear have been impacted, in part, by the milder than expected weather," Joules explained.
Appreciate Group jumped 59% on AIM. PayPoint said it has struck a deal to acquire the prepaid gift card and voucher provider. The deal values the Liverpool-based firm at GBP83 million.
PayPoint, a payment services provider, said the deal will "broaden the universe that PayPoint serves and strengthens the client and retailer proposition".
PayPoint will pay 33 pence in cash and 0.019 of a new PayPoint share for each Appreciate share. At completion, PayPoint shareholders will own 95% of the enlarged firm, and Appreciate investors the remaining 5%.
PayPoint shares were down 1.7%.
By Eric Cunha; ericcunha@alliancenews.com
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