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(Alliance News) - Covid-19 worries in China have damped market sentiment at the start of the week.
Shares in Asia were largely weaker on Monday, while European stock index futures were lower, as virus cases in China continue to rise. This has led to fears that China may reverse recent moves toward easing its zero-Covid policy of quarantines and lockdowns.
Beijing had declared its most significant easing of coronavirus measures to date on November 11. Among the steps to ease the controls was a reduction of compulsory quarantine times for international arrivals.
"Stocks in Asia fell this Monday on news that China reported its first death in six months from Covid on Sunday, and two other deaths followed. The news obviously spurred fear that the government could make a U-turn on its decision of easing the strict Covid zero rules, and wreak havoc in Chinese markets, yet again," Swissquote analyst Ipek Ozkardeskaya.
"No one can tell whether Xi Jinping would pull back from the reopening plans, which would be another disaster for the Chinese stocks, and for the investor confidence."
Elsewhere on Monday, eyes will be on UK Prime Minister Rishi Sunak who speaks at the Confederation of British Industry later Monday.
In early UK corporate news, Compass and Virgin Money added to their share buybacks, Diploma's profit rose, and Keywords Studios upped guidance.
Here is what you need to know ahead of the London market open:
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MARKETS
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FTSE 100: called down 0.2% at 7,369.22
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Hang Seng: down 1.9% at 17,650.02
Nikkei 225: closed up 0.2% at 27,944.79
S&P/ASX 200: closed down 0.2% at 7,139.30
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DJIA: closed up 199.37 points, 0.6%, to 33,745.69
S&P 500: closed up 0.5% at 3,965.34
Nasdaq Composite: closed marginally higher at 11,146.06
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EUR: lower at USD1.0265 (USD1.0362)
GBP: lower at USD1.1819 (USD1.1929)
USD: up at JPY140.81 (JPY139.85)
GOLD: down at USD1,744.85 per ounce (USD1,757.30)
OIL (Brent): down at USD87.17 a barrel (USD87.30)
(changes since previous London equities close)
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ECONOMICS
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Monday's key economic events still to come:
UK BoE Deputy Governor Jon Cunliffe speaks
13:30 EST US CFNAI Chicago Fed national activity index
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Downing Street has labelled as "categorically untrue" a report that PM Sunak's government is considering putting the UK on the road to a Swiss-style relationship with the EU. The Sunday Times reported the move could take place over the next decade as the government eyes up a closer relationship with the EU that avoids the current barriers to trade. The alleged change of heart by the Conservative government, only a few years after Boris Johnson secured a deal with the EU after years of back-and-forth negotiations, raised eyebrows in Westminster. Any such move would also likely inflame backbench Tory Brexiteers and re-run many of the debates of the last six years. But a government spokesperson labelled the story "categorically untrue". The spokesperson said: "This government is focused on using our Brexit freedoms to create opportunities that drive growth and strengthen our economy. "Brexit means we will never again have to accept a relationship with Europe that would see a return to freedom of movement, unnecessary payments to the EU or jeopardise the full benefit of trade deals we are now able to strike around the world."
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Sunak will give a speech to business leaders on Monday, as the country braces for tough tax rises and spending cuts. The speech to the CBI, expected to focus on innovation, comes only days after Chancellor Jeremy Hunt unveiled GBP25 billion of tax rises in a budget designed to restore market confidence in the UK after Liz Truss's own disastrous mini-budget. The plan for tough tax increases has caused concern among some Tory backbenchers, although the PM is not expected to face a full-scale rebellion over his budget plans. Away from Westminster, Sunak is expected to receive a tough message from businesses during the conference in Birmingham, with CBI Director General Tony Danker expected to urge the new administration to end arguments over Brexit and to use immigration to solve worker shortages as a way of boosting growth.
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Irish government targets for home building next year "are at risk", the Tanaiste has said. Leo Varadkar said the target of 24,600 new homes by the end of this year will be exceeded, with close to 28,000 properties being built. However, he said delivering more than the 30,000 homes under Housing for All in 2023 is "going to be a challenge". He told RTE's The Week in Politics show: "We need to face up to [targets being at risk] and take every action that is possible, and I'm up for any action that is necessary, working with [Housing Minister] Darragh O'Brien and our colleagues in government, and it needs to be a whole of government effort." Varadkar said potential actions could include approaching builders to pre-purchase apartments for social, affordable housing, or tax breaks. He said some things are out of their control, such as the cost of commodities rising due to the war in Ukraine. He said: "16,000 individuals and couples bought their first home in the last year, that's more than any year in 15. "We have to do everything we can in the next couple of months and over the next two years to make sure that we accelerate more housing construction." Varadkar said he absolutely acknowledges that "more needs to be done on housing".
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BROKER RATING CHANGES
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Goldman Sachs raises B&M European Value Retail to 'buy' (neutral) - price target 490 (420) pence
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Goldman Sachs cuts boohoo to 'neutral' (buy) - price target 55 (60) pence
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Barclays raises Drax price target to 1,000 (820) pence - 'overweight'
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COMPANIES - FTSE 100
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Contract caterer Compass announced a new share buyback and more than doubled its dividend. Annual earnings also improved, on the back of a "record net new business". Compass said revenue in the financial year that ended September 30 rose 43% to GBP25.51 billion from GBP17.91 billion a year earlier. Revenue topped company-compiled consensus of GBP25.1 billion. Pretax profit jumped to GBP1.47 billion from GBP464 million. "The group's performance surpassed our expectations both in terms of net new business growth and base volume recovery, with Business & Industry now operating above its pre-pandemic revenues. The strong growth trends seen in the first half have continued, with net new business accelerating through the year in all our regions," Chief Executive Dominic Blakemore said. Compass lifted its dividend to 31.5 pence per share from 14.0p. In addition, it announced a further GBP250 million share buyback, taking the current programme to GBP750 million.
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COMPANIES - FTSE 250
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Diploma reported an annual revenue and profit climb and hiked its dividend. The specialised technical products and services provider said revenue in the year that ended September 30 rose 29% to GBP1.01 billion from GBP787.4 million. Pretax profit jumped 34% to GBP129.5 million from GBP96.6 million. "Our organic growth strategy is working as we continue to execute on fantastic opportunities to diversify and scale. The seven exciting businesses we welcomed to the group in the year will complement our future organic growth. We are scaling our businesses and our group effectively to sustain our customer proposition and margins for the long-term," Chief Executive Johnny Thomson said. Diploma lifted its dividend to 53.8p per share from 42.6p. Diploma said the new year has started well, in line with guidance, though it is "mindful of the uncertain economic outlook and the prospect of a tougher demand environment".
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Virgin Money said it will buyback another GBP50 million worth of shares on the back of a decent annual performance. The lender said total underlying operating income rose 12% to GBP1.76 billion in the year that ended September 30 from GBP1.57 billion. Underlying net interest income alone climbed 13% to GBP1.59 billion. Pretax profit surged 43% to GBP595 million from GBP417 million. Its net interest margin expanded to 1.85% from 1.62% a year earlier, helped by higher interest rates. For the new financial year, it expects the net interest margin to grow further to between 1.85% to 1.90%, based on current interest rate expectations. Virgin Money said it has extended a share buyback programme by an additional GBP50 million. It takes its 2022 buybacks to GBP125 million.
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OTHER COMPANIES
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Keywords Studios expects annual profit to top analyst expectations. The Dublin-based firm, which provides technical and creative services to the video game industry, said it has performed "very well in the second half" of 2022. "The group has benefited from the continued strength of the US dollar during the period, which has meant that the adjusted profit before tax margin remained higher than anticipated," Keywords said. It now expects annual revenue of at least EUR675 million, up 32% from 2021, and adjusted pretax profit of EUR110 million, up 28%. Both will be "comfortably ahead of current analysts' consensus". Revenue consensus currently stands at EUR648 million, while the adjusted pretax profit view is EUR102 million. For 2023, it expects organic growth to moderate. Profit margins will move to historic levels as Keywords plans to invest in its business. However, it is still confident of performing at the "upper end" of consensus. Revenue consensus for 2023 is EUR737 million, while adjusted pretax profit consensus is EUR112 million.
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Electric vehicle charging services firm Pod Point said growth in the plug-in vehicle market "has slowed markedly" in the second half of 2022, owing to supply chain problems. For 2022, it expects revenue of GBP70 million, up 14% from GBP61.4 million. However, it expects an adjusted loss before interest, tax, depreciation and amortisation of GBP7 million, swinging from adjusted Ebitda of GBP58 million. "Whilst it is today difficult to predict the outcome for 2023, we are prudently assuming that these supply chain and macroeconomic issues extend into 2023, and thus the group expects full year revenues for 2023 to be in the region of GBP85 to GBP90 million," Pod Point said.
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By Eric Cunha; ericcunha@alliancenews.com
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