(Alliance News) - Stock prices in London were set to rise at the open on Wednesday but are likely to remain volatile after the US and UK announced Tuesday they are cutting off imports of Russian oil, in the most far-reaching action yet by Western allies to punish Moscow for invading Ukraine.
In early UK corporate news, Prudential and Legal & General were pleased with resilient annual performances, while Stagecoach has ditched National Express and found a new suitor.
IG futures indicate the FTSE 100 will open up 102.19 points, or 1.5%, at 7,066.30 on Wednesday. The blue-chip index closed marginally higher, up 4.63 points, or 0.1%, at 6,964.11 on Tuesday.
The moves on oil mark an crucial escalation in international sanctions against Russia. Western allies had initially omitted energy, a crucial source of revenue for President Vladimir Putin's government, from an array of economic penalties imposed in response to the attack.
EU countries are not planning to introduce a similar ban, German Economics Minister Robert Habeck said, due to the region's greater reliance on Russian energy.
However, the European Commission announced new plans to free EU countries from their dependency on Russian energy sources before 2030.
Brent oil was quoted at USD129.50 a barrel on Wednesday morning in London, slipping from USD132.65 late Tuesday, though still elevated.
Gold stood at USD2,042.00 an ounce early Wednesday, down from USD2,056.80 late Tuesday.
Moscow criticized the decision and has warned that it could have global repercussions.
"The US sanctions pressure on Russia has long crossed all the boundaries of political and economic sense," the Russian embassy in Washington wrote on its Facebook page.
"As usual, the US does not give a thought to the fact that restrictions are always a double-edged weapon," it said.
The statement added that it was "obvious that the rejection of our resources will lead to significant fluctuations in the global energy markets. It will negatively affect the interests of companies and consumers, primarily in the US itself."
In London early Wednesday, Prudential reported "high-quality, resilient growth" as the Asia-focused insurer saw new business profit rise by a double-digit percentage.
For 2021, pretax profit slipped by 5.0% to USD3.02 billion from USD3.18 billion in 2020. New business profit rose by 13%, however, to USD2.53 billion from USD2.20 billion.
EEV operating profit increased 4.1% to USD3.54 billion from USD3.40 billion.
Total revenue, net of reinsurance, dropped to USD26.50 billion from USD36.25 billion. Gross premiums earned rose to USD24.22 billion from USD23.50 billion, but Pru saw a marked drop in investment return of USD3.49 billion from USD13.76 billion.
Annual premium equivalents grew 8% to USD4.19 billion from USD3.81 billion.
Present value of new business premiums rose 12% to USD24.15 billion from USD21.59 billion.
"Sales in Hong Kong continued to be constrained by the ongoing closure of the border with mainland China. However, excluding Hong Kong, APE sales were 16% higher. Eight markets in Asia and our Africa business saw double-digit growth including mainland China, India, Malaysia, the Philippines, Singapore and Thailand. The increase in APE sales, combined with an improvement in new business margins given a favourable shift in business mix, resulted in a 13% increase in group new business profit," Pru explained.
Legal & General delivered operating profit in line with internal guidance for 2021, with all of the insurance firm's businesses contributing to the "resilient" performance.
"This marks a return to our long-term rate of growth, having been resilient through the pandemic. Our diversified business model benefited from the post pandemic economic recovery and easing of restrictions over 2021 to deliver strong earnings. All five businesses are well positioned to execute on compelling structural market opportunities to deliver further profitable growth," L&G said.
For 2021, operating profit was up 1.8% to GBP2.26 billion from GBP2.22 billion in 2020. Excluding mortality releases, operating profit rose 11%, which was in line with company guidance issued with its interim results.
L&G declared a full-year dividend of 18.45 pence, rising by 5.0% from 17.57p in 2020.
Solvency II coverage ratio rose to 187% from 175% at the end of 2020. L&G "estimated" its coverage ratio had risen to 198% by the start of this week.
Coca-Cola HBC noted the announcement by Coca-Cola Co that it is suspending its business in Russia.
"Our relationship with the Coca-Cola Co remains strong, and we continue to work in close partnership across the rest of our markets," the drinks bottler said.
Coca-Cola HBC last week had noted that Ukraine and Russia contributed 20% of its 2021 volumes and earning before interest and tax.
Russian-linked miner and steelmaker Evraz said the sanctions imposed on Russia have seen "no material direct impact on day-to-day operations" on the company.
Evraz - which operates mainly in Russia, but also in Ukraine and Kazakhstan among others - said it does not consider itself to be affected by the sanctions as it it is not "entity owned by, or acting on behalf or at the direction of, any persons connected with Russia."
It noted some major shareholders - namely Roman Abramovich, Alexander Abramov and Alexander Frolov - are not necessarily "connected with Russia", despite being Russian nationals.
Evraz said it is aware that if it does become "an entity owned by, or acting on behalf or at the direction of, a person 'connected with Russia'" then it could see its listing in London suspended.
Fellow Russian-linked miner Petropavlovsk also noted that its operations, which are located in the Far East of Russia, currently continue without interruption.
Petropavlovsk continues to sell gold, as before, to domestic commercial banks at the London fixing and is therefore not affected by export controls at this time, it added. It also noted it has sufficient funds available to service its current debt.
In M&A news, Stagecoach has walked away from its all-share merger with National Express, and is instead recommending a GBP594.9 million cash offer from Pan-European Infrastructure III, an infrastructure fund managed and advised by DWS Infrastructure.
DWS will offer Stagecoach shareholders 105 pence in cash, which is a 37% premium to its closing price on Tuesday.
Stagecoach Chief Executive Martin Griffiths said the DWS deal "will open a new and exciting chapter".
"We also believe it will deliver positive outcomes both now and in the long-term for all of our key stakeholders: the customers and the communities we serve, the people who deliver our high-quality transport services, our partners in national and local government, and the investors who have supported our continued success over many decades," he added.
In the US on Tuesday, stocks ended lower. The Dow Jones Industrial Average closed down 0.6%, the S&P 500 closed down 0.7% and Nasdaq Composite closed down 0.3%.
CMC Markets analyst Michael Hewson commented: "US markets...finished lower at the end of a rollercoaster session, at one point rallying strongly on a misinterpretation of a story on Monday night which claimed that Ukrainian President Zelensky had suggested that Ukraine might be prepared to drop its insistence on NATO membership, and that there might be some room for compromise on some of the issues.
"This story followed on from comments from the Kremlin on Monday that it was prepared to stop its military action immediately if Ukraine agreed to recognise the Crimea as Russian territory, Donetsk, and Lugansk as independent states, and change its constitution to guarantee neutrality."
The pound was quoted at USD1.3122 early Wednesday, firm on USD1.3110 at the London equities close Tuesday.
The euro was priced at USD1.0918, up from USD1.0890. Against the yen, the dollar was trading at JPY115.81, down from JPY115.62.
In Asia on Tuesday, the Japanese Nikkei 225 index closed down 0.3%. In China, the Shanghai Composite ended 1.1% lower, while the Hang Seng index in Hong Kong was down 0.9%. The S&P/ASX 200 in Sydney closed up 1.0%.
China's factory-gate inflation eased to its slowest pace in eight months in February as consumer price growth also softened, data showed Wednesday, after new coronavirus curbs and a drop in food prices.
The producer price index which measures the cost of goods at the factory gate, rose 8.8% on-year, the slowest rate since June last year, according to the National Bureau of Statistics, tracking a fall in coal prices.
It was above the 8.6% forecast in a Bloomberg survey of economists, but below the 9.5% in January.
The rise in producer prices last month had been "affected by increased commodity prices globally such as crude oil and non-ferrous metals," NBS senior statistician Dong Lijuan said in a statement.
The consumer price index, a key gauge of retail inflation, rose 0.9% on-year in February, the same level as in January.
A steady fall in food prices – especially a 42% drop in the price of the staple meat pork compared to the previous year – has helped ease inflation worries.
Japan's fourth-quarter growth was weaker than initially thought, revised data showed, with household spending less robust than first estimated.
The world's third largest economy grew 1.1% in the three months to December, less than the initially estimated 1.3% rebound, according to the Cabinet Office. The downward revision was due in part to weaker corporate investment and household spending.
The recovery in the last quarter of 2021 comes after a 0.7% contraction in the July-September quarter. For all of 2021, the economy grew 1.6%, slightly less than the initial estimate of 1.7%.
Japan's economy has yet to stage a strong recovery from the pandemic, and an Omicron wave likely halted or reversed the recovery trend in the first part of 2022.
Wednesday's international economic calendar is a little dry, with little to steal focus from the war in Ukraine, while investors will be eagerly awaiting the European Central Bank's rate decision Thursday afternoon.
By Paul McGowan; paulmcgowan@alliancenews.com
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