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(Alliance News) - Stocks in London are set to open lower on Tuesday, as concern over growing cases of Covid-19 in Europe overshadows Monday's news that US President Joe Biden has confirmed incumbent Jerome Powell as chair of the world's most influential central bank.
In early UK corporate news, Compass annual revenue took a hit. Pets at Home is enjoying a rise in pet ownership, but AO World is feeling the squeeze from supply chain woes.
IG says futures indicate the FTSE 100 index to open 22.96 points, or 0.3%, lower at 7,232.50 on Tuesday. The large-cap index closed up 31.89 points, or 0.4%, at 7,255.46 on Monday.
"Confirmation that Fed Chair Jay Powell was getting the nod for another 4-year term leading the US Federal Reserve was the catalyst that managed to pull European stocks back off their lows of the day yesterday. Although it wasn't enough to pull the likes of the DAX and CAC40 into the green, it was still welcome news for a market that craves continuity and a familiar way of doing things," CMC Markets analyst Michael Hewson said.
Biden said Powell is the "right person" to lead the Federal Reserve and fight the record spike in US inflation.
The nomination, expected to win confirmation by the Senate, ends weeks of speculation over whether Biden would appoint the Republican chair to a second term or heed calls from left-wing members of his Democratic Party to replace him with another candidate, such as Fed Governor Lael Brainard.
Instead, Brainard will serve as vice chair, Biden said, while Powell will remain in the Fed's driver's seat, presiding over the rollback of its pandemic stimulus and the likely beginning of interest rate hikes next year.
Speaking alongside Powell and Brainard at a White House event, Biden credited the Fed chair with helping to spur the economy's faster-than-expected recovery from last year's collapse, pointing to the progress made towards restoring the more than 20 million jobs Covid-19 destroyed.
In London, contract caterer Compass said it booked record new business wins and client retention in financial 2021 but saw revenue drop.
In the year that ended September 30, revenue was down 10% to GBP17.91 billion from GBP19.94 billion the year before. Compass noted its underlying revenue recovered to 88% of 2019 revenue by the fourth quarter. Full-year underlying revenue was 77% of financial 2019's.
"Whilst we have made progress recovering revenue in the second half, driven by strong net new business, the pandemic continued to affect performance for the year. Our Healthcare & Senior Living and Defence, Offshore & Remote sectors performed well above pre-pandemic revenues, and we experienced a strong recovery in Education and Sports & Leisure in the fourth quarter. Revenues in our Business & Industry sector have remained subdued due to the delayed return to offices in our major markets," Compass explained.
Pretax profit doubled to GBP464 million from GBP210 million. Operating profit jumped 85% to GBP545 million from GBP294 million.
Compass reinstated its dividend, declaring an annual payout of 14 pence per share.
Looking ahead, Compass expects financial 2022 organic revenue growth of between 20% and 25%.
Water utility Severn Trent saw profit grow in the first half of its financial year, attributed to improved efficiency while meeting its customer outcome delivery incentives.
"We've made another strong start to the year as we focus on delivering for stakeholders across our region and delivering for customers in the areas that matter most to them, all while driving the financial performance of our business," Chief Executive Liv Garfield said.
In the six months that ended September 30, pretax profit increased to GBP146.9 million from GBP126.5 million.
Revenue rose to GBP958.2 million from GBP887.6 million. Regulated Water & Waste Water revenue was up to GBP893.9 million from GBP829.9 million.
Severn upped its interim dividend by 5.7%, increasing the payout to 40.86 pence from 40.63p a year before.
Pet products seller Pets at Home attributed its growth in the first half of its financial year to sustained growth in new pets.
In the 28 weeks to October 7, pretax profit nearly doubled to GBP70.6 million from GBP38.9 million a year before.
Revenue improved by 18% to GBP677.6 million from GBP574.4 million. Total customer revenue, which includes joint ventures, rose 20% to GBP867.6 million from GBP724.7 million.
Retail like-for-like revenue growth was 22%, while Vet Group like-for-like revenue growth was 26%.
"Strong growth in pet ownership continues, reflected in the elevated level of customer registrations across our Puppy and Kitten club, and the performance across our retail and veterinary operations continues to be robust, notwithstanding some widely reported challenges in the near-term operating environment relating to supply, logistics and labour availability," Pets at Home said.
The pet supplies retailer is guiding for annual underlying pretax profit to be at the top end of the current range of analyst expectations of GBP128 million to GBP135 million.
Faring less well was online electricals retailer AO World.
In the six months to September 30, AO swung to a pretax loss of GBP10 million from a GBP18 million profit a year before.
Total revenue increased 6.0% to GBP760 million from GBP717 million.
AO World said its revenue growth was stunted by the nationwide shortage of delivery drivers in the UK and the ongoing disruption in the global supply chain. What's more, the German online market has seen significantly increased competition. The company said it has hired about 500 new drivers recruited to meet peak period demand.
"As we now look to the second half, we continue to see meaningful supply chain challenges with poor availability in certain categories, particularly in our newer products where we have less scale, experience and leverage. In addition, shipping costs, material input prices and consumer price inflation remain challenging uncertainties," AO said.
AO is now guiding for annual revenue to be flat to minus 5% compared to the year before.
In M&A news, Premier Miton confirmed it has made an approach for fellow asset manager River & Mercantile.
No bid has been made yet, but Premier Miton noted any deal would be made through the issue of shares.
"Any combination with River & Mercantile would be conditional on the successful completion of the proposed sale of its Solutions business to Schroders and the subsequent distribution of the net cash proceeds to River & Mercantile's shareholders," Premier added.
River & Mercantile confirmed the approach and a similar one from AssetCo, which is chaired by Martin Gilbert, the co-founder of Aberdeen Asset Management.
In the US on Monday, continuity at the top of the US Federal Reserve appeared to set stock markets up for a strong start to a Thanksgiving shortened week. But equities saw gains slip away as Monday's session progressed, falling victim to the same lockdown fears which knocked European stocks earlier in the day.
The Dow Jones Industrial Average closed just 17.27 points higher. The S&P 500 ended down 0.3% and the tech-heavy Nasdaq Composite dived 1.3%.
AvaTrade's Naeem Aslam said: "Stock market indices initially rose after Jerome Powell's nomination, as investors then expected that the Fed would stick to its initial plan and timeline for tapering while working on combating record-high inflation.
"Stock traders feared Lael Brainard’s nomination because she is considered a dove, and hence her loose stance on monetary policy could have meant consumer prices rising even further. However, treasury yields also continued to climb after the announcement, capping any additional gains and causing indices to turnaround."
The dollar was strong early Tuesday in London. Sterling was quoted at USD1.3395, lower than USD1.3412 at the London equities close on Monday.
The euro traded at USD1.1249 early Tuesday, down on USD1.1263 late Monday. Against the yen, the dollar was flat at JPY114.74 slipping back after surpassing JPY115 for the first time in four years overnight.
"With President Biden's nomination behind us, trading activity in stock markets is expected to quiet down as investors get ready for Thanksgiving Day on Thursday. Markets are likely to remain stable in the coming days. Having said that, tomorrow the Fed will release its latest minutes and investors will also be looking at the personal consumption expenditure price index as well. PCE is a gauge of inflation and is an important factor for the Federal Reserve in deciding its upcoming monetary policies," Aslam added.
More worryingly, however, the US State Department urged Americans Monday not to travel to Germany and Denmark due to surging Covid-19 cases in Europe.
The department issued Level 4 travel advisories – the highest level – for both countries, "indicating a very high level of Covid-19 in the country".
Potential travellers were also warned that "there are restrictions in place affecting US citizen entry into Denmark."
Europe's return to the pandemic's epicentre has been blamed on a sluggish vaccine uptake in some nations, the highly contagious Delta variant, and colder weather moving people indoors again.
The Shanghai Composite was up 0.2% on Tuesday, while the Hang Seng index was down 1.2%. The S&P/ASX 200 in Sydney gained 0.8%.
Financial markets were shut in Tokyo as the country celebrates Labour Thanksgiving Day.
Gold was quoted at USD1,807.60 an ounce early Tuesday, lower than USD1,818.94 on Monday. Brent oil was trading at USD79.10 a barrel, down from USD79.86 late Monday.
The economic calendar on Tuesday has PMIs from Germany, the eurozone and the UK at 0830 GMT, 0900 GMT and 0930 GMT respectively. A PMI from the US is out at 1445 GMT.
Oanda's Jeffrey Halley said: "The Covid-19 hangover in Europe is likely to continue today, although a lower euro should take the edge of exporters. Weaker than expected PMIs from Germany and France could well deepen the malaise and raise fears that the European recovery faces a number of challenges."
By Paul McGowan; paulmcgowan@alliancenews.com
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