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(Alliance News) - Stock prices in London are set to steady on Tuesday after starting the week with a steep sell-off amid worries over rising coronavirus cases across the globe.
"For so long this year the overriding concern for investors had been that the global economy might be susceptible to overheating, as the reflation trade took hold. Now the worry is that growth might have peaked while prices continue to rise albeit on a slowing basis, raising concerns about stagflation," said Michael Hewson, chief market analyst at CMC Markets.
In early UK company news, Apollo Global Management may join the consortium takeover offer for Wm Morrison Supermarkets, easyJet voiced confidence over travel demand for the summer as it plans to ramp-up capacity, and Fevertree raised its full-year revenue guidance but warned margins have been squeezed by costs related to logistics disruption.
IG says futures indicate the FTSE 100 index of large-caps to open up 22.11 points, or 0.3%, at 6,866.50 on Tuesday. The FTSE 100 closed down 163.70 points, or 2.3%, at 6,844.39 on Monday.
London's blue-chip index fell to its lowest level since early April on Monday as fears over rising coronavirus cases, driven by the more infectious Delta variant, overshadowed 'freedom day' in England, which saw the end of a spate of legal virus restrictions.
Travel, leisure and hospitality stocks all suffered at the start of the week.
CMC's Hewson said: "As we look ahead to today's European open, expectations are for an unchanged start, even as markets in Asia saw another negative session, as investors weigh up the possibility that we see further weakness as markets reassess whether this is as good as it gets, when it comes down to the global recovery story, or whether the path out is likely to be much longer than was thought to be the case back in March, when optimism was probably at its highest."
In Tokyo, the Nikkei 225 index ended down 1.0% on Tuesday. In China, the Shanghai Composite was down 0.1%, while the Hang Seng index in Hong Kong was down 1.0%. The S&P/ASX 200 in Sydney ended down 0.5%.
In the US on Monday, the Dow Jones Industrial Average tumbled 2.1%, the S&P 500 fell 1.6%, and the Nasdaq Composite shed 1.1%.
In early UK company news, Apollo Global Management said it is in talks to possibly join the investment group led by Fortress Investment Group that is bidding for Wm Morrison Supermarkets.
The supermarket chain earlier this month accepted a takeover offer from a consortium of investment groups - comprising Softbank Group Corp-owned Fortress, Canada Pension Plan Investment Board and Koch Real Estate Investments - following its rejection of another private equity bid in June.
After Morrisons accepted the consortium bid, Apollo said it was mulling making an approach for the mid-cap grocer. However, on Tuesday it said it does not intend to make a bid for Morrisons other than as part of the Fortress offer.
"There can be no certainty that any transaction will be entered into by funds managed or advised by Apollo in relation to the Fortress offer, nor as to the terms of any such transaction," Apollo said.
Budget airline easyJet remains confident over demand for travel this summer and into autumn, expecting to fly up to 60% of pre-pandemic capacity in the fourth quarter.
easyJet said it maintained a "disciplined approach" to capacity and cash management in the third quarter that ended June 30, with total cash burn reduced to GBP55 million. It managed to maintain net debt broadly flat at GBP2.0 billion and registered a headline pretax loss of GBP318 million, in line with expectations and slimmed from GBP346.8 million a year ago.
"During this quarter we have successfully managed through the continued challenges of the pandemic, using our operational responsiveness to capture demand while focusing on cost control and minimising cash burn," said Chief Executive Johan Lundgren.
The airline is now looking ahead to more relaxed travel rules.
It expects capacity in its fourth quarter to be up to 60% of 2019 levels, up from just 17% in the third quarter.
"We remain confident about demand for travel this summer and into autumn, due to the bookings surges experienced following selective easing of travel restrictions, such as the 400% increase in week-on-week flight bookings seen following the waiving of quarantine for fully vaccinated passengers returning from amber-list destinations," said easyJet, also noting high consumer savings rates and "high balances" of employees' annual leave.
Premium tonic water maker Fevertree Drinks reported a strong sales performance in its first half, but its margins were squeezed by global logistics cost pressures.
Total sales in the half to June 30 amounted to GBP141.8 million, up 36% on a year ago. The UK segment delivered 4% growth, while US sales surged 32% and Europe sales doubled.
"Revenue growth of 39% on a constant currency basis was ahead of the board's expectations despite the comparable levels of COVID restrictions present in the first half of FY21 compared to the first half of FY20," the firm said.
However, gross margin in the half was "impacted by significantly elevated costs resulting from the disruption currently impacting global logistics". As a result, the company expects first-half gross margins for the Fevertree brand of around 45% and around 44% inclusive of revenue from GDP's portfolio brands.
Fevertree bought German distributor Global Drinks Partnership a year ago.
Due to the strong start to the year, Fevertree raised its annual revenue guidance to a range of GBP295 million to GBP304 million.
"However, as is being seen in other sectors, growing challenges from COVID-related logistics disruption and associated costs is putting pressure on the group's margins. Consequently, we anticipate gross margins of about 44% for FY21, or 43% inclusive of revenue from GDP's portfolio brands, delivering an Ebitda margin of about 20%," the company said.
For 2020, the AIM-listed stock reported a gross margin of 46.2% and an adjusted earnings before interest, tax, depreciation and amortisation margin of 22.6%.
While the next year should see some margin improvement, Fevertree expects logistic cost headwinds to persist, alongside input cost increases for raw materials and product costs.
Young & Co's Brewery said trading has continued to run ahead of internal expectations, as the pub chain looks ahead to "another busy staycation summer".
For the 13-week period to July 12 from April 12, total sales were 95% of the same period in 2019, a pre-pandemic period when it was fully open throughout. On April 12, Young's opened 144 pubs for outdoor trading only, and then the remainder of its estate resumed business in May when indoor hospitality was allowed again.
"Our trading has benefited from significant pent-up demand, as well as from the major capex programme undertaken in our pubs, hotels and outdoor areas and the delivery of some truly transformational projects," said Chair Stephen Goodyear ahead of Tuesday's annual general meeting.
While the delay of England's 'freedom day' from the original June date was disappointing, he said, the firm is pleased to now be able to operate close to normal following Monday's lockdown lifting.
"We remain optimistic about the balance of the financial year to March 2022 and believe our new and upgraded pubs and hotels and the large number of bookings we have for weddings, parties and other events put us in a strong position to capitalise on another busy staycation summer," Goodyear said.
Released earlier, BHP reported a mixed performance in output for its recently ended financial year, with a drop in petroleum and copper, but growth in iron ore production.
For the year ended June 30, copper production dropped by 4.7% to 1.64 million tonnes from 1.72 million tonnes. Total petroleum production also fell, down 5.5% year-on-year to 102.8 million barrels. However, iron ore production for the year grew 2.1% to 253.5 million tonnes from 248.2 million tonnes.
The dollar continued to gain ground amid the tepid investor mood.
Sterling was quoted at USD1.3663 early Tuesday, pulling back further from USD1.3677 at the London equities close on Monday. The euro traded at USD1.1783 early Tuesday, lower than USD1.1798 late Monday.
However, against the safe haven Japanese yen, the dollar was flat at JPY109.51.
Data from the Statistics Bureau showed Japanese consumer prices started to rise on an annual basis in June.
Consumer prices rose 0.2% on an annual basis in June, compared to a 0.1% decline in May, even as consensus cited by FXstreet saw prices remaining deflated at 0.1%. Excluding fresh food and energy, the annual deflation rate remained unchanged at 0.2%, even as consensus had guided for the rate to quicken to 0.5%.
Gold was quoted at USD1,817.08 an ounce early Tuesday, higher than USD1,807.03 on Monday. Brent oil was trading at USD69.00 a barrel, down from USD69.23 late Monday.
By Lucy Heming; lucyheming@alliancenews.com
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