LONDON MARKET OPEN: Markets indecisive as Fed pondered; Tesco slips

(Alliance News) - Equities in London were mixed early Friday, with markets continuing to mull over the US Federal Reserve's more hawkish tilt.

Food retailer Tesco was amongst the worst performers in the FTSE 100 as it posted growth in first quarter sales but noted that its fortunes have moderated as UK lockdown rules have eased, while motor retailer Inchcape surged as it guided to a 2021 profit beat.

The FTSE 100 index was down 16.83 points, or 0.2%, at 7,136.60 early Friday. The mid-cap FTSE 250 index was up 39.04 points, or 0.2%, at 22,574.18. The AIM All-Share index was flat at 1,241.83.

The Cboe UK 100 index was down 0.2% at 711.02. The Cboe 250 was up 0.2% at 20,306.47, and the Cboe Small Companies flat at 15,358.20.

In mainland Europe, the CAC 40 in Paris was up 0.1%, while the DAX 30 in Frankfurt was down 0.1% early Friday.

"Markets are likely to remain very much focused on what has been learned from the likely course of monetary policy from this week's updates," said Lloyds Banking.

The US Fed on Wednesday turned more hawkish as the central bank set its sights on rising inflation, with a majority of officials on its policy setting committee predicted a rate hike in 2023. The updated dot-plot showed 11 of the 18 committee members expect at least two rate hikes in 2023 and seven expecting one as soon as next year.

"While the Fed's stance is still dovish, as monetary policy is expected to remain accommodative for a considerable time, it is evolving in reaction to recent developments," Lloyds noted. "That prompted a rise in both US Treasury yields and the dollar, which continued through yesterday."

Sterling was quoted at USD1.3864 early Friday, tumbling from USD1.3933 at the London equities close on Thursday. The euro traded at USD1.1896, down on USD1.1920 late Thursday.

An outperformer, however, was the Japanese yen.

Against the yen, the dollar fell to JPY110.04 versus JPY110.30. Meanwhile, the Japanese Nikkei 225 index ended down 0.2%.

The Bank of Japan kept interest rates in negative territory and also kept its loose monetary policy unchanged on Friday.

The Japanese central bank kept its key interest rate at minus 0.1%. It also extended the duration of its Covid-19 support measures by another six months, to March 2022.

The BoJ said it will continue to "expanding the monetary base" until the annual consumer price inflation rate, excluding fresh food, tops 2.0%. Figures for May showed consumer prices, stripping out only fresh food, rose 0.1% annually. The central bank expects the rate to be around 0% in the short term.

Outside of Japan, stocks in Asia-Pacific on Friday were mostly higher. In China, the Shanghai Composite ended flat, while the Hang Seng index in Hong Kong was up 0.6%. The S&P/ASX 200 in Sydney closed up 0.1%.

Gold was quoted at USD1,788.38 an ounce early Friday, rising from USD1,768.00 on Thursday. Brent oil was trading at USD72.53 a barrel, falling against USD74.06 late Thursday.

In London, Tesco shares slipped 1.8% as it posted a first quarter sales rise though noted the pace of growth moderated later in the quarter as Covid-19 restrictions in the UK eased.

In April, beer gardens were reopened in England, allowing punters to dine and drink outdoors. This eased further in mid-May, allowing for indoor tables.

In the 13 weeks to May 29, Tesco posted group sales of GBP13.36 billion, up 1.0% annually like-for-like and rising 8.1% from two years earlier, before the onset of the pandemic. Excluding VAT and fuel, total first quarter sales were 1.1% higher year-on-year.

In the UK, it noted a "continued strong performance with growth on top of exceptional sales last year". UK sales were 0.5% higher annually on a like-for-like basis and 9.3% up from two years earlier. Its like-for-like sales hike on two years earlier peaked at 15% in March, though the grocer cautioned that growth in April and May eased as Covid-19 curbs were relaxed.

Also on Friday, the Office for National Statistics noted retail sales in the UK fell 1.4% monthly in May as people shifted spending to pubs and restaurants.

In the FTSE 250, Inchcape surged 6.1% as it guided to a 2021 profit beat.

The automotive distribution, retail and services company said encouraging trends across the business have continued and its performance to date has exceeded internal expectations. It noted both an uptick in demand and margin resilience.

While there is still uncertainty over the second half, both in relation to the pandemic situation and also due to semiconductor shortages, it expects a strong first half performance to underpin its full-year results. It expects to "significantly" beat the market consensus figure for pretax profit, before exceptional items, of GBP216 million.

Inchcape posted pretax profit before exceptional items of GBP129 million for 2020, which was down 61% on the GBP326 million reported for 2019.

Rotork rose 2.5% after Morgan Stanley upgraded the electric, pneumatic and hydraulic valves manufacturer to Overweight from Equal Weight.

Kerry Group rose 3.7% after agreeing to sell its Consumer Foods' Meats & Meals business in the UK and Ireland to Pilgrim's Pride for EUR819 million.

The Tralee, Ireland-based firm, however, confirmed that it will retain its dairy business. Kerry in February announced it is conducting a strategic review of the business and in April, it said talks for a potential sale were suspended.

The meats business the company has agreed to sell is a manufacturer of branded and private label meats, meat snacks, food-to-go and meat-free products, with its brands including sausage maker Richmond, Fridge Raiders and Rollover. The Meals business primarily serves the UK market and "specialises in authentic ethnic chilled and frozen ready meals, multi-cuisine ready to cook ranges, and home delivery meals under the Oakhouse brand."

By Lucy Heming; lucyheming@alliancenews.com

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