(Alliance News) - Stock prices in London are seen opening lower on Wednesday, following a weak handover from Asia and a tepid return to action for New York equities, as Friday's US nonfarms miss continues to weigh on sentiment.
In early UK corporate news on Wednesday, Wm Morrison Supermarkets has been in touch with city regulators for a potential auction to decide the fate of the grocer and Smiths Group has backed a chunkier USD2.7 billion offer to sell its medical devices arm. Home furnishings firm Dunelm posted a sharp annual earnings hike, declaring a special payout too.
IG futures indicate the FTSE 100 index is to open 28.3 points lower, 0.4%, at 7,122.57. The blue chip index closed 37.81 points lower, 0.5%, at 7,121.07 on Tuesday.
"Futures in the United States are trading up while those in Europe are down following the massive sell-off seen in US equity markets on Tuesday. The bears took control and dragged the Dow Jones Industrial Average down nearly 200 points as stock traders re-examined the outlook for economic growth at a time when the major indices are hovering around record highs," Avatrade analyst Naeem Aslam commented.
In the US on Tuesday, the Dow Jones Industrial Average fell 0.8% and S&P 500 fell 0.3%, but the Nasdaq Composite rose 0.1%.
In the Dow, industrial firms 3M and Honeywell were among the worst hit, falling 4.5% and 2.4% on Tuesday.
Aslam continued: "The possibility of economic growth slowing down, as hinted by a lower labour market report and rising coronavirus cases, amid tapering discussions among central bank officials, is having a major toll on investor confidence. Moreover, isolated hindrances in combatting the spread of the delta variant may likely dampen hopes of a strong global economic rebound and contribute to higher volatility in stock markets."
Economic recovery fears held back US stocks after financial markets in New York returned following the Labor Day holiday.
Sentiment is now more cautious, benefitting the dollar, despite markets in Europe rising at the start of the week under the expectation that Friday's poor US jobs result will delay the Federal Reserve's tapering plans.
The pound was quoted at USD1.3760 early Wednesday, down from USD1.3780 at the London equities close on Tuesday. The euro stood at USD1.1830, down from USD1.1840. Against the Japanese yen, the dollar was trading at JPY110.41, up from JPY110.20.
In London, Morrisons said it has begun talks with the Takeover Panel over the prospect of arranging an auction to decide who acquires the Bradford-based supermarket chain.
Clayton, Dubilier & Rice and Softbank-owned Fortress are the two suitors in the running to acquire the company, though Morrisons noted that neither have made final offers.
"Following completion of the auction procedure, the Morrisons board anticipates proceeding with either the Fortress meetings or the CD&R meetings depending on which offer it is recommending to Morrisons shareholders," the company added.
At the start of July, it agreed a GBP6.3 billion deal from a consortium of investment groups which included Fortress.
This sparked a bidding war, with Morrisons having most recently accepted a GBP7.0 billion takeover offer from CD&R, which aimed to win minds with the increased bid, and hearts by including Terry Leahy as an adviser. The Times reported in August that Leahy, a former Tesco chief executive, said during a video message that he "knew Sir Ken Morrison well" and understood the "values and vision" of the late former Morrisons chair.
Fortress on Wednesday continued to urge Morrisons shareholder to take no action in respect to the CD&R bid.
Morrisons - which has seen its share price surge in recent weeks due to the M&A prospects - will later this month re-enter the FTSE 100 just six months after a demotion in March.
Engineer Smiths Group said it has accepted a USD2.7 billion deal to sell its Smiths Medical unit to California-based medical technology firm ICU Medical.
The terms of the deal are "superior" to a USD2.3 billion sale it agreed with private equity firm TA Associates. The company had agreed the TA deal in August, though it has now withdrawn its recommendation for that offer.
The ICU Medical deal values Smiths Medical at USD2.7 billion, with a further USD100 million up for grabs depending on Nasdaq-listed ICU's share price performance following the acquisition.
Minus debt and other liabilities, the deal is worth USD2.4 billion, about USD400 million higher than the TA agreement.
In addition, Smiths will also receive 2.5 million ICU shares, worth USD500 million at current market prices.
Smiths plans to return 55% of the sales proceeds, equal to GBP737 million, to shareholders through a buyback.
Elsewhere in London, Dunelm declared a special payout to cap off a bumper year for the FTSE 250 firm, which benefitted from increased demand as a result of the Covid-19 pandemic.
With more working and playing indoors due to lockdown measures, Dunelm saw sales jump, despite its store estate being hit by restrictions.
In the year ended June 26, revenue rose 26% to GBP1.34 billion from GBP1.06 billion. Pretax profit jumped 45% to GBP157.8 million from GBP109.1 million.
Digital sales accounted for 46% of all sales, compared to 27% a year earlier, signalling just how large the shift to online has been.
Promisingly, it also reported like-for-like sales turned positive again in the fourth quarter again, and by a comfortable margin too. Like-for-like sales doubled in the fourth quarter, albeit lapping easier comparatives. Like-for-like sales had tumbled 29% a year earlier.
In the third quarter, like-for-likes fell 16%.
Dunelm declared a full-year ordinary dividend of 35.0 pence per share, having not paid one a year earlier. It also declared a 65.0p special payout.
"Sales growth in the first ten weeks of the new financial year has been encouraging, including a positive response from customers to our Summer Sale in July and continued outperformance versus the homewares market," Dunelm said.
It expects pretax profit to be "modestly ahead" of current analyst expectations.
In China, the Shanghai Composite was marginally higher in late trade, clawing back earlier losses, while the Hang Seng index in Hong Kong was down 0.2%. The S&P/ASX 200 in Sydney fell 0.2%, while Tokyo's Nikkei 225 rose 0.9%, taking its win streak to nine days.
A second estimate showed Japan's economic growth was larger-than-expected in the second quarter of 2021. According to the Cabinet Office, gross domestic product grew by 0.5% in the second quarter of 2021, topping the previous 0.3% forecast.
Annual growth was 1.9%, higher than the previous 1.3% estimate.
Still to come on Wednesday is an interest rate decision by the Bank of Canada at 1500 BST.
Brent oil was quoted at USD72.04 a barrel early Wednesday, up from USD71.67 late Tuesday. Gold rose to USD1,795.83 an ounce, from USD1,794.50.
By Eric Cunha; ericcunha@alliancenews.com
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Dunelm (DNLM)
Smiths Group (SMIN)