(Alliance News) - Stocks in London are set to regain some poise Friday after a sharp sell-off in the previous session, driven by worries that the more infectious Delta variant will set back the global economic recovery.
Unlikely to soothe these fears was data early Friday showing the UK economy grew for a fourth straight month in May, but by less than expected despite pubs and restaurants in England being able to serve indoors again.
Sterling gave up some overnight gains following the figures, quoted at USD1.3766 early Friday, flat against USD1.3763 at the London equities close on Thursday.
UK gross domestic product grew 0.8% in May from April, missing forecasts for a stronger monthly gain of 1.7%, according to FXStreet, and below April's growth of 2.0%, which itself was revised down from 2.3%. The economy remains 3.1% below its pre-virus levels, the ONS said.
In early UK company news, Marlboro cigarette maker Philip Morris International has agreed to buy Vectura in a GBP1.0 billion deal.
Victrex said it sees some upside to its current financial year, though cautioned on headwinds for the year after.
IG says futures indicate the FTSE 100 index of large-caps to open up 28.44 points, or 0.4%, at 7,059.10 on Friday. The FTSE 100 closed down 120.36 points, or 1.7%, at 7,030.66 on Thursday.
"The slide in US 10-year yields this week appears to suggest that bond investors are becoming increasingly concerned about a sharp slowdown in global and US growth prospects, as well as diminishing inflation expectations," said Michael Hewson, chief market analyst at CMC Markets.
He pointed towards the Japanese government's decision to bar fans from the Olympic Games as the Delta variant drives Covid-19 outbreaks in parts of Asia-Pacific and Africa, and cases rise again in Europe and the US.
Prime Minister Yoshihide Suga announced that Tokyo will be under a state of emergency throughout the Games, until August 22.
In Australia the government said it would rush 300,000 vaccine doses to Sydney as the country's largest city – in its third week of lockdown – struggled to bring a Delta outbreak under control. South Korea, once considered a coronavirus response model along with Australia, reported nearly 1,300 new infections Thursday, the highest since the pandemic began.
On the inflation front, China reported a slowdown in consumer price growth in June due to falling pork prices. China's consumer price index, a key gauge of retail inflation, rose 1.1% on-year in June – lower than analysts expected, and down from the month before.
The producer price index, which measures the cost of goods at the factory gate, rose 8.8% on-year – again edging down from May, when prices surged 9.0%.
"In June, preliminary effects of policies to stabilise the supply and cost of commodities can be seen...and the rise in prices of industrial products has slowed," said Dong Lijuan, senior statistician at the National Bureau of Statistics.
In Asia on Friday, the Japanese Nikkei 225 index closed down 0.6%. In China, the Shanghai Composite was flat, while the Hang Seng index in Hong Kong was up 1.0%. The S&P/ASX 200 in Sydney ended down 0.9%.
In the US on Thursday, Wall Street ended in the red, with the Dow Jones Industrial Average down 0.8%, the S&P 500 down 0.9% and the Nasdaq Composite down 0.7%.
However, London is poised for a higher start on Friday.
"Today's Asia session has seen further weakness, although much of that was a continuation of the sell-off from Thursday, with today's European open set to see a modest rebound, as investors weigh up whether this is simply another opportunity to buy the dip," said CMC's Hewson.
In early UK company news, Philip Morris International said it has agreed a deal to buy London-listed asthma treatment firm Vectura Group as Philip Morris looks to expand its reach beyond tobacco and nicotine.
Philip Morris will pay 150 pence per share in cash for Vectura, a Wiltshire, England-based inhaled drug delivery devices maker. Adding a 19p interim dividend, the deal values the FTSE 250 constituent at GBP1.04 billion.
Shares in Vectura closed at 135.6p on Thursday, giving the company a market capitalisation of GBP805 million.
Following the PMI offer, Vectura's directors withdrew their recommendation for a GBP958 million takeover by funds managed by private equity firm Carlyle Group Inc. PMI's offer is a 10% premium to Carlyle's 136p per share bid.
"PMI is expanding into products beyond tobacco and nicotine, as part of a natural evolution into a broader healthcare and wellness company," the New York-based company said.
In February, Philip Morris announced plans to generate at least USD1 billion of annual revenue from its Beyond Nicotine range by 2025. Respiratory delivery drugs are seen as key to that.
London-based commercial property developer Land Securities said it made good progress with rent collection in the June quarter.
As at July 7, 81% of net rent due on June 24 had been paid. Of the GBP18 million of rent outstanding, GBP6 million relates to customers who have withheld payment pending documentation of agreed concessions.
Landsec also confirmed that the first quarter dividend for the current financial year will be 7.0p per share, paid in October.
Derwent - a property developer and landlord focused on central London - also released a positive rent collection update, saying it has received 89% of total rent due for the June quarter, with a further 5% expected later.
Polymer supplier Victrex said it sees upside risk to current full-year expectations, but warned of headwinds for the 2022 financial year.
The company said it is seeing continued momentum in most end markets and posted 37% growth in third quarter revenue to GBP80.7 million, with sales volumes of 1,202 tonnes up 49% year-on-year.
On a year-to-date basis, being the nine months to June 30, revenue was up 10% year-on-year at GBP231.6 million.
"Reflecting the volume strength on a year to date basis, we now see the potential for some upside to current full year expectations, with our internal assumptions being closer to the upper end of market expectations," said Chief Executive Jakob Sigurdsson.
However, he noted that for the 2022 financial year, Victrex will have to contend with foreign currency headwinds, increasing raw material inflation, an anticipated uplift in innovation spend to support the long-term growth pipeline, and some costs associated with commissioning its China manufacturing facility.
"These effects will weigh on our 2022 prospects, although we remain focused on growth," said Sigurdsson.
The euro traded at USD1.1834 early Friday, down from USD1.1842 late Thursday. Against the yen, the dollar rose to JPY110.02 versus JPY109.79.
Gold was quoted at USD1,802.49 an ounce early Friday, higher than USD1,796.50 on Thursday. Brent oil was trading at USD74.34 a barrel, up from USD73.70 late Thursday.
By Lucy Heming; lucyheming@alliancenews.com
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