LONDON MARKET PRE-OPEN: Tesco raises guidance after strong Christmas

Thu, 13th Jan 2022 07:51

(Alliance News) - Stock prices in London are seen opening down slightly on Thursday, tracking Asian equity markets lower, against a backdrop of rising US inflation.

In early company news, the UK's largest supermarket chain Tesco raised its guidance after strong Christmas trading. Housebuilder Persimmon expressed optimism over its prospects and poached its new finance head from Aviva.

IG futures indicate the FTSE 100 index is to open 6.02 points lower at 7,545.70. The blue-chip index closed up 60.35 points, or 0.8%, at 7,551.72 on Wednesday.

Tesco said it delivered a strong third quarter and Christmas trading performance, bolstered by the grocer's "unwavering" commitment to value for customers.

For the 19 weeks to January 8, like-for-like retail sales were up 2.6% compared to the same period the year before. Over the Christmas period alone, like-for-like sales grew 3.2% year-on-year.

Tesco said as a result of stronger-than-expected sales to date, it now expects retail operating profit for financial 2022 slightly above the top-end of its previous GBP2.5 billion to GBP2.6 billion guidance range. It posted retail operating profit of GBP1.99 billion in financial 2021.

"Despite growing cost pressures and supply chain challenges in the industry, we continued to invest to protect availability, doubled down on our commitment to deliver great value and offered our strongest ever festive range. This put us in a strong position to meet customers' needs as, once again, Covid-19 led to a greater focus on celebrating at home. As a result, we outperformed the market, growing market share and strengthening our value position," said Chief Executive Officer Ken Murphy.

Persimmon hailed its "excellent" performance throughout 2021 and said the long-term fundamentals of the UK housing market remain strong.

Persimmon said it delivered 14,551 new home completions in 2021, up from 13,575 in 2020, with an average selling price of GBP237,050, up from GBP230,534.

The York-based housebuilder said total revenue in 2021 was GBP3.61 billion, up from GBP3.33 billion in 2020. New housing revenue was GBP3.45 billion, up from GBP3.13 billion.

Addressing sector concerns, Persimmon said it agreed with the UK government that leaseholders should not have to pay to remove flammable cladding.

Persimmon said it constructed only a "very small proportion" of buildings affected by this issue, which caused the deadly fire at the Grenfell Tower in 2017. In common with the rest of the housebuilding industry, it will shortly begin paying the cladding levy announced in the UK budget, it noted.

"Whilst the industry continues to face the ongoing operational and economic challenges as a consequence of the pandemic, particularly as the Omicron outbreak unfolded in the last six weeks of the year, the group continues to manage these ongoing challenges comprehensively. The long term fundamentals of the UK housing market remain strong," said Chief Executive Officer Dean Finch.

In addition, Persimmon appointed Jason Windsor as its new chief financial officer, hired from insurer Aviva to succeed Mike Killoran, who will be retiring in mid-January. Aviva noted the announcement and said a search for a new CFO is underway.

Marks & Spencer said it put in a strong performance in its financial third quarter and over the Christmas period.

For the 13 weeks to January 1, group sales were GBP3.27 billion, up 19% from the same time a year before.

As a result of performance over the period, M&S said it was more confident of its ability to deliver the increased guidance it set, and now expects full-year profit before tax and adjusting items of at least GBP500 million.

"Trading over the Christmas period has been strong, demonstrating the continued improvements we've made to product and value. Clothing & Home has delivered growth for the second successive quarter, supported by robust online and full price sales growth. Food has maintained its momentum, outperforming the market over both 12 and 24 months. The market continues to be impacted by the headwinds and tailwinds that we reported in the first half, but I remain encouraged that our transformation plan is now driving improved performance," said CEO Steve Rowe.

In Asia on Thursday, the Japanese Nikkei 225 index closed down 1.0%. In China, the Shanghai Composite ended down 1.2%, while the Hang Seng index in Hong Kong was down 0.2%. The S&P/ASX 200 in Sydney closed up 0.5%.

The annual rate of consumer price inflation in the US ended 2021 at its highest level in 40 years, according to figures from the Department of Labor on Wednesday.

The US consumer price index print for December showed the highest rate of inflation since June of 1982 at 7.0%, following a 6.8% annual acceleration in November.

US inflation is "too high" and the Federal Reserve will make the issue a priority, Lael Brainard, the nominee to take the number-two position at the central bank, said Wednesday.

The Fed's "most important task" is to focus on "getting inflation back down to two percent while sustaining a recovery that includes everyone," Brainard said in remarks prepared for delivery at her nomination hearing before the Senate Banking Committee on Thursday.

"European futures are trading lower as investors show their concern about the Fed's hawkish monetary policy stance. The fact is that traders aren't ready to support the riskier assets as they did before because they believe that four interest rate hikes this year will be too much as the US economy isn't ready for such an aggressive monetary policy," said AvaTrade analyst Naeem Aslam.

"The inflation number confirmed that Fed couldn't afford to sit on its hands and action is required. In fact, there was further noise in the market related to a possible interest rate hike that could take place as soon as March. The question which stands in front of traders is if the US situation economy can withstand such a liquidity shock given that the whole economy and equity markets are addicted to a dovish monetary policy stance," Aslam added.

A Fed official would be open to supporting more than three interest rate rises this year if inflation surges higher, he told the Financial Times.

Patrick Harker, president of the Philadelphia branch of the Federal Reserve, became the latest US central bank official to back a rate hike in March. "I currently have three increases in for this year, and I'd be very open to starting in March," Harker said in an interview with the newspaper. "I'd be open to more if that's required."

The pound was quoted at USD1.3730 early Thursday, up from USD1.3693 at the London equities close Wednesday.

Boris Johnson's tenure as UK prime minister is increasingly reliant on the outcome of a potentially bombshell report being prepared by a senior official, as he faced brazen calls for his resignation from his own backbenchers.

Johnson apologised on Wednesday for attending a "bring your own booze" party in the Downing Street garden in May 2020, when the rest of the country was in lockdown. He said an inquiry headed by senior official Sue Gray was examining the situation but accepted "there were things we simply did not get right and I must take responsibility".

The scandal prompted furious Tory MPs to call for the prime minister to resign. A second consecutive day of almost unilaterally negative coverage by the UK press of Johnson on Thursday also featured widespread calls for his resignation.

The euro was priced at USD1.1462, up from USD1.1425 late Wednesday. Against the Japanese yen, the dollar was trading at JPY114.47, down from JPY114.73.

Brent oil was quoted at USD84.25 a barrel Thursday morning, down from USD84.68 late Wednesday. Gold stood at USD1,827.00 an ounce, up from USD1,822.60.

Thursday's economic calendar has US producer prices and the latest jobless claims numbers at 1330 GMT.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com