LONDON MARKET PRE-OPEN: Tesco takes market share as inflation soars

(Alliance News) - Stocks in London are set to rebound at the end of a central bank-intense week which has seen sentiment towards risk assets pummelled as interest rates rise globally - except in Japan.

In early UK company news, Tesco reported first quarter annual sales growth, boosted by wholesaler Booker, while Glencore said its interim Marketing profit is set to exceed its annual target. The future of advertising firm M&C Saatchi was tossed up in the air, as it rejected both of its suitors but also said it may not be able to deliver on its plans as a standalone company.

IG says futures indicate the FTSE 100 index of large-caps to open up 35.42 points, or 0.5%, at 7,080.40 on Friday. The FTSE 100 closed down 228.43 points, or 3.1%, at 7,044.98 on Thursday - at this level putting the index on track for a week-to-date loss of 3.7%.

Traders this week have had to contend with interest rates hikes by major central banks, from a 75 basis point jump by the US Federal Reserve to a surprise half-point increase by the Swiss National Bank.

"It was probably the SNB that broke the camel's back, because if the Swiss are worried about inflation, we all should be," said Jeffery Halley, senior market analyst at Oanda.

Wall Street ended sharply lower on Thursday, with the Dow Jones Industrial Average down 2.4%, the S&P 500 down 3.3% and the Nasdaq Composite down 4.1%.

In Asia on Friday, the Japanese Nikkei 225 index closed down 1.8%. In China, the Shanghai Composite was up 1.1%, while the Hang Seng index in Hong Kong was up 1.0%. The S&P/ASX 200 in Sydney dived 1.8%.

However, stocks in London are seen recovering somewhat on Friday, following their recent heavy losses.

"There is also a sense of relief the BoJ held steady on policy, as the last thing the market needed was another blowdown equity valve to give way," said Stephen Innes, managing partner at SPI Asset Management.

The Bank of Japan on Friday stuck to its long-held monetary easing policy.

But it said it would "pay due attention" to foreign exchange markets, a rare comment that comes after the yen hit a 24-year low against the dollar.

In a statement following a two-day policy meeting, the BoJ kept in place its target rate of minus 0.1% – part of a decade-old action plan aimed at boosting the world's third-largest economy – bucking pressure to address the impact of a weaker yen.

The widening chasm between Japanese and US monetary policy has pushed the yen to its lowest level against the dollar since 1998, a cause for increasing concern that even the central bank made reference to.

The dollar was quoted at JPY134.24 early Friday in London, up versus JPY132.22 on Thursday. This week, the greenback hit its highest level against the yen since 1998, at JPY135.60.

In early UK company news, Tesco held guidance as it took UK grocery market share in an inflationary environment.

Retail sales in the 13 weeks to May 28 came in at GBP13.57 billion, up 2.0% on a like-for-like basis on a year and up 9.9% like-for-like against three years ago.

In the UK, where like-for-like sales fell 1.5% on an annual basis, the grocer notched market share growth of 37 basis points.

"Whilst the market environment remains incredibly challenging, our laser focus on value, as well as the daily dedication and hard work of our colleagues, has helped us to outperform the market," said Chief Executive Ken Murphy.

Amongst other Tesco divisions, wholesaler Booker saw annual like-for-like sales jump 19%, with Tesco saying this strong performance was driven by catering and the lapping of lockdowns.

In central Europe, sales were up 9.0% on a year before, with 40 basis point of market share growth across its territories.

"Although difficult to separate from the significant impact of lapping last year's lockdowns, we are seeing some early indications of changing customer behaviour as a result of the inflationary environment," said Murphy.

Despite the challenging backdrop, Tesco left its full-year guidance unchanged.

Miner Glencore said it expects its Marketing segment's half-year earnings to top USD3.2 billion, being the upper end of its long-term adjusted earnings before interest and tax annual guidance range of USD2.2 billion to USD3.2 billion.

"Our Marketing segment's financial performance has continued to be supported by periods of heightened-to-extreme levels of market volatility, supply disruption and tight physical market conditions, particularly relating to global energy markets," said Glencore, though adding that market conditions should normalise in the second half of the year.

Turning to its Industrial coal business, Glencore said its February full-year portfolio mix adjustment guidance of USD32.8 per tonne is expected to increase to a range of USD82 to USD86 per tonne for the first half.

Glencore's coal portfolio mix adjustment guidance is used to calculate an overall realised price for its coal portfolio as a deduction against the Newcastle thermal coal price.

At the same time, Glencore's reported average FOB thermal unit cost is now expected to be USD75 to USD78 per tonne, up compared to earlier guidance of USD59.3 per tonne for 2022, after booking higher input costs.

Glencore will release first-half production report on July 29 and its interim results on August 4.

Magazine publisher Future confirmed it is on track to meet full-year guidance after an "encouraging" start to the second half continued.

"The group continues to benefit from the effect of its diversified audiences and revenue streams, its operating leverage, excellent cash conversion and strong balance sheet," Future said.

Additionally on Friday, Future said it has completed the acquisition of Who What Wear, a leading digital-only women's lifestyle publisher based in the US.

James Fisher & Sons said it has appointed former Smiths Group executive Jean Vernet as its new chief executive, effective September 5.

Vernet has experience working in the offshore energy sector both in the UK and globally, James Fisher noted. He was most recently chief executive of Smith Group's largest division, John Crane.

Current James Fisher CEO Eoghan O'Lionaird will step down in September, though will remain employed by the company until June 13, 2023, to ensure a smooth handover.

M&C Saatchi said it no longer recommends shareholders vote in favour of its takeover by Next Fifteen Communications, given a recent "deterioration in value of Next 15 shares".

In May, digital marketing services firm Next Fifteen Communications announced it had reached an agreement with M&C Saatchi on a cash-and-shares takeover. It offered 0.1637 of a Next Fifteen share and 40 pence in cash for each M&C Saatchi share, valuing M&C shares at 247.2 pence each.

Since announcing the deal, Next Fifteen shares have fallen around 30%. This now means the Next Fifteen offer implies a value of 189 pence per M&C Saatchi share, the advertising agency noted on Friday.

"Based solely on financial terms, the M&C Saatchi directors consider each of the [AdvancedAdvT] offer and Next 15 offer to be inferior to M&C Saatchi's standalone prospects. However, if those standalone prospects were incapable of being delivered as envisaged, then the M&C Saatchi directors consider the Next 15 offer to be superior to the ADV offer and Next 15 to be the preferred future owner of the M&C Saatchi business," said M&C.

Sterling was quoted at USD1.2275 early Friday, down from USD1.2311 at the London equities close on Thursday.

The euro traded at USD1.0516 early Friday, firm against USD1.0509 late Thursday.

Gold was quoted at USD1,846.39 an ounce early Friday, higher than USD1,841.77 on Thursday. Brent oil was trading at USD119.48 a barrel, up from USD118.37 late Thursday.

The economic events calendar on Friday has an inflation print from the eurozone at 1000 BST.

By Lucy Heming; lucyheming@alliancenews.com

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