LONDON MARKET PRE-OPEN: UK inflation rips to 30-year high; GSK buys

(Alliance News) - Stocks in London were called flat on Wednesday morning as investors digest surging UK inflation data, which follows on the heels of red-hot consumer prices in the US and Germany.

In early corporate news in the UK, Tesco saw its annual sales grow, Glaxo has added to its portfolio and Oxford Instruments expects better results than guided.

IG futures indicate the FTSE 100 index is to open up just 3.84 points at 7,580.50 on Wednesday. The blue chip index closed down 41.65 points, or 0.6%, at 7,576.66 on Tuesday.

"Today's focus in Europe shifts to another busy day of inflation numbers, after the RBNZ decided to get ahead of the inflation curve in a move that could be a harbinger of aggressive hikes from central banks across the world," CMC Markets analyst Michael Hewson said.

The UK consumer prices index rose by 7.0% in the 12 months to March 2022, advancing from February's 6.2% rise, data from the Office for National Statistics showed.

Wednesday's print is the highest 12-month inflation rate in the National Statistics series, which began in January 1997. It is also the highest rate in the historic modelled series since March 1992.

The market consensus - according to FXStreet - had tipped a 6.7% rise.

Core inflation, which strips out energy, food and alcohol, accelerated to 5.7% from 5.2%, hitting a 30-year high. On a monthly basis, CPI rose by 1.1% in March, rising from the 0.8% rise seen in February.

"The rise in CPI inflation in March from 6.2% to a new 30-year high of 7.0% continued the run of upward surprises and will add more pressure on the Bank of England to raise interest rates rapidly. We think rates will rise from 0.75% to at least 2.00% next year," Capital Economics senior UK economist Ruth Gregory said.

"It's no secret that inflation is going to rise even further in April, with the 54% leap in utility prices set to add a whopping 1.6ppts to inflation. We think the result will be a rise in CPI inflation to around 8.5% in April. And while we suspect April could mark the peak, we think inflation will remain above 7.0% for most of 2022 and above 3.0% for most of 2023."

The pound was quoted at USD1.2995 early Wednesday, down from USD1.3037 at the London equities close on Tuesday.

The euro was priced at USD1.0826, down from USD1.0863.

In the US on Tuesday, Wall Street ended lower, with an initial rally following US inflation giving way to trepidation as traders fret about how far Russia is willing to go to gain territory in Ukraine. All three major indices lost 0.3%.

US President Joe Biden appeared to accuse Russian leader Vladimir Putin of genocide on Tuesday during a speech about gasoline prices.

"Your family budget, your ability to fill up your tank – none of it should hinge on whether a dictator declares war and commits genocide half a world away," Biden said at the event in Iowa.

The US has "credible information" that Russia "may use... chemical agents" in its offensive to take the besieged Ukrainian city of Mariupol, US Secretary of State Antony Blinken said Tuesday.

The Biden administration has sought to blame sharp rises at US gas stations on Putin's invasion of neighbouring Ukraine, during which Russian troops have been accused of committing atrocities against civilians.

Biden's comments came the same day data showed US consumer prices accelerated at a pace not seen since the early 1980s, driven by energy prices.

Data from the US Bureau of Labor Statistics showed consumer prices were 8.5% higher in March on an annual basis, matching market consensus, according to FXStreet, and stepping up from the 7.9% increase seen in February.

The US inflation print followed an equally hot figure in Germany, showing inflation raced to 7.3% in March, ahead of the 5.1% figure seen in February. Statistics agency Destatis noted March's reading saw inflation reach its highest level since German reunification - as energy prices continue to soar.

In London, blue chip grocer Tesco saw annual profit rise following a "strong performance" during the period, leading to the launch of a new GBP750 million share buyback.

In the year to February 26, pretax profit ballooned to GBP2.03 billion from GBP636 million the year prior.

Revenue rose 6% to GBP61.34 billion from GBP57.89 billion, as group sales increased 2.5% to GBP54.77 billion from GBP53.45 billion.

Like-for-like sales in the UK & RoI were up 2.2%, with group retail sales advancing 2.3%.

Tesco declared an annual dividend of 10.90 pence, rising from the 9.15p distributed the year before. Alongside this, the firm will buyback GBP750 million worth of shares over the next twelve months.

For financial 2023, Tesco is guiding for retail adjusted operating profit between GBP2.4 billion and GBP2.6 billion - which is below the GBP2.65 billion registered in financial 2022. It gave the guidance "in the form of a wider than usual range" to reflect the uncertainties facing the business, such as inflation and normalising customer behaviour.

GlaxoSmithKline said it has agreed to acquire late-stage biopharmaceutical company Sierra Oncology for USD1.9 billion.

The cash deal is still awaiting approval from regulators in the US and Europe, which GSK expects to close in the third quarter of 2022.

The pharma giant expects the deal to be accretive to adjusted earnings per share in 2024.

Luke Miels, chief commercial officer at GSK, said: "Sierra Oncology complements our commercial and medical expertise in haematology. Momelotinib offers a differentiated treatment option that could address the significant unmet medical needs of myelofibrosis patients with anaemia, the major reason patients discontinue treatment. With this proposed acquisition, we have the opportunity to potentially bring meaningful new benefits to patients and further strengthen our portfolio of specialty medicines."

FTSE 250-listed Oxford Instruments said it expects its annual revenue and adjusted operating profit to be "marginally" ahead of internal expectations.

Oxford Instruments, which makes scientific tools for research and industry, said the strong performance for the year ending March 31 comes despite supply chain disruption and cost inflation.

"This full year performance reflects good progress in the second half of the financial year, with continued strong order growth, supported by resilient end-markets, leaving the group with a healthy order book as it enters the current financial year," the company added.

Oxford Instruments was recently the subject of a takeover bid by fellow FTSE 250 constituent Spectris. But the deal has since been called off, with Spetris backing off due to "significant uncertainty in global economic conditions".

PZ Cussons boasted its new strategy is paying off, with third quarter like-for-like revenue rising 8.5% to GBP146.3 million.

Versus the third quarter two years ago, the FTSE 250-listed personal care and beauty products firm said like-for-like sales were up 14%.

"It is just over a year since we set out our new strategy, to return PZ Cussons to sustainable, profitable revenue growth. We are focusing on building our Must Win Brands, driving executional excellence, dramatically reducing complexity and transforming our functional capabilities," Chief Executive Jonathan Myers said.

Year to date, like for like revenue grew by 1.3%, but PZ noted it has declined by 5.5% on a reported basis.

In Asia on Wednesday, the Japanese Nikkei 225 index closed up 1.9%. In China, the Shanghai Composite was 0.4% lower, while the Hang Seng index in Hong Kong was up 0.4%. The S&P/ASX 200 in Sydney ended up 0.3%.

Against the yen, the dollar was trading at JPY125.13 early Wednesday, down a hair from JPY125.14.

Brent oil was quoted at USD104.51 a barrel on Wednesday morning, firm against USD104.70 at the time of the equity market close in London on Tuesday.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said: "Crude oil made a sharp U-turn yesterday, and rebounded more than 6% as the dip-buyers piled in after the price of a barrel slipped below the USD93 mark earlier this week and consolidates near the USD100pb level at the time I am talking.

"The fact that Putin wants to continue the war in Ukraine is pointed as the major reason behind the sharp rebound. The recent rebound in oil prices come as a confirmation that the latest relief was nothing more than a temporary correction and the overall trend remains comfortably positive."

Gold stood at USD1,967.10 an ounce, lower against USD1,973.44 late Tuesday.

Still to come in Wednesday's economic calendar are US producer price figures at 1330 BST.

By Paul McGowan; paulmcgowan@alliancenews.com

Copyright 2022 Alliance News Limited. All Rights Reserved.