LONDON MARKET PRE-OPEN: UK labour market stronger than expected

(Alliance News) - Stocks in London are set to to open in the green on Tuesday, adding to Monday's slight gains, while the pound could be in for a tumultuous couple of days.

In early news in London, the UK unemployment rate was slightly better than expected, while ContourGlobal has received a hefty buyout from the US.

IG futures indicate the FTSE 100 index will open up 20.90 points, or 0.3%, at 7,485.70 on Tuesday. The blue-chip index closed up 46.65 points, 0.6%, at 7,464.80 on Monday.

"Markets remain in fight or flight mode while rolling the dice on recession odds," SPI Asset Management's Stephen Innes said. "Still, traders seem to be in the mood to stay bearish until proven otherwise. However, there is still a lingering risk-on tone despite horrific Chinese data.

"Investors' hopes remain elevated that yesterday's worse-than-expected Chinese outruns could prove to be a 'whatever it takes' moment, and local policymakers will step hard on the stimulus pedal," he continued.

In Asia on Tuesday, the Japanese Nikkei 225 index was up 0.5%. In China, the Shanghai Composite was 0.5% higher, while the Hang Seng index in Hong Kong was up 2.3%. The S&P/ASX 200 in Sydney was up 0.3%.

Shanghai on Tuesday declared it had achieved "zero-Covid" across all its districts, sparking derision on social media as millions in China's biggest city remained under lockdown.

Confronted with its worst outbreak since the beginning of the pandemic, China – the last major economy still closed off to the world – put the city of 25 million under heavy restrictions in early April.

The government's insistence on squashing the Omicron variant-driven outbreak prompted rare protests and angry scuffles with authorities as Shanghai residents reject the prolonged confinement and food shortages.

The impact of this strategy on the world's second-largest economy was revealed Monday when official data showed that retail sales and industrial production in April had slumped to their lowest levels in more than two years.

Authorities in Shanghai – China's biggest city – over the weekend announced they will reopen in stages, news that provided some cheer to Asian markets.

In London, official data showed the UK unemployment rate came in ahead of expectations.

The three-month UK unemployment rate was estimated at 3.7% for May, 0.3 percentage point lower than the previous three-month period, and 0.2 percentage point below pre-coronavirus pandemic levels.

The figure also beat market consensus forecasts, according to FXStreet, of 3.8%.

The Office for National Statistics also released figures showing regular pay in the UK was up 4.2% year-on-year in the January-to-March period.

Average total pay growth for the private sector was 8.2% in January to March, and for the public sector was 1.6% in the same time period.

Capital Economics said: "The labour market has remained stronger than expected even though the economy has been weaker than anticipated. This supports our view that the Bank of England will have to raise interest rates further than widely expected, perhaps from 1.00% now to 3.00% next year."

The pound was quoted at USD1.2387 early Tuesday, higher than USD1.2250 at the London equities close on Monday.

Prior to the data release, analysts at Commerzbank had said: "The Bank of England is concerned about the economy and fears a notable slowdown. However, this week's data publications are likely to illustrate that interest rate hikes will still be necessary. A tight labour market - due today - as well inflation - due tomorrow - which in April is likely to have risen above 9% according to the Bloomberg consensus, require further monetary policy tightening and the BoE signalled that it is willing to do exactly that."

In early company news, UK competition regulators have said they will be taking a closer look at London Stock Exchange's acquisition of Quantilep.

Earlier this month, Competition & Markets Authority had given LSEG a week to soothe the competition concerns it had about the deal.

On Tuesday, however, the CMA said it will refer the merger for "an in-depth investigation". The regulator said the undertakings that LSEG had offered did not provide "clear-cut solutions" to its concerns.

In December, LSEG announced that it would acquire portfolio, margin and capital optimisation services provider Quantile for up to GBP274 million, an acquisition which would allow the stock exchange operator to expand its range of post-trade risk management solutions to its customers.

Tobacco firm Imperial Brands said it was "pleased" with its performance in the first half of its financial, as it was able to up its interim dividend but saw a sharp drop in profit.

In the six months to March 31, operating profit slumped 27% to GBP1.20 billion from GBP1.64 billion. Imperial noted that operating profit in the recent year suffered from GBP201 million in charges for its exit from Russia, while the year before benefited from a GBP281 million gain from the sale of its cigar business.

Pretax profit was down to GBP1.26 billion from GBP2.06 billion.

Net revenue declined by 1.3% to GBP15.36 billion from GBP15.57 billion, which was blamed on lower excise duty in Europe.

"These results provide further evidence that we have achieved the stabilisation of our core combustible business. During the first half of the year, we increased aggregate market share in the five priority markets which account for around 70% of our operating profit, while maintaining pricing discipline. This strong performance is an outcome of our tighter performance management and disciplined investment in sales execution and brand building," Chief Executive Stefan Bomhard explained.

Imperial upped its interim dividend to 42.54 pence, rising 1.0% from 42.12p issued in the same period a year prior.

Vodafone reported strong revenue growth in financial 2022, aided by Service revenue growth in Europe and Africa, but offered no further updates on its new largest shareholder, Emirates Telecommunications.

For the financial year that ended March 31, Vodafone's pretax profit fell to EUR3.95 billion from EUR4.40 billion, but operating profit improved to EUR5.66 billion from EUR5.10 billion.

Revenue was up to EUR45.58 billion from EUR43.81 billion, with Service revenue up 2.6% to EUR38.20 billion.

Chief Executive Nick Read said: "Our near-term operational and portfolio priorities remain unchanged from those communicated 6 months ago. We are focused on improving the commercial performance in Germany, actively pursuing opportunities with Vantage Towers and strengthening our market positions in Europe. These actions, together with the simplification of our portfolio and the ongoing delivery of our organic growth strategy, will create further value for our shareholders."

Vodafone left its annual dividend unchanged at 9.00 euro cents.

Emirates Telecom, formerly known as Etisalat, has taken a 9.8% shareholding but said it has no plans to make a takeover offer. On Saturday, it said subsidiary Atlas 2022 Holdings Ltd purchased 2.77 billion Vodafone shares for about USD4.4 billion, praising the quality of the business and its brand.

FTSE 250-listed ContourGlobal has agreed to a takeover by US private equity giant Kohlberg Kravis Roberts & Co.

New York-based KKR has offered 263.6 pence per share for ContourGlobal, valuing the London-based power generation firm at about GBP1.75 billion. It closed trading in London on Monday at 193.40p, giving it a market cap of about GBP1.25 billion.

ContourGlobal's board have unanimously recommended the deal. Chair Craig Huff said the offer will "provide an opportunity for all shareholders to crystallise their investment in ContourGlobal at an attractive price."

"The board of ContourGlobal welcomes KKR's intention to provide capital and operational expertise to support ContourGlobal's strategy, including accelerating investments in the energy transition," he added.

The euro was priced at USD1.0463, up against USD1.0402. Against the yen, the dollar was trading at JPY129.26, up from JPY129.10.

Brent oil was quoted at USD112.90 a barrel Tuesday morning, higher from USD112.19 late Monday. Gold stood at USD1,828.30 an ounce, up against USD1,812.63.

In the US on Monday, equities ended largely lower, with a decent afternoon turnaround giving way to cautious trade at the end of the session as a tough period for markets continues.

The Dow Jones Industrial Average closed up 0.1% but the S&P 500 down 0.4%. The Nasdaq Composite closed down 1.2%.

Still in the economic calendar for Tuesday, there are US retail sales at 1330 BST and eurozone gross domestic product data are reported at 1000 BST.

Ahead of the GDP data, the European Commission on Monday downgraded its economic forecast for the EU and the eurozone, predicting economic activity to grow slower than previously thought, even as inflation accelerates quicker than expected.

By Paul McGowan; paulmcgowan@alliancenews.com

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