Markets continued to trade cautiously on Thursday, with small moves, particularly for the FTSE 100, amid multiple risk events.
These include the possibility of a flare-up of military conflict between China and Taiwan, a UK interest rate decision due at midday, and the key US jobs figures for July set for release on Friday.
China's largest-ever military exercises encircling Taiwan began on Thursday, in a show of force straddling vital international shipping lanes after a visit to the island by US House Speaker Nancy Pelosi.
The BoE announces its latest rate decision at midday. It is expected to lift the benchmark bank rate by 50 basis points, the largest hike in almost three decades.
A stack of corporate updates gave investors plenty to chew on before the UK interest rate decision, with guidance hikes from Next and Serco lifting their stock, while Hikma's tumbled on a lower outlook for its Generics arm.
The FTSE 100 was down just 1.50 points at 7,444.18 early Thursday. The FTSE 250 index was up 114.20 points, 0.6%, at 20,133.04. The AIM All-Share index was up 2.39 points, or 0.3%, at 922.70.
The Cboe UK 100 index was flat at 742.87. The Cboe 250 was up 0.7% at 17,550.65. The Cboe Small Companies was up 0.2% at 13,976.85.
In Paris, the CAC 40 stock index was up 0.4%, while in Frankfurt, the DAX 40 was 0.7% higher.
Pelosi left Taiwan Wednesday after a trip that defied a series of increasingly stark threats from Beijing, which views the self-ruled island as its territory.
Second in line to the presidency, Pelosi was the highest-profile elected US official to visit Taiwan in 25 years. She said her presence made it ‘unequivocally clear’ that the US would ‘not abandon’ a democratic ally such as Taiwan.
The trip sparked a furious reaction from Beijing, which vowed ‘punishment’ and announced military drills in the seas around Taiwan - some of the world's busiest waterways.
These military manoeuvres already have gone into full swing with widespread firing exercises on Thursday.
The eastern military command of the People's Liberation Army reported that long-range shells were fired in the Taiwan Strait, which separates Taiwan from the mainland, and east of the island. ‘Precision strikes’ were also made in the east for practice, Chinese state television reported.
Markets in Asia-Pacific were largely higher on Thursday. In Tokyo, the Nikkei 225 added 0.7%, while the S&P/ASX 200 in Sydney closed flat. In China, Shanghai Composite climbed 0.8% and the Hang Seng Index in Hong Kong surged 1.9%.
‘One thing we can say for sure is that August hasn't been dull so far and we've only had three days. This is all before the biggest BoE hike for 27 years (50bps) likely today, and then US payrolls tomorrow,’ analysts at Deutsche Bank commented.
The BoE reveals its latest policy decision at midday. It is expected to lift the bank rate by half a percentage point to 1.75%, the largest rate hike since 1995.
In addition to its interest rate decision, the BoE releases its latest central economic projections and has promised to update on balance sheet reduction plans.
The pound was on the up ahead of the policy decision. Sterling fetched $1.2172 early Thursday in London, up from $1.2110 late Wednesday. The euro stood at $1.0182, up from $1.0125. Against the yen, the dollar was trading at JP¥134.02, down slightly from JP¥134.30.
Brent oil was quoted at $96.31 a barrel early Thursday UK time, down from $98.50 at the London equities close on Wednesday.
‘The oil price has moved sharply lower overnight as reports of rising inventory levels in the US spark concerns that demand for oil is slowing,’ analysts at Lloyds Bank commented.
The latest US Energy Information Administration figures showed weekly oil stockpiles increased by 4.5 million barrels in the seven days to July 29. They had been expected to decline by more than 600,000 barrels, according to FXStreet-cited consensus.
Gold was having a better time, as the dollar's momentum waned. The precious metal stood at $1,774.63 an ounce early Thursday, up strongly from $1,757.20 late Wednesday.
In London, Phoenix Group added 2.5% on the prospect of a step-up in shareholder returns, as it announced an acquisition.
The London-based insurance services provider will acquire life insurer SLF of Canada UK, or Sun Life UK, for £248 million. It has purchased the unit from Sun Life Financial Inc.
The deal supports a ‘2.5% inorganic dividend increase’, effective from its final 2022 payout, Phoenix said.
‘In future years, we intend to simplify our dividend communications by announcing any dividend increase at the time of our full-year results, which will combine both organic and inorganic growth, rather than providing separate dividend guidance on announcement of future [mergers and acquisitions],’ the firm said.
Elsewhere in the M&A space, Go-Ahead added 2.6% to 1,538.40 pence, as the public transport provider received a slightly improved takeover offer from a consortium consisting of Kinetic Holding and Globalvia Inversiones.
They had already agreed on a 1,500p per share takeover. The offer now has been raised to 1,550p. The bid comprises of a 1,450p cash element and a special dividend of 100p per share. It values Go-Ahead at £669 million.
The new offer is recommended unanimously by the Go-Ahead board and also has support from a list of institutional investors in Go-Ahead, including abrdn, Jupiter, M&G and Schroders.
Go-Ahead has a market capitalisation of £664.2 million.
Also on the up, Mediclinic added 1.9% to 493.00p, giving it a market cap of £3.63 billion.
It backed a consortium's takeover offer, which values the hospital chain's share capital at £3.7 billion. On an enterprise value basis, including debt, it values it at £6.1 billion.
SAS Shipping Agencies Services and Remgro will pay 504p per Mediclinic share. The consortium made the latest proposal in July.
Mediclinic at the time said it would be ‘minded’ to recommend a bid of that sum to its shareholders. Mediclinic in July said it had received three further takeover offers from the consortium, after it rejected the first offer in June.
Next shares rose 2.0% after second-quarter sales came in ahead of forecasts, partly thanks to dry weather in the UK encouraging people to dress up and go out.
Full-price sales for the second quarter that ended July 30 rose 4.5% year-on-year, slowing from a 22% climb in the first quarter, but still topping expectations. Compared to pre-Covid times, second-quarter full-price sales were 26% higher.
Next said full price sales were £50 million ahead of guidance.
Next lifted annual pretax profit guidance by £10 million to a new outlook of £860 million, which would be a 4.5% rise from £823.1 million in financial 2022.
There was also a guidance hike from Serco. The outsourcer topped the FTSE 250s, rising 6.0%.
‘We did much better in the first half than we expected in January, and as a consequence also expect to do better than we originally anticipated in the full year,’ Chief Executive Rupert Soames said.
Revenue inched up 0.5% to £2.18 billion from £2.17 billion. Pretax profit was up 10% to £114.0 million from £103.7 million. Serco lifted its payout by 18% to 0.94 pence per share from 0.80p.
Serco now expects underlying trading profit of around £230 million. It had previously forecast £225 million.
There was a guidance cut from Hikma Pharmaceuticals, however, sending its shares 8.9% lower.
Hikma said revenue in the first half of 2022 inched down 0.2% year-on-year to $1.21 billion from $1.22 billion. Pretax profit fell by a third to $215 million from $319 million.
Hikma's outlook cut came in its Generics arm. It now guides for annual revenue there between $650 million and $675 million, down from the previous $710 million to $750 million range. The unit's core operating margin will land between 15% and 16%, down from 20%.
Hikma blamed this on the ‘persistent challenges of the US generics market’.
Mondi gave back 5.3%. The paper and packaging firm reported a strong rise in revenue in the first half, but warned inflation could hurt its costs in the second half of 2022.
In the six months to June 30, pretax profit surged to €933 million from €354 million, as revenue jumped 37% to €4.51 billion from €3.28 billion.
It declared an interim dividend of 21.67 euro cents, up 8% year-on-year.
Looking ahead, however, Chief Executive Andrew King said: ‘Pricing remains strong going into the second half, although we do anticipate continued inflationary pressures on our cost base and ongoing supply chain challenges. While significant geopolitical and macroeconomic uncertainties remain, we expect a year of good progress.’
The economic events calendar on Thursday has a construction PMI reading from the UK at 0930 BST. On Friday, the US nonfarm payroll report is due at 1330 BST.
The Dow Jones Industrial Average closed up 1.3% on Wednesday, the S&P 500 added 1.6% and the Nasdaq Composite surged 2.6%.
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