Shares in London climbed in early exchanges on Monday, recovering from post-US personal consumption expenditures weakness, with the prospect of a UK and EU Northern Ireland protocol deal lifting the mood.
In early UK corporate news, Primark owner Associated British Foods and distribution firm Bunzl impressed, surging towards the top of the FTSE 100 index. Among mid-caps, Dechra slumped on a profit warning.
The FTSE 100 index opened up 62.25 points, 0.8%, at 7,940.81. The FTSE 250 was up 56.45 points, 0.3%, at 19,752.98, and the AIM All-Share was down 0.75 of a point, 0.1%, at 851.88.
The Cboe UK 100 was up 0.6% at 794.63, the Cboe UK 250 was up 0.4% at 17,289.31, and the Cboe Small Companies was marginally lower at 14,034.06.
In European equities on Monday, the CAC 40 in Paris and the DAX 40 in Frankfurt were each up 1.0%.
‘The FTSE 100 made a strong start to the week as investors shrugged off the inflation and interest rate concerns which bedevilled markets last week,’ AJ Bell analyst Russ Mould commented.
‘There was volatility in the pound early on Monday as traders waited to see if a deal might be done on the Northern Ireland protocol in the face of opposition from the euro-sceptic wing of the Conservative party and the DUP.’
UK Prime Minister Rishi Sunak appears to be on the verge of agreeing a Brexit deal aimed at easing trade friction in Northern Ireland as he enters into ‘final talks’ with the EU.
Sunak will meet European Commission president Ursula von der Leyen in Windsor, Berkshire, on Monday to discuss a ‘range of complex challenges’ around the Northern Ireland protocol, Downing Street said.
No 10 raised the prospect that the talks could produce a breakthrough moment after months of negotiations with Brussels about fixing the protocol.
The prospect of a deal seems to have boosted the mood in Europe.
Conservative Eurosceptics have warned the ‘devil is in the detail’. Even if long-awaited changes to the Northern Ireland protocol are agreed, it is likely to be only the start of the most challenging week of Sunak’s premiership.
He wants to win the support of the Democratic Unionist Party so they agree to restore power-sharing in Northern Ireland to get Stormont back up and running.
Conservative Brexiteer Jacob Rees-Mogg put Sunak on notice of a possible Tory revolt if the DUP does not support the deal, despite major concessions expected from the EU.
The former cabinet minister told GB News: ‘It will all depend on the DUP. If the DUP are against it, I think there will be quite a significant number of Conservatives who are unhappy.’
US equities on Friday came under selling pressure, after a key inflation reading came in hotter than expected.
The personal consumption expenditures index increased 5.4% on-year in January, according to the Bureau of Economic Analysis. The rate of PCE inflation quickened from 5.3% in December and came in notably ahead of the FXStreet cited consensus of a slowdown to 4.9%.
Wall Street closed in the red, with the Dow Jones Industrial Average ending down 1.0%, the S&P 500 down 1.1% and the Nasdaq Composite 1.7% lower.
The dollar was slightly softer in early exchanges, but markedly firmer than in recent weeks, with sterling so far unable to climb back above the $1.20 mark.
The pound was quoted at $1.1965 early Monday, higher than $1.1947 at the London equities close on Friday. The euro traded at $1.0556, up from $1.0545. Against the yen, the dollar was quoted at JP¥136.02, down versus JP¥136.31.
In the FTSE 100, Bunzl added 3.5% in early trade, as the firm hailed ‘another excellent year’ in 2022, and announced two further acquisitions.
The London-based distribution services company said annual revenue rose 17% year-on-year to £12.04 billion from £10.29 billion. Pretax profit increased 12% to £634.6 million from £568.7 million. It increased its dividend by 10% to 62.7 pence from 57.0p.
It left guidance for 2023 unchanged from its December trading statement. Back then, it said it expects a ‘resilient’ adjusted operating profit, with its operating margin ‘slightly higher than historical levels’.
Separately, Bunzl said it has agreed to acquire a German distributor of workwear and person protection equipment, and completed the acquisition of a Canadian packaging company.
Associated British Foods rose 2.5%.
AB Foods said it expects interim sales to be over 20% ahead of the last year at actual exchange rates, or over 16% ahead in constant currency. It now expects adjusted operating profit to be ‘broadly’ in line with the previous year.
Primark interim sales are expected to be £4.2 billion, or 19% higher than the year before.
The retail group is still facing ‘significant’ cost pressures, but has seen more resilient consumer spending than previously forecast. It raised expectations for its full year, now expected adjusted operating profit and adjusted earnings per share to be in line with the previous year.
AB Foods ends its financial year in September. While input costs have eased somewhat, it notes the continuing presence of macroeconomic headwinds which could weigh on consumer spending in the months ahead.
Broker recommendation changes were also moving the dial on Monday.
Property portal Rightmove added 3.2% as it was raised to ’hold’ by HSBC. Rolls-Royce added another 4.0% as the Bank of America raised the stock to ’buy’ from ’underperform’. Quilter fell 4.4%, as Citigroup cut the wealth manager’s stock to ’sell’.
In London’s midcap FTSE 250 index, Dechra Pharmaceuticals plunged 13%.
The veterinary pharmaceutical company reported ‘unpredictable’ trading patterns in 2023 so far, with wholesalers destocking. Dechra now expects full year underlying operating profit to be at the lower end of analyst expectations.
Dechra said revenue in the six months to December 31 rose 14% to £377.4 million from £332.4 million a year before.
‘The global companion animal healthcare market has returned to more normalised levels of growth following the extraordinarily high rates seen during the Covid-19 pandemic, and against that context our performance has been robust,’ the firm said.
Pretax profit fell sharply to £29.7 million from £53.4 million.
On AIM, Forward Partners shed 10%.
The early-stage technology-focused investor said the fair value of its portfolio fell 40% to no less than £79.0 million at December 31, from £117.1 million a year before. Net asset value per share is expected to plunge to 71.0p from 104p a year before.
The investment firm blamed valuation headwinds, ‘due to public market and macroeconomic pressures’.
‘2022 has been a year of challenge and change for tech firms and their investors across the globe and the companies within our portfolio faced significant headwinds. Despite the pressure on valuations many of them still grew rapidly,’ said Chief Executive Nic Brisbourne.
Gold was quoted at $1,811.79 an ounce early Monday, little changed from $1,811.07 on Friday. Brent oil was trading at $82.77 a barrel, higher than $81.83.
In Asia on Monday, the Nikkei 225 index closed down 0.1%. In China, the Shanghai Composite was down 0.4%, while the Hang Seng index in Hong Kong was down 0.7%. The S&P/ASX 200 in Sydney closed down 1.1%.
Still to come on Monday’s economic calendar, there is an EU economic sentiment reading at 1000 GMT.
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