Concern that China will revert to its strict zero-Covid policy was hurting equity markets and oil prices early Monday, but the risk-off atmosphere was supporting the dollar.
The FTSE 100 index opened 32.80 points, 0.4%, lower at 7,352.72. The FTSE 250 was down 84.20 points, 0.4%, at 19,198.85. The AIM All-Share was up 0.62 of a point, or 0.1%, at 838.87.
The Cboe UK 100 was down 0.4% at 735.33, and the Cboe UK 250 was also down 0.4% at 16,556.66, but the Cboe Small Companies was up 0.3% at 12,869.56.
The CAC 40 index in Paris and the DAX 40 in Frankfurt were both down 0.3%.
‘Equities are mostly trading lower across the Far East amid concerns that China may tighten restrictions following reports of a number of Covid-related deaths across the country. The extent to which global economic activity will slow in response to tighter monetary policy also remains a concern for markets,’ analysts at Lloyds Bank commented.
The dollar was on the up at the start of the week.
The pound was quoted at $1.1831 early Monday in London, down a full US cent from $1.1929 late Friday. The euro traded at US1.0265, down from $1.0362. Against the yen, the dollar was quoted at JP¥141.03, up from JP¥139.85.
Analysts at ING commented: ‘The dollar is continuing to crawl higher after its sharp sell-off earlier this month. Driving that sharp sell-off had been a combination of softer US CPI data and some optimism emerging from China regarding Beijing’s stance on Covid zero and the property market. On the latter, it seems that the recent outbreak of Covid in some Chinese cities is still prompting similarly restrictive measures and that the Covid zero policy has yet to undergo wholesale changes.’
China reported the death of an 87-year-old man in Beijing on Sunday as its first fatality from Covid-19 in six months, with cases rising despite a stringent zero-Covid policy.
Municipal officials announced on Sunday the 87-year-old man had died in the capital. They also said 621 new local cases had been detected in Beijing.
The National Health Commission said it had recorded more than 24,000 local infections across the nation in the previous 24 hours.
While the tallies are low compared with most other countries, the latest announcements follow a recent uptick in cases in China after months of few infections being reported.
The number of cases ‘is seeing a significant rise’, Beijing municipality spokesman Xu Hejian said on Sunday.
As a big energy consumer, China’s Covid worries put pressure on oil prices. Brent oil was trading at $87.01 a barrel early Monday in London, down from $87.30 on Friday.
In Hong Kong, the Hang Seng Index closed down 1.9%.
‘Asian markets were clearly upset by evidence of more zero-Covid policy restrictions in China,’ said Stephen Innes at SPI Asset Management. ‘Indeed fading hopes of a swift transition away from China’s ’Covid zero’, is driving risk lower on Monday.’
In London, Virgin Money UK shares shot up 15%.
The lender said it will buyback another £50 million worth of shares on the back of a decent annual performance. It takes its 2022 buybacks to £125 million.
Virgin Money said total underlying operating income rose 12% to £1.76 billion in the year that ended September 30 from £1.57 billion.
Underlying net interest income alone climbed 13% to £1.59 billion. Pretax profit surged 43% to £595 million from £417 million.
Its net interest margin expanded to 1.85% from 1.62% a year earlier, helped by higher interest rates. For the new financial year, it expects the net interest margin to grow further to between 1.85% and 1.90%, based on current interest rate expectations.
Diploma was the next best mid-cap performer in London, adding 1.9%. It reported an annual revenue and profit climb and hiked its dividend.
The specialised technical products and services provider said revenue in the financial year that ended September 30 rose 29% to £1.01 billion from £787.4 million. Pretax profit jumped 34% to £129.5 million from £96.6 million.
Diploma lifted its dividend to 53.8p per share from 42.6p.
It said the new year has started well, in line with guidance, though it is ‘mindful of the uncertain economic outlook and the prospect of a tougher demand environment’.
Among London-listed large caps, Compass fell 3.7%, though it posted annual revenue ahead of consensus.
Revenue in the financial year that ended September 30 rose 43% to £25.51 billion from £17.91 billion a year earlier. Revenue pipped company-compiled consensus of £25.1 billion. Pretax profit jumped to £1.47 billion from £464 million.
Compass lifted its dividend to 31.5 pence per share from 14.0p. In addition, it announced a further £250 million share buyback, taking the current programme to £750 million.
Analysts at Liberum noted Compass shares are up from pre-virus levels.
‘This has been driven by a faster-than-expected recovery driving upgrades; however we expect this will becoming harder as comps toughen,’ Liberum added, referring to comparative year-earlier results.
Elsewhere in London, TT Electronics added 7.1%. The Woking, England-headquartered manufacturer of electronic components said it has struck a pension scheme deal, removing it of any ‘investment, longevity, interest rate or inflation risk’.
It has completed the buy-in of all its UK defined benefit pension liabilities, offering it an ‘immediate £6 million cash flow benefit’.
‘The trustee of the TT Electronics Pension Scheme has purchased a bulk annuity insurance policy from Legal & General Assurance Society Ltd, covering all liabilities required to pay all future defined benefit pensions for the scheme’s circa 5,000 members and any eligible dependants,’ TT said.
‘TT will not be required to make any future contributions into the scheme regarding defined benefit liabilities and the buy-in delivers greater security to the scheme’s members. The scheme’s circa £400 million of liabilities are now matched by the insurance policy, and TT no longer bears any investment, longevity, interest rate or inflation risk in respect of the scheme.’
In addition to the ‘immediate’ £6 million cash flow injection, it will also see an equivalent annual free cash flow improvement in future years.
Gold was quoted at $1,741.87 an ounce early Monday, down from $1,757.30 on Friday.
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