Poorly-received corporate earnings and a stronger pound in the wake of the UK-EU pact on the Northern Ireland protocol hurt the FTSE 100 early Tuesday.
UK Prime Minister Rishi Sunak heads to Northern Ireland later, as he hopes his deal with the European Union wins over the Democratic Unionist Party.
The FTSE 100 index opened down 28.51 points, 0.4%, at 7,906.60 The FTSE 250 was down 48.63 points, 0.2%, at 19,837.47, and the AIM All-Share was up just 0.1 of a point at 858.54.
The Cboe UK 100 was down 0.3% at 791.76, the Cboe UK 250 was down 0.2% at 17,393.17, and the Cboe Small Companies was down 0.3% at 14,028.45.
Sunak promised the deal would be a ‘turning point’ after years of post-Brexit frustration.
The new deal, dubbed the Windsor Framework, removes barriers on trade across the Irish Sea and hands a ‘veto’ to politicians in Stormont on EU law - a set of concessions from Brussels that went further than some expected.
But it still includes a role for the European Court of Justice, with the Democratic Unionist Party and Tory backbenchers now set to study closely the details of the complex set of arrangements in the coming days.
In European equities on Tuesday, the CAC 40 in Paris and the DAX 40 in Frankfurt were down 0.5%.
The pound was up in early exchanges, continuing to be supported by the protocol news.
Sterling was quoted at $1.2037 early Tuesday, higher than $1.2019 at the London equities close on Monday. The euro traded at $1.0600, slightly higher than $1.0591. Against the yen, the dollar was quoted at JP¥136.76, higher versus JP¥136.24.
Analysts at ING said the pound’s upward climb may only be ‘short-lived’, however.
‘It seems hard, however, that the pound will find sustained support simply based on the new NI deal. The central bank story should instead remain the most central driver of GBP, and given the lack of data today, markets will watch three Bank of England speakers today: Jon Cunliffe, Huw Pill and Catherine Mann. A 25 basis point move in March is fully in the price, and the debate appears to be much more centred on whether the bank will need to keep tightening beyond March: markets are definitely swinging on the hawkish side, expecting a total of 80bp of tightening before reaching a peak,’ analysts at the Dutch bank commented.
UK Bank of England Monetary Policy Committee member Catherine Mann and Chief Economist Huw Pill will each speak at around 1230 GMT
In Asia on Tuesday, the Nikkei 225 index closed up 0.1%. In China, the Shanghai Composite was up 0.7%, while the Hang Seng index in Hong Kong lost 0.8%. The S&P/ASX 200 in Sydney closed up 0.5%.
In the US on Monday, Wall Street ended in the green, with the Dow Jones Industrial Average ending up 0.2%, the S&P 500 up 0.3% and the Nasdaq Composite 0.6% higher.
In the FTSE 100, online grocer and warehouse technology firm Ocado dropped 8.9%.
Ocado group revenue edged up just 0.6% to £2.51 billion in the year ended November 27. All segments saw growth, except for retail - its joint venture with Marks & Spencer - which fell 3.8%. ‘Robust’ customer growth in retail was offset by lower value baskets, the firm said.
Ocado’s pretax loss widened to £500.8 million from £176.9 million. No dividend was declared, unchanged from a year before.
Looking ahead, Ocado expects Retail growth in the mid-single digits for 2023, with Technology to see around 40% Ocado Smart Platform fee revenue growth, and UK Logistics to be ‘broadly stable’.
The firm’s grocery market share improved to 1.9% from 1.8% in the 12 weeks to February 19, according to the latest Kantar survey. Ocado sales grew by 11% on-year.
Grocery inflation hit a record of 17.1% in the four weeks to February 19, according to Kantar. This means the average UK household is likely to see an £811 increase to their annual bill if inflation continues at the same pace.
Sainsbury’s and Tesco saw their market shares decrease marginally, but sales were up 6.2% and 6.6%, respectively. Sainsbury’s shares were down 1.0%, with Tesco traded flat.
German discounters Aldi and Lidl made market share gains, meanwhile.
Also putting pressure on the FTSE 100, Croda International fell 4.0%.
Croda reported strong annual sales and profit growth, and lifted its annual dividend by 8.0% to 108.0p. This was lower than the 110.7p pencilled in by analysts, however.
The chemicals maker said sales rose 11% year-on-year to £2.09 billion from £1.89 billion. Pretax profit surged 90% to £780.0 million from £411.5 million. Adjusted pretax profit was up 11% to £496.1 million, which was at the upper end of analysts’ forecasts.
In Consumer Care, the firm noted lower second-half volumes and margins, due to destocking and supply constraints. In Life Sciences, there was a strong performance from Crop Protection, with its ‘extensive’ pipeline of non-Covid delivery systems driving Pharma growth, helping to offset a fall in lipid systems for Covid-19 applications.
Looking to 2023, it is trading in line with expectations, and expects destocking to end during the first half. It expects its performance to be weighted towards the second half.
abrdn was up 0.8%.
abrdn said it returned £600 million to shareholders through dividends and buybacks last year. It expects to return a similar level in 2023.
‘We are committed to returning a significant proportion of capital generated from further stake sales by way of share buybacks,’ it said.
It left its dividend unchanged at 14.6p in 2022.
The investment company and asset manager reported ‘one of the toughest investing years in living memory’. Net outflows stretched to £37.9 billion from £6.2 billion a year before, while assets under management and administration fell 7.8% to £500.0 billion.
Net operating revenue declined 3.9% to £1.46 billion, and abrdn swung to a pretax loss of £615 million from £1.12 billion profit.
In the FTSE 250, Travis Perkins fell 4.6%.
The building supplies retailer said revenue rose 8.9% to £5.00 billion in 2022 from £4.59 billion the year before. Pretax profit dropped 20% to £245.0 million from £305.6 million, however.
Its bottom line was hit by lower property profit, as well as £15 million restructuring charge for the fourth quarter. The firm increased its final dividend slightly to 39.0p from 38.0p.
Looking ahead, Travis Perkins noted an uncertain environment but was confident of another ‘resilient’ performance, due to its cost actions, the diversity of its end market exposure, and the expansion of its market share.
Serco was up 5.6%, as it launched a new buyback.
The outsourcer said annual revenue ticked up 2.5% year-on-year to £4.53 billion in 2022 from £4.42 billion, but fell 1% in constant currency. It saw a drop in Covid-related revenue of £480 million. Excluding Covid and currency, revenue was up 11%.
Pretax profit edged up to £196.8 million from £192.2 million. It announced a new £90 million share buyback for 2023, and increased its dividend in 2022 by 19% to 1.92p.
Among London’s small-caps, AO World jumped 10%.
AO raised annual earnings guidance for the year to March, with the online electricals retailer saying its measures to reduce costs and improve margins have seen traction.
It also noted a ‘continued resilient underlying customer base’ which drove higher retail gross margins than anticipated, which it expects to continue for the remaining weeks of its financial year.
It expects adjusted earnings before interest, tax, depreciation and amortisation to be in a range of £37.5 million to £45 million, which is up from the previous guidance range of £30 million to £40 million.
Gold was quoted at $1,809.65 an ounce early Tuesday, lower than $1,816.96 late Monday. Brent oil fetched $83.10 a barrel, up slightly from $82.28.
Still to come in Tuesday’s economic calendar, there will be a US consumer confidence reading at 1500 GMT.
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