LONDON MARKET PRE-OPEN: UK state sells GBP1.1 billion NatWest stake

(Alliance News) - Stocks in London are set for a tumble at the open on Tuesday after a downbeat ...

Alliance News 11 May, 2021 | 7:47AM
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(Alliance News) - Stocks in London are set for a tumble at the open on Tuesday after a downbeat session in New York overnight, prompted by worries about rising consumer price pressure in the US economy.

In early company news, the UK government raised GBP1.1 billion from cutting its stake in NatWest to 54.8%. International Consolidated Airlines launched a bond offer amid ongoing travel uncertainty. Wm Morrison reported a strong start to its new financial year.

IG says futures indicate the FTSE 100 index of large-caps to open 85.78 points lower, or 1.2%, at 7,037.90 on Tuesday. The FTSE 100 closed down just 6.03 points at 7,123.68 on Monday.

"Once again it has been concern about inflation that appears to be weighing on broader market sentiment, with commodity prices once again the major culprit, ahead of US CPI numbers that are due out later this week," said Michael Hewson, chief market analyst at CMC Markets.

The US consumer price index is due on Wednesday at 1330 BST.

"Putting to one side the fact that Friday's jobs miss is likely to keep the Fed on hold for quite a while longer given the lowered expectations for sharply higher jobs growth much before September, when the latest set of unemployment benefits expire, it seems that investors are now fretting about rising prices and sharply higher inflation again," he said.

In the US on Monday, Wall Street ended in the red, with the Dow Jones Industrial Average closing down 0.1% and the S&P 500 down 1.0%. The Nasdaq Composite lost 2.6% as tech stocks took a particular thumping.

The Nasdaq's lower close is set to translate into a negative open for Europe, said Hewson, as stocks in Asia tumbled.

In Asia on Tuesday, the Japanese Nikkei 225 index ended down 3.1%. In China, the Shanghai Composite was up 0.4%, but the Hang Seng index in Hong Kong was down 1.9%. The S&P/ASX 200 in Sydney closed down 1.1%.

Inflationary forces are gathering in China, data showed overnight, with factory prices growing at their fastest rate in nearly four years in April but

China's producer price index, which measures the cost of goods at the factory gate, expanded a forecast-beating 6.8% on-year last month, the National Bureau of Statistics said. This is the highest recorded since October 2017, and a leap from the 4.4% registered the previous month.

Official data on Tuesday also showed China's consumer price index rose 0.9% on-year in April – slightly slower than expected but more than double March's rate of 0.4%.

In early UK company news, the UK government has raised GBP1.1 billion from the sale of 580.0 million shares in lender NatWest.

The placing price was 190 pence, a 3.6% discount to Monday's closing price of 197.05p. NatWest shares have risen 18% since 2021 began, and are up 73% over the past 52 weeks.

The sale means the UK government now holds a 54.8% stake in NatWest, down from 59.8% previously. UK Government Investments - which was set up by former chancellor George Osborne to offload UK government-owned companies - first announced its intention to cut its NatWest stake below 55% after the market close on Monday.

In mid-March, the UK government sold 590.7 million shares at a price of GBP1.12 billion, reducing its stake to 59.8% from 61.7%.

The UK government first began building its majority stake in the bank from October 2008 during the financial crisis as it looked to inject funds into the banking system. As a result, the government ended up holding an 81% stake in the lender - called Royal Bank of Scotland Group at the time - after a hefty GBP45.5 billion taxpayer bailout.

International Consolidated Airlines launched a bond offering amid ongoing uncertainty over air travel.

The British Airways parent is launching an offer worth EUR800.0 million of senior unsecured bonds convertible into shares.

"Given the continuing uncertainty in respect of air travel, the net proceeds from the offering will be used by IAG to (i) strengthen the group's balance sheet and increase the group's overall liquidity position and (ii) provide the group with increased operational and strategic flexibility to take advantage of a recovery in demand," the company said.

The offering comes after disappointment over the UK government's plans to reopen the travel industry. On Friday evening, Westminster revealed that Portugal, Gibraltar and Israel are among just 12 destinations on England's new 'green list' for travel, meaning visitors do not need to self-isolate on their return home.

Industry leaders said the government's approach represented an "excess of caution" and demanded greater clarity over the formation of the green list.

UK grocer Wm Morrison reported a strong start to its financial year amid a supermarket "renaissance".

Against volatile trading a year ago during the onset of the Covid-19 pandemic, Morrisons said it sustained a "roust" sales performance throughout the first quarter of its 2022 financial year. Total sales rose 5.3% including fuel, while like-for-likes were up 4.7%, with fuel volumes "almost back" to pre-pandemic levels by the end of the period.

Excluding fuel, like-for-like sales were up 2.7% year-on-year and two-year sales - being a comparison against a pre-pandemic period - were up 8.7%.

"During the pandemic there has been a renaissance of the supermarket in Britain and customers are enjoying cooking at home more. Customers have also embraced shopping online, and both Morrisons.com and Morrisons on Amazon are now complementing our supermarkets well," said Morrisons, noting first quarter online sales more than doubled.

The grocer incurred a further GBP27 million of Covid-19 costs in the quarter, in line with its expectations.

Given the strong start, Morrisons retained its full-year profit guidance. However, it is "now confident of a year of meaningful profit growth" for the 2023 financial year.

"We've had an encouraging start to the year, with positive like-for-like sales and some good momentum across Morrisons both on a one and two-year view. We said back in March that we expected to grow profits and reduce debt in the current year and I'm pleased to be both reiterating that guidance today and looking forward to a year of meaningful profit growth in 2022-23," said Chief Executive David Potts.

THG said it has raised USD1.05 billion via an upsized share placing, together with a share subscription by a SoftBank subsidiary.

Due to strong demand in the bookbuild, THG said its placing was bumped up to USD320 million from USD270 million. Further, SBM, a subsidiary of Tokyo-based tech investor SoftBank, has subscribed for USD730 million.

THG late Monday said it has inked a financial and trading partnership with SBM under which they will explore potential commercial arrangements with each other. The collaboration comprises the USD730 million subscription by SBM in THG shares, plus an option to subscribe for a 20% interest in THG Ingenuity.

In addition, THG has agreed to acquire New Jersey-based skincare and haircare products Bentley Technologies from its founder and the Riverside Co for USD255 million on a cash and debt-free basis.

The dollar strengthened amid Tuesday's risk-off mood.

Sterling softened but was still trading around its best level in three months at USD1.4112 early Tuesday versus USD1.4130 at the London equities close on Monday.

The euro traded at USD1.2136 early Tuesday in London, down on USD1.2156 late Monday. Against the yen, the dollar rose to JPY108.89 versus JPY108.75.

Gold was quoted at USD1,836.07 an ounce early Tuesday, easing on USD1,837.81 on Monday. Brent oil was trading at USD68.00 a barrel, rising from USD67.71 late Monday.

The economic events calendar on Tuesday has the German ZEW economic sentiment indicator at 1000 BST. In addition, Bank of England Governor Andrew Bailey speaks at the Alternative Reference Rates Committee webinar at 1530 BST.

By Lucy Heming; lucyheming@alliancenews.com

Copyright 2021 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Rating
Morrison (Wm) Supermarkets PLC 181.70 GBX 2.89
THG PLC Ordinary Share 622.50 GBX 1.22 -
International Consolidated Airlines Group SA 200.30 GBX 1.86
NatWest Group PLC 205.50 GBX 0.15

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