LONDON MARKET CLOSE: Stocks fall as concerns over Omicron spread mount

(Alliance News) - Stocks in London ended lower on Tuesday as investors weighed the latest pandemic developments and amid anticipation of the US Federal Reserve's final monetary policy meeting of 2021.

The World Health Organization warned that the new coronavirus variant Omicron was spreading at an unprecedented rate and was likely already present in most countries around the world.

"Seventy-seven countries have now reported cases of Omicron, and the reality is that Omicron is probably in most countries, even if it hasn't been detected yet," WHO chief Tedros Adhanom Ghebreyesus told reporters, adding that "Omicron is spreading at a rate we have not seen with any previous variant."

The FTSE 100 index ended down 12.80 points, or 0.2%, at 7,218.64. The mid-cap FTSE 250 index closed down 75.97 points, or 0.3%, at 22,571.25. The AIM All-Share index lost 10.03 points, 0.9%, at 1,167.40.

The Cboe UK 100 index ended down 0.1% at 716.72. The Cboe 250 closed down 0.4% at 19,982.18, and the Cboe Small Companies ended down 0.2% at 14,797.87.

In mainland Europe, the CAC 40 stock index in Paris lost 0.7%, while the DAX 40 in Frankfurt ended down 1.1%.

"There are concerns about the rate at which the omicron variant of the coronavirus is spreading, hence why stock markets in Europe and the US are in the red. There have been updates with regards to restrictions that have given traders cause for concern," said Equiti Capital analyst David Madden.

In the FTSE 100, Ocado Group ended the best performer, up 7.3%, after the online grocer said its Ocado Retail joint-venture with Marks & Spencer Group is set for its "best-ever Christmas".

Ocado also reported it had won a patent dispute case against its storage and picking system by Norwegian firm Autostore.

In the fourth quarter ended November 28, retail revenue fell 3.9% annually to GBP547.8 million from GBP570.1 million, though this was up 32% from GBP416.2 million two years earlier, before the onset of the pandemic.

The Hatfield-based company added that it expects its 2022 revenue growth to be at the top of its pre-Covid range of 10% to 15%.

Ocado's joint venture with retailer M&S expects 2021 results in line with guidance, adding that strong demand was offset by labour pressures and capacity constraints. Additionally, Ocado said that M&S products now account for nearly 30% of the average basket.

High street lenders also ended in the green after passing the latest Bank of England stress test late Monday. HSBC, Lloyds Banking, Barclays and NatWest ended up 0.8%, 1.9%, 1.1% and 1.8% respectively.

Ben Laidler, Global Markets Strategist at eToro, said: "The Bank of England's twice-yearly Financial Stability Report and 2021 banks 'stress test' results gave a clean bill of health to the UK financial system. This opens the way to continued strong bank dividend payments. The report highlighted that household finances are resilient and financial stability risks now back at pre-covid levels as the economy has continued to recover.

"These stress test results will allow the 'big four' UK banks to continue to pay attractive dividend yields. These are estimated at up to 5%, after the Bank of England removed emergency pandemic payment restrictions in July. The reports provide comfort on the ability of the UK economy to face headwinds from both soon-to-be rising interest rates and continued virus restrictions."

At the other end of the large-caps, Rentokil Initial ended the worst performer, down 5.6%. The pest control company struck a cash and shares deal to buy pest control peer Terminix Global Holdings.

The deal values Terminix at USD6.7 billion. Crawley-based Rentokil will issue Terminix shareholders 643.3 million new shares, worth about GBP3.86 billion, and pay USD1.3 billion in cash.

The deal implies a value of USD55.00 per Terminix share, a 47% premium to its share price on Monday. Terminix were 20% higher at USD45.03 each in New York on Monday.

In addition, Citigroup downgraded Rentokil to Neutral from Buy. "We lift our price target to 650p as we roll forward our valuation by one year, but downgrade our rating from Buy to Neutral due to limited upside potential," said Citi's Marc Van'T Sant.

BT Group lost 4.6% after billionaire telecom tycoon Patrick Drahi lifted his stake in the former state monopoly to 18% from 12% but confirmed he has no plans to make a takeover offer.

Drahi's Altice UK Sarl bought a further 585.5 million BT shares on Monday, according to a stock exchange filing, raising its holding to 1.8 million shares, an 18.0% stake, up from 12.1%.

Altice said it "restated its position to the board" of BT that it doesn't intend to make an offer and will be bound by that statement under UK takeover rules, meaning it cannot make a bid for the next six months, expect under defined exceptions.

Further, Altice announced its initial 12% stake in BT back in June. Drahi said on Tuesday he holds BT's management in "high regard". He added that he supports BT's strategy of rolling out full-fibre broadband in the UK.

Elsewhere in London, Stagecoach Group closed up 10% after it and National Express agreed to an all-share merger that will see the UK's two largest transport providers combine operations. National Express gained 1.7%.

The public transport peers will form a combined group with a fleet of around 40,000 vehicles and a workforce of approximately 70,000 staff. Following completion of the merger, Stagecoach shareholders will own about 25% and National Express shareholders will own around 75% of the combined group.

The deal will see Stagecoach shareholders receive 0.36 of new National Express shares for each Stagecoach share they hold. Ignacio Garat and Chris Davies, chief executive and chief financial officer respectively of National Express, will take on those roles for the combined group. Stagecoach Chair Ray O'Toole has been named as chair of the combined group.

On AIM, Joules Group sank 26% after the lifestyle brand recorded sales growth ahead of pre-pandemic levels in the first half of its financial year, but reported an underwhelming Black Friday performance.

Joules said revenue in the 26-weeks to November 28 amounted to GBP128 million, up 35% compared to a year ago and up 15% compared to pre-pandemic levels two years ago.

The Leicestershire, England-based company noted higher costs and stock delays due to supply chain issues. Labour shortages also resulted in extended product delivery times, it said.

Both factors alongside weaker online traffic compared to a year prior were "particularly acute" in November, including the Black Friday period, which lead to performance "below expectations" in this month.

The pound was quoted at USD1.3231 at the London equities close, little changed from USD1.3230 at the close Monday.

Sterling showed little reaction to upbeat UK economic data, as focus turns to the Bank of England rate decision on Thursday.

The UK unemployment rate edged lower in October, data showed on Tuesday, edging closer to pre-virus levels.

Figures from the Office for National Statistics showed the UK unemployment rate was reduced to 4.2% in the three months to October, having sat at 4.3% in September. The October figure came in line with market consensus cited by FXStreet.

"On balance, strong wage growth and a recovery in employment give the Bank of England more room to tighten monetary policy. Later this week, the BoE will likely give transparent hints of an imminent rate hike, which should further support the contrast of the pound against the euro," said analysts at FXPro.

The euro stood at USD1.1275 at the European equities close, down from USD1.1283. Against the yen, the dollar was trading at JPY113.70, up from JPY113.50.

Stocks in New York were firmly in the red at the London equities close as US producer prices accelerated sharply amid anticipation of a key Federal Reserve decision.

The DJIA was down 0.5%, the S&P 500 index down 1.0% and the Nasdaq Composite down 1.6%.

The Fed kicked off its two-day policy meeting as central bankers focus on surging inflation. The central bank has already indicated it will accelerate its plan to phase out stimulus, which would put it in position to raise interest rates as early as May or June.

US producer prices recorded the largest annual advance on record in November, nearly topping the 10% inflation threshold, according to figures on Tuesday.

The US producer price index rose 9.6% in November from a year before, the chunkiest rise since annual data was first collected 11 years ago, according to the Bureau of Labor Statistics. In October, producer prices had grown by 8.8% year-on-year. November's rise topped FXStreet cited consensus of 9.2% PPI inflation.

Monthly, producer price growth accelerated to 0.8% in November, from 0.6% in October.

Brent oil was quoted at USD73.23 a barrel at the equities close, down sharply from USD75.05 at the close Monday.

Gold stood at USD1,775.45 an ounce at the London equities close, lower against USD1,788.71 late Monday.

The economic events calendar on Wednesday has China industrial production overnight, UK inflation readings at 0700 GMT and US retail sales numbers at 1330 GMT. In addition, the US Fed rate decision is at 1900 GMT.

The UK corporate calendar on Wednesday has annual results from respiratory protection equipment maker Avon Protection and tenpin bowling operator Hollywood Bowl. Electrical goods retailer Currys and online womenswear fashion retailer In The Style Group report interim results.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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