TOP NEWS SUMMARY: Euro hits 20-year low against dollar as PMI declines

(Alliance News) - The following is a summary of top news stories ...

Alliance News 5 July, 2022 | 10:12AM
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(Alliance News) - The following is a summary of top news stories Tuesday.

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COMPANIES

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AstraZeneca said it is buying biotechnology firm TeneoTwo, a developer of a clinical stage T-cell candidate to treat a form of non-Hodgkin lymphoma. AstraZeneca, a Cambridge-based pharmaceutical company, said it will part with up to roughly USD1.27 billion to buy Hodgkin lymphoma treatment developer TeneoTwo. TeneoTwo is a developer of the TNB-486 clinical stage T-cell candidate to treat relapsed and refractory B-cell non-Hodgkin lymphoma. Hodgkin lymphoma is a cancer that begins in the lymphatic system. Relapsed cancer is when the disease has reoccurred, while refractory means it has been resistant to treatment. Astra will pay USD100 million upfront, make additional contingent research & development-related milestone payments of up to USD805 million, plus extra contingent commercial-related milestone payments of up to USD360 million to TeneoTwo's shareholders.

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Scandinavian Airlines has filed for bankruptcy in the US, warning that a walkout by 1,000 pilots a day earlier had put the future of the carrier at risk. The move adds to the likelihood of travel chaos across Europe as the summer vacation period begins. The Stockholm-based group said it had "voluntarily filed for chapter 11 in the US, a legal process for financial restructuring conducted under US federal court supervision". Filing for chapter 11 in New York puts civil litigation on hold while the business reorganises its finances, dubbed SAS Forward. SAS said that its operations and flight schedule will be unaffected by the announcement. CEO Anko van der Werff said that the strike had accelerated the move. "I think we have been very clear that this could happen," he said. The airline is part-owned by the governments of Sweden and Denmark. In 2018, Norway sold its stake but holds debt in the airline, and has said it might be willing to convert that into equity.

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German logistics company DHL, owned by Deutsche Post, is set to create 3,500 jobs through the expansion and creation of depots across the UK. DHL said it will invest more than GBP190 million into creating 10 new collection and delivery depots across the UK, and expanding 20 existing sites, which will create 3,500 jobs. The investment forms part of DHL's plan to expand its UK e-commerce operation – DHL Parcel UK – through a GBP482 million cash boost. It comes after the company witnessed a 40% rise in volumes since the start of 2020, following a boom in its e-commerce division. Nearly half of the money will be used to build the SEGRO Park Coventry Gateway, a hub south of Coventry airport, in the West Midlands, which can hold up to 500,000 items per day and will produce more than 600 new jobs in administration and manufacturing.

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Daikin Industries said it has invested in US lithium-ion battery research & development start-up TeraWatt Technology. "Daikin has been collaborating with TeraWatt Technology to develop applications and further enhance its battery technologies for lithium-ion battery materials. In its strategic management plan Fusion 25, Daikin looks to create new markets with product development applications centering on fluorochemicals," the firm said. Daikin seeks to strengthen its proposition to potential growth markets such as semiconductor manufacturing and automotive through joint development with companies, including startups and customers.

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J Sainsbury posted a slip in first quarter sales as it warned the cost of living crisis will "intensify" over the remainder of the year. The grocer also promoted Commercial & Retail Finance Director Blathnaid Bergin to be its new chief financial officer. Sainsbury's said grocery sales in the first quarter ended June 25 fell 2.4% yearly "against last year's elevated Covid-19 driven levels". On three years earlier, prior to the onset of the pandemic, grocery sales were 8.7% higher. Total retail sales, excluding fuel, were down 4.5% yearly. Including fuel, they were down 4.0%. "The pressure on household budgets will only intensify over the remainder of the year and I am very clear that doing the right thing for our customers and colleagues will remain at the very top of our agenda," said Chief Executive Simon Roberts. In addition, the company said Kevin O'Byrne is to retire from his role as CFO in March 2023, the conclusion of its financial year. It has promoted Commercial & Retail Finance Director Bergin to be its next CFO, following a "thorough" external and internal search. He joins the board on March 6 next year.

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B&M European Value Retail appointed DFS Furniture's Mike Schmidt as its new chief financial officer. Schmidt has been at the sofa seller for eight years. He joined in 2014 as a senior member of the finance team and was promoted to CFO in 2019. Schmidt is succeeding Alex Russo, who will be stepping up to the role of chief executive officer at B&M to replace Simon Arora. A start date for Schmidt at the value retailer is to be confirmed, though it is expected to be no later than January 3. DFS added that Schmidt will remain with the company to oversee its year-end results and ensure an "orderly transition". A search for Schmidt's successor will begin immediately, DFS said. In addition, the sofa seller lifted its outlook. It now expects underlying pretax profit before brand amortisation at the upper half of a GBP57 million to GBP62 million guidance range.

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Rheinmetall said it has won a EUR65 million contract for the supply of Skyguard 3 air defence systems with an unnamed international customer. Delivery is expected to be completed in 2024, including ammunition and spare parts. "The systems ordered are Oerlikon Skyguard 3 with GDF009 twin guns and airburst-capable AHEAD ammunition, also produced by Rheinmetall. The order is of great importance to Rheinmetall. Not only does it strengthen existing customer relations, but it also underscores the high degree of confidence in Rheinmetall's world-leading expertise in the field of ground-based air defence," the firm said.

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MARKETS

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Sentiment soured fast on Tuesday with traders on Wall Street set for a return from a long weekend after Monday's Independence Day holiday. European equities slumped and the dollar advanced, resulting in the euro trading at lows not seen since 2002. "The weakness is driven by rampant inflation, concerns over energy and rising borrowing costs. We have seen consumer, business and investor sentiment all take big hits, with PMIs also falling," commented Fawad Razaqzada, market analyst at City Index and Forex.com, on the euro's woe. Caution was setting in ahead of some key risk events this week, including meeting minutes from the Federal Reserve and US nonfarm payrolls.

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CAC 40: down 1.2% at 5,882.89

DAX 40: down 1.0% at 12,639.90

FTSE 100: down 1.1% at 7,152.40

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Hang Seng: closed up 0.1% at 21,853.07

Nikkei 225: closed up 1.0% at 26,423.47

S&P/ASX 200: closed up 0.3% at 6,629.30

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DJIA: called down 0.5%

S&P 500: called down 0.6%

Nasdaq Composite: called down 0.7%

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EUR: down at USD1.0284 (USD1.0430)

GBP: down at USD1.2029 (USD1.2114)

USD: firm at JPY135.74 (JPY135.72)

GOLD: down at USD1,802.35 per ounce (USD1,808.30)

OIL (Brent): down at USD111.87 a barrel (USD113.66)

(currency and commodities changes since previous London equities close)

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ECONOMICS AND GENERAL

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The eurozone's private sector growth slowed in June, succumbing to weaker demand and falling confidence. The S&P Global composite index fell to 52.0 points in June from 54.8 in May. The tally remained above the 50.0 no change threshold, though the figure suggests private sector growth has eased. The pace of the expansion was "modest overall", S&P Global said. "Stalling demand conditions and weaker activity growth were reflected in a further dampening in business confidence amongst eurozone firms. The level of sentiment was the weakest since October 2020 and subdued in the context of historical data," S&P Global said. "On the price front, cost burdens surged further, albeit with the rate of inflation retreating further from March's peak. Consequently, charges levied rose at a slightly reduced pace, but one that was nonetheless marked." The services purchasing managers' index reading alone fell to 53.0 in June from 56.1 in May, figures on Tuesday showed.

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The UK's all-important services sector rounded off a difficult second quarter with better-than-expected growth in June. The latest S&P Global/CIPS UK services purchasing managers' index expanded to 54.3 points in June, from 53.4 in May. It was the sixteenth successive month in which the index has registered above the 50.0 mark, which separates growth from decline. The final June figure was above the 53.4 flash estimate. However, the PMI's average reading for the second quarter was 55.6 points, down from 59.1 in the first three months of 2022. The composite PMI - which averages the services and manufacturing readings - ticked up to 53.7 points in June, from 53.1 in May. Despite the acceleration in growth, it was the second-weakest reading so far in 2022.

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The Bank of England's Financial Policy Committee said the health of the UK economy has "deteriorated materially". "Following Russia's illegal invasion of Ukraine, global inflationary pressures have intensified sharply. This largely reflects steep rises in energy and other commodity prices that have exacerbated inflationary pressures arising from the pandemic, and further disruption of supply chains," the central bank said. In the biannual report, the Financial Policy Committee gives its view on the stability of the UK financial system. In the July report, the committee noted that household real incomes have fallen. It also said there are "a number of downside risks" that could further hurt UK financial stability - with the war in Ukraine the "key factor". It added: "Given downside risks from additional supply shocks, faster-than-expected monetary policy tightening and slower-than-expected economic growth, risky asset prices remain vulnerable to further sharp adjustments."

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Growth in the German services sector in June slowed to its lowest rate since January, as macroeconomic headwinds continued to mount. The S&P Global BME seasonally adjusted headline business activity index registered 52.4 points, in line with the previous flash estimate. This was lower than 55.0 in May. The figure fell closer to the 50-point marker separating growth from contraction, showing growth slowed during the month. "Latest PMI data showed signs of activity levels across Germany's service sector beginning to level off, with growth slowing down to its weakest for five months in June. We're seeing the fading of post-lockdown catch-up effects, combined with headwinds to growth from heightened economic uncertainty and elevated inflation," commented Paul Smith, economics associate director at S&P Global Market Intelligence.

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France's services activity slowed in June, as economic uncertainty and inflationary worries continued to hit demand. The S&P Global France services purchasing managers' index slumped to 53.9 points in June from 58.3 in May. Though the figure remained above the 50.0 no-change threshold, the rate of expansion slowed. "There were signs of growth slowing markedly in the French service sector at the end of the second quarter, with both activity and new orders rising at much softer rates in June. Economic uncertainty reportedly acted to dampen demand, while inflationary pressures remained severe. In fact, input costs increased at the sharpest pace on record. On a more positive note, firms continued to take on extra staff at a rapid pace," S&P Global said.

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Australia's central bank raised interest rates again, and signalled it is likely to take further steps to normalise monetary policy over the coming months. The Reserve Bank of Australia raised the cash rate by half a percentage point to 1.35% from 0.85%, meeting market expectations. It also increased the interest rate on exchange settlement balances by 50 basis points to 1.25%. This follows 50 basis point hikes to both rates in early June. "Inflation in Australia is also high, but not as high as it is in many other countries. Global factors account for much of the increase in inflation in Australia, but domestic factors are also playing a role. Strong demand, a tight labour market and capacity constraints in some sectors are contributing to the upward pressure on prices. The floods are also affecting some prices," said Governor Phillip Lowe. Lowe characterised the interest rate hike on Tuesday as a "further step in the withdrawal of the extraordinary monetary support" for Australians during the pandemic.

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The service sector in China rebounded strongly in June, according to Caixin general services purchasing managers' index. The seasonally adjusted headline business activity index came in at 54.5 points for the month, overshooting expectations of 47.3 as cited on FXStreet. The index had a reading of 41.4 in May, when services activity had contracted. Having crossed back over the 50 point no-change threshold, the data shows the sector has returned to growth. "Regional Covid outbreaks were brought under control, which contributed to the services sector’s recovery. Supply and demand in the services sector expanded. With the easing of Covid restrictions, services operations started to return to normal," said Wang Zhe, senior economist at Caixin Insight Group.

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Top officials from the US and China held a "candid" video call on Tuesday to discuss global economic challenges, especially regarding supply chains. The exchange between Chinese Vice Premier Liu He and US Treasury Secretary Janet Yellen came as President Joe Biden considers lifting some tariffs on imports from China to try and ease soaring inflation. The world's two biggest economies are also grappling with Covid-snarled supply chains and rising global energy prices. "The two sides agree that as the world economy is facing severe challenges, it is of great significance to strengthen macro-policy communication and coordination between China and the US," China's official Xinhua news agency reported.

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By Lucy Heming; lucyheming@alliancenews.com

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