LONDON BRIEFING: Pound plunges further as fresh crisis engulfs UK PM

(Alliance News) - The pound was trading at levels not seen since the start of Covid lockdowns as ...

Alliance News 6 July, 2022 | 7:12AM
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(Alliance News) - The pound was trading at levels not seen since the start of Covid lockdowns as UK Prime Minister Boris Johnson on Wednesday was left trying to save his premiership following yet another blow to his government.

Rishi Sunak quit as chancellor on Tuesday, alongside Sajid Javid who resigned as health secretary, in a move that came just as the prime minister was being forced into a humiliating apology to address the row over scandal-hit former deputy chief whip Chris Pincher.

The pound hit a low of USD1.1900 on the news, a level not seen since March 2020. Sterling started 2022 around the USD1.35 mark.

Sterling steadied on Wednesday, but remained below the USD1.20 handle in morning trade.

The Sunak and Javid were swiftly replaced on Tuesday night, with Nadhim Zahawi promoted to be the new Chancellor and Steve Barclay becoming Health Secretary.

Sunak and Javid, both potential leadership rivals, offered sharp criticisms of Johnson in their resignation letters.

This latest row followed closely on a number of other setbacks for the prime minister.

His authority had already been damaged by a confidence vote which saw 41% of his own MPs withdraw their support.

The loss of crunch by-elections in Tiverton and Honiton and Wakefield in June triggered the resignation of party chairman Oliver Dowden, while there is still lingering anger over coronavirus lockdown-busting parties in Downing Street.

Johnson still retains the support of several Cabinet ministers including Dominic Raab, Liz Truss, Michael Gove, Therese Coffey and Ben Wallace, with universities minister Michelle Donelan now taking on the education portfolio.

Yet the hours after Sunak and Javid quit brought further resignations from Government.

Bim Afolami quit as Tory vice-chair live on TV, Theo Clarke and Andrew Murrison resigned as trade envoys and ministerial aides Jonathan Gullis, Saqib Bhatti, Nicola Richards and Virginia Crosbie left their roles.

"Sterling has tended to ignore the indiscretions of Boris Johnson's government - largely because the Conservatives have a large majority. But the resignations of the big-hitters in charge of the Treasury and Health will leave the PM rocking," commented ING.

Here is what you need to know at the London market open:

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MARKETS

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FTSE 100: up 1.4% at 7,121.13

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Hang Seng: down 2.0% at 21,427.18

Nikkei 225: closed down 1.2% at 26,107.65

S&P/ASX 200: closed down 0.5% at 6,594.50

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DJIA: closed down 129.44 points, or 0.4%, at 30,967.82

S&P 500: closed up 6.06 points, or 0.2%, at 3,831.39

Nasdaq Composite: closed up 194.39 points, or 1.8%, at 11,322.24

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EUR: up at USD1.0273 (USD1.0240)

GBP: up at USD1.1947 (USD1.1900)

USD: down at JPY135.43 (JPY135.90)

Gold: up at USD1,796.10 per ounce (USD1,767.88)

Oil (Brent): down at USD104.72 a barrel (USD105.18)

(changes since previous London equities close)

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ECONOMICS AND GENERAL

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Wednesday's key economic events still to come

11:00 CEST EU retail trade

11:00 BST Ireland monthly unemployment

09:30 BST UK construction PMI

09:45 EDT US services PMI

10:00 EDT US ISM services PMI

14:00 EDT US Fed meeting minutes

16:30 EDT US API weekly statistical bulletin

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Consumer confidence in the UK economy has hit its lowest point since the start of the pandemic as households feel the effects of the cost-of-living crisis, figures suggest. Just 8% of consumers think the UK economy will improve over the next 12 months, while 78% think it will worsen, according to the Which? Consumer Insight Tracker. Net confidence in the future UK economy now stands at minus 70, compared with minus 47 in May. Confidence in future household finances also dropped to minus 40 in June – matching the lowest point of the pandemic in March 2020 – compared with minus 28 in May.

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New manufacturing orders in Germany inched up monthly but continued to slide on an annual basis. According to Destatis, new factory orders climbed 0.1% monthly in May, defying FXStreet cited forecasts of a 0.6% decline. In April, orders had declined 1.8%. "Foreign orders in manufacturing increased by 1.3% in May 2022 on the previous month. New orders from the non-euro area went up by 3.7%. New orders from the euro area fell by 2.4% and domestic orders registered a decrease of 1.5% on the previous month," Destatis explained. Year-on-year, new manufacturing orders declined 3.1% in May, easing from a 5.3% drop in April.

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BROKER RATING CHANGES

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Credit Suisse raises Glencore to 'outperform' (neutral) - price target 560 (550) pence

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Bernstein raises Sainsbury to 'market-perform' (underperform)

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JPMorgan raises Trainline to 'overweight' (neutral) - price target 354 (292) pence

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COMPANIES - FTSE 100

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abrdn said it will start a return of GBP300 million to shareholders through a share buyback, with a first phase of up to GBP150 million being undertaken between Wednesday and the end of 2022.

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American ice cream brand Ben & Jerry's said Tuesday it is suing its parent company Unilever to block a move that would see its product sold in West Bank settlements, which would run counter to its values. The company, known for its political activism, took the unusual step seeking an injunction after London-based Unilever last week announced it had sold its interest in the ice cream to Israeli license-holder Avi Zinger. The legal action was "essential to...protect the brand and social integrity Ben & Jerry's has spent decades building," according to the complaint filed in a US district court.

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COMPANIES - FTSE 250

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Rail and coach ticketing platform Trainline said net ticket sales in the four months to June 30 were up 16% from pre-Covid times. "This performance reflects a faster than anticipated recovery in rail passenger volume across Europe - including a notable resurgence of inbound customers from the US - as well as the benefit of Trainline increasing its investment in its International business," Trainline explained. Trainline now expects net ticket sales growth between 18% and 27% versus pre-Covid levels. It expects revenue to be 22% and 31% above pre-virus levels. It had previously expected net ticket sales in a GBP3.8 billion to GBP4.2 billion range, between 2.0% and 13% above the pre-Covid figure. Revenue was expected to land between GBP280 million and GBP300 million, which would have been between 7.3% and 15% above pre-virus levels.

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Redde Northgate reported improved annual earnings and the commercial vehicle hire firm said it has made a decent start to the new year. Revenue in the 12 months to April 30 rose 12% to GBP1.24 billion from GBP1.11 billion. Pretax profit jumped 98% to GBP132.7 million from GBP67.2 million. Redde lifted its dividend by 36% to 21.0 pence from 15.4p. The company said: "The business has traded well across a challenging and volatile economic backdrop in recent years, supported by the structural growth in outsourcing by an increasingly broad customer base. We are enjoying the benefit of an enhanced mobility solutions platform and continue to proactively manage inflation, resource availability and supply chain constraints."

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COMPANIES - SMALL CAP

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Just Eat Takeaway.com said it has entered into a commercial agreement with Amazon.com in the US. The pact will see Amazon Prime members in the US able to sign up for a free, one-year Grubhub+ membership. The agreement is expected to expand membership to Grubhub+, while having a "neutral impact" on the unit's 2022 earnings and cash flow. This should become earnings and cash flow accretive for Grubhub from 2023 onwards. Just Eat added that it continues to actively explore a full or partial sale of Grubhub.

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AO World said it plans to raise GBP40 million through a placing to "strengthen" its balance sheet and restore liquidity to "historic levels". AO World will price its placing at 43 pence per share, an 8.5% discount to Tuesday's closing price of 47.0p. The electrical goods seller on Monday had said its financial position was "in line with the board's expectations". AO had confirmed in a statement on Monday that it was aware that one of the third-party credit insurers which provides credit insurance to some of its suppliers had rebased their cover in May with respect to AO, reflecting post-Covid sales levels. It followed a report in the Sunday Times which stated that Atradius, a credit insurer, cut its credit cover for the online retailer's suppliers. Also on Wednesday, AO said first quarter trading was "materially in-line with the board's expectations".

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ProCook, whose shares tanked last month after an earnings warning, posted an annual revenue hike but once again cautioned on kitchenware market strife. The pots and pans seller's revenue in the year to April 2 rose 30% to GBP69.2 million from GBP53.4 million. However, pretax profit tumbled to GBP94,000 from GBP8.3 million a year earlier. ProCook's bottom line was hit by GBP9.4 million of one-off hits, including float costs and employee share-based IPO awards. ProCook said the UK kitchenware market fell 12% during the first quarter of the company's new financial year, citing GfK data. It said total ProCook revenue during the quarter was GBP11.4 million, down 22% yearly but up 36% from pre-virus levels. "The rapid deterioration in the consumer and macro environment means that we have now had to adjust and re-prioritise our focus. We are well placed to manage these current challenges with a strong financial position, a resilient business model, a clear strategy for sustainable and profitable growth, and a customer proposition focused on exceptional service, quality and value," the company said.

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Ten-pin bowling operator Ten Entertainment said sales during the 26 weeks to June 26 were 53% above pre-virus levels. "Record-breaking sales performances during the February half-term; the Easter break; and the May Jubilee bank holiday all contributed to an unprecedented level of sales growth. Customer demand has been consistently in growth throughout the first half of 2022. Our value for money family entertainment model is showing greater appeal than ever before. We have deliberately preserved our entertainment prices at 2019 levels and have managed food and drink prices to maintain the value for money we provide for our customers. We have been rewarded with footfall that is 43% higher than experienced in 2019," Ten said. It also said it plans to repay financing received as part of the UK's Coronavirus Large Business Interruption Loan Scheme this month, allowing Ten to resume dividends.

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COMPANIES - GLOBAL

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German pharmaceutical company CureVac said Tuesday it was suing rival BioNTech for patent infringement over the mRNA technology used to develop the Comirnaty coronavirus vaccine. CureVac intends to "assert its intellectual property rights, accumulated over more than two decades of pioneering work in mRNA technology, which contributed to Covid-19 vaccine development", it said in a statement. The lawsuit against Mainz-based BioNTech and two of its subsidiaries will seek "fair compensation" for infringement of intellectual property rights, the company said. The Comirnaty jab developed by BioNTech with US pharma giant Pfizer was the first Covid-19 shot to be approved in the West and has become one of the most widely used around the world.

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Wednesday's shareholder meetings

Assura PLC - AGM

ContourGlobal PLC - GM re acquisition by KKR

GSK PLC - GM re Consumer Healthcare demerger, Haleon listing

Mining Minerals & Metals PLC - AGM

PCF Group PLC - GM re director allotment authority

Puma Alpha VCT PLC - AGM

Shires Income PLC - AGM

Sirius Real Estate Ltd - AGM

Strategic Minerals PLC - AGM

Worldwide Healthcare Trust PLC - AGM

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By Lucy Heming; lucyheming@alliancenews.com

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