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Inflation pressures show no signs of easing after oil prices returned to the peak seen in March after Russia’s invasion of Ukraine.
Brent crude is above $123 a barrel, meaning no respite for motorists after it emerged yesterday that the cost of filling up the typical family car is almost £100.
The oil surge adds to pressure for faster interest rate rises, with attention today on whether the European Central Bank will signal its intention to hike from next month.
FTSE 100 Live Thursday
Brent crude nears $124 a barrel
FirstGroup rejects takeover approach
CMC Markets cuts dividend as profits fall
DFS shares slump after profits warning
11:34 , Simon Hunt
DFS today issued a profit warning as the furniture group wrestles with supply chain disruption and dwindling customer demand.
The company said it expected full-year profits to be £57 million to £62 million, down from previously estimated revenues of £66 million to £76 million, while it expected sales of £1.15 billion to £1.16 billion, down from previous estimates of £1.17 billion to £1.19 billion.
DFS said: “The ongoing Covid-linked supply-chain disruption, combined with lower order
intake since April has led to lower levels of production and deliveries relative to our previous expectations.”
The Doncaster-based company said the fall in demand reflected a wider fall in the UK furniture market, with Barclaycard transaction data suggesting a 2.1% drop in transactions in April relative to pre-pandemic levels.
DFS shares slid 16% this morning to 154 pence, reaching the lowest price in almost two years and down 49% from its pandemic peak of 300 pence.
Tate & Lyle join warnings on food price rises
10:53 , Simon Hunt
Food ingredients maker Tate and Lyle today became the latest food manufacturer to warn that it was putting up prices because of the Ukraine conflict as the company delivered strong revenue and profit growth.
Chief executive Nick Hampton said: “Customer demand remains high and while the conflict in Ukraine has caused significant inflation in raw material, energy and logistics costs globally, we are taking actions to mitigate these pressures including supplementary pricing.”
The price of corn is up 29% since the start of the year, according to data from Markets Insider.
Tate and Lyle made a pre-tax profit of £145 million in the year to 31 March 2022, a 14% increase on the previous year’s profits of £134 million, while sales were up 18% to £1.4 billion.
It follows the acquisition of Chinese dietary fibre business Quantum Hi-Tech in March for £237 million, as the company seeks to diversify its product range into health foods. The company said it had agreements in place for key production inputs such as corn and energy covering the majority of the first half of the 2023 financial year.
Ukraine is the world’s 8th largest producer of corn, with global exports worth $5.9 billion in 2021 according to the US Department of Agriculture.
Retail stocks lower amid petrol cost squeeze
10:12 , Graeme Evans
Brent crude today returned to the peak seen not long after Russia’s invasion of Ukraine as experts forecast more misery to come for motorists and hauliers.
The Brent price nudged $124 a barrel at one point after an update on US crude inventories suggested no let-up in demand from US motorists over the Memorial Day weekend.
With China’s economy rebuilding after Covid disruption and several countries experiencing supply difficulties, there’s every chance oil prices have further to go.
Hargreaves Lansdown analyst Susannah Streeter said: “Although the UAE and Saudi Arabia could expand production, other OPEC members are struggling with hitting targets and overall there isn’t the capacity to close the supply gap created by the bans slapped on Russian oil.”
The consumer impact of Brent crude revisiting its highest level since 2008 was shown today as it emerged that the cost of filling up the typical family car is now over £100. This follows the biggest daily jump in petrol prices for 17 years.
Investors in London took fright at the squeeze on household budgets by dumping a range of retail-focused stocks. Casualties included B&Q owner Kingfisher after a decline of 10.9p to 245p, while FTSE 250-listed Marks & Spencer fell 3% or 4.35p to 143.9p.
The wider stock market performance was little better as ongoing inflationary pressures add to fears that global interest rates may have to rise by more than expected.
The FTSE 100 index fell 42.02p to 7550.98, despite gains of around 0.5% for energy giants BP and Shell. NatWest also featured on a shortened risers board, lifting 2.8p to 232.7p on expectations for further margin-enhancing rate rises.
The domestic-focused FTSE 250 fell 81.90 points to 20,229.09, with CMC Markets down 12% after its big dividend cut. However, the promise of enhanced shareholder returns meant results-day gains of 5% and 2% for outsourcing firm Mitie and food ingredients business Tate & Lyle.
First Group flat “no” on takeover deal
09:52 , Simon English
TRANSPORT giant First Group offered its private equity suitors I Squared Capital a one-way ticket out of town today, flatly rejecting a £1.2 billion takeover offer.
That deal was for 118p in cash with a further 45.6p possible from the earnout on sales of the Greyhound bus arm and First Transit.
First Group said the offer “significantly undervalues” the business in a statement it noted had been made “without the consent of I Squared”.
The contingent right to the extra cash “does not provide shareholders with sufficient certainty”, added First Group.
Divi to top Tory donor slashed
09:00 , Simon English
LORD Peter Cruddas, a top Tory party donor and Boris backer, today felt the pain from the end of the lockdown inspired investment boom that saw new customers flock to share trading.
His CMC Markets firm saw profits for the year to March sink 59% to £92 million, on income down 31% to £282 million.
That in turn hits the dividend, which is down 60%. Last year Cruddas bagged a £55 million payout on his stake in CMC. He had just donated £500,000 to the Tory party at that time.
The half-year dividend of 8.8p announced today is worth a more modest £15 million to Cruddas, who left school at 16 and was once dubbed the richest man in the City.
He is a former Tory party treasurer but left under a cloud over offering access to then PM David Cameron in return for donations.
Peel Hunt feels the pain as float market sinks
08:39 , Simon English
THE extent of the strife in the City was laid bare today when investment bank Peel Hunt reported a crash in profits as company floats dry up and clients fret about the global economy.
Chief executive Steven Fine admitted the environment is “rough” and noted that when on the global stage “unpredictable individuals are doing strange things” financial markets are likely to be rocky. The firm reported “exceptionally low levels of capital markets activity”.
Peel Hunt has built its reputation partly on handling flotations well. There were about 130 IPOs last year and just ten so far this year. One rival said: “It is tough for them to even tread water with those sort of numbers.”
Revenue for the year to March tumbled from £197 million to £131 million. Profits slumped from £120 million to £41 million, a fall bound to be reflected in year end bonuses to the bankers.
Fine offered some cause for optimism. “When overwhelming sentiment is in the same direction that usually means you are not far from the bottom,” he told the Standard.
FirstGroup rejects takeover approach
08:10 , Graeme Evans
FirstGroup, the bus and rail operator, has rejected a takeover proposal worth £1.2 billion from US private equity firm I Squared.
The FTSE 250-listed company, which operates Avanti West Coast and Great Western Railway and is the second largest regional bus firm in the UK, said the approach significantly undervalued its operations and future prospects.
The rejection comes after the Sunday Times reported that FirstGroup’s largest shareholder, Schroders, had criticised the offer as being “unattractive“ and for failing to reflect the scarcity value of one of the few big UK bus and train groups.
I Squared’s proposal offered 118p a share, plus a further 45.6p conditional on the amount FirstGroup receives from the sale of its US operations. FirstGroup shares opened a penny lower at 135.83p today.
Oil nears $124, ECB rates meeting in focus
07:43 , Graeme Evans
Oil prices have continued to rise, with Brent crude at almost $124 a barrel, after figures yesterday showed US inventories at their lowest level since early March.
Demand from US motorists over the Memorial Day weekend is likely to have impacted stocks, despite rising prices at the pump.
The Brent price rose more than 2% yesterday and held on to those gains this morning as demand is also being driven by the reopening of China’s economy.
Balance of trade figures in China showed a pick up in activity as exports grew 16.9% year-in-year and imports by 4.1%, after no growth the previous month.
The latest rise in oil prices adds to inflation fears, with the RAC yesterday reporting the biggest daily jump in the price of petrol for 17 years. The increase of more than 2p means the cost of filling up the typical family car is just below £100.
The prospect of interest rates having to rise faster to combat inflation meant US markets endured a poor session yesterday as the Dow Jones Industrial Average and S&P 500 fell by around 1%. The FTSE 100 is expected to open 40 points lower at 7,553.
Today’s focus will be on the European Central Bank (ECB), where policymakers are expected to prepare the ground for the start of its rate hiking cycle from July. Inflation in the eurozone is 8.1%, but with the rate in Lithuania as high as 16.8%.
Michael Hewson, chief markets analyst at CMC Markets, said: “The current situation presents a huge problem for the ECB, and its credibility, because if they signal a more aggressive tightening path, bond spreads in countries like Italy may start to rise to levels that are hugely problematic for debt funding purposes.”