Tepid trade ahead of central banks; Croda slumps

(Alliance News) - Stock prices in Europe opened mostly lower on Friday, failing to replicate a rally seen on Wall Street, where stocks were spurred on by a weak US jobless claims reading that reinforced expectations that the Federal Reserve will decide against an interest rate hike.

Tame inflation data out of China put policymakers there in focus as well.

All in all, investors are keeping "their powder dry ahead of an important week to come", interactive investor analyst Richard Hunter commented.

"Further colour will come next week, as investors await the latest [US] inflation report and then the Federal Reserve decision on interest rates. Core inflation is expected to remain elevated, although an overall cooling should provide some relief. A slightly higher-than-expected initial jobless claims number could also inform the Fed's decision, where it is largely expected that there will be no rate rise announced next week, but where the possibility of a July hike seems increasingly likely," Hunter added.

The FTSE 100 index was marginally higher, up 3.67 points at 7,603.41. So far this week, the blue-chip index has lost 0.1%.

The FTSE 250 was down 55.95 points, 0.3%, at 19,051.60, and the AIM All-Share down 2.66 points, or 0.3%, at 790.24.

The Cboe UK 100 was down 0.1% at 757.18, the Cboe UK 250 was down 0.3% at 16,632.70, and the Cboe Small Companies was down 0.2% at 13,840.33.

In European equities, the CAC 40 in Paris was down 0.3%, while the DAX 40 in Frankfurt was down 0.2%.

The pound was quoted at USD1.2550 early Friday, up from USD1.2541 at the time of the London equities close on Thursday. The euro stood at USD1.0773, flat from USD1.0774. Against the yen, the dollar was trading at JPY139.47, rising from JPY139.05.

Stocks in New York ended higher on Thursday, bolstered by the weaker-than-expected US jobless claims reading, which took some pressure off the Federal Reserve to raise interest rates next week.

The Dow Jones Industrial Average closed up 0.5%, the S&P 500 up 0.6%, and the Nasdaq Composite up a more significant 1.0%.

New claims for unemployment insurance in the US rose in the most recent week, the Department of Labor reported.

Initial claims for unemployment support in the week ended June 3 totalled 261,000, an increase of 28,000 from the previous week's revised level. The previous week's level was revised up by 1,000 to 233,000 from 232,000.

The data took some pressure off the Fed to raise interest rates on Wednesday next week. The federal funds rate currently stands at 5.00% to 5.25%.

At a press conference following the Fed's last meeting in May, Chair Jerome Powell suggested the Fed will pause this time round. Hawkish commentary from US central bankers, and more recently, surprise rate hikes by the Bank of Canada and Reserve Bank of Australia put a bit more uncertainty over the Fed's decision.

China's annual inflation rate quickened slightly last month, but stayed not far above zero. The consumer price index rose 0.2% year-on-year, picking up a bit of speed from 0.1% in April, the National Bureau of Statistics said. The figure fell short of FXStreet-cited consensus which predicted an uptick to 0.3% annual inflation.

Beijing has kept interest rates low compared to other major economies, but the near-zero inflation in China highlights challenges faced by policymakers there as they try to stimulate the economy.

The country's annual producer price index – which measures prices paid by wholesalers – dropped a bigger-than-expected 4.6% in May on a year before, after a 3.6% annual decline in April, the biggest year-on-year fall in producer prices since 2016.

PPI has recorded annual decline for eight consecutive months because of sluggish domestic demand and lower commodity costs.

"That tame inflation environment potentially leaves the way open for further policy measures to stimulate economic growth," analysts at Lloyds Bank commented.

Mining firms were among the best performers in London's FTSE 100 index early Friday. Rio Tinto added 0.6% and Glencore 0.5%. China is a major buyer of mine output.

Equity markets in Asia-Pacific had a positive day. Sydney's S&P/ASX 200 rose 0.3%. The Shanghai Composite added 0.6%. The Hang Seng in Hong Kong was also up 0.6% in late trade.

The Nikkei 225 in Tokyo led the charge, closing up 2.0%, and taking its year-to-date gain to 24%. By contrast, the S&P 500 in New York has risen 12% so far this year, while the FTSE 100 in London has added just 1.9%.

Helping to push the Nikkei higher on Friday, Uniqlo-owner Fast Retailing rose 4.6%, video game company Nintendo climbed 1.9%, and carmaker Toyota added 1.4%.

In London, Croda slumped 11% after warning on annual profit, as the chemicals company grapples with customer destocking. Croda provides chemicals for the personal care, fragrances, pharmaceutical and crop care sectors.

Sales volumes in its Consumer Care arm were down by a double-digit percentage year-on-year for the five months ended May 31.

"Price increases implemented in 2022 and favourable foreign exchange rates so far in 2023 have helped to offset this impact, with revenues broadly flat versus the first five months of 2022. However, principally due to the lower sales volumes, operating profit margin has remained at a similar level to the second half of 2022," the company said.

Croda said it achieved pretax profit of GBP143 million in the first five months of 2023, helped by "minimal net finance costs".

With customer destocking set to continue in its consumer-focused division, Croda now predicts full-year pretax profit of GBP370 million to GBP400 million, down as much as 52% from GBP780.0 million in 2022.

Shares in chemicals firms in mainland Europe fell in a negative read across. Givaudan lost 2.7% in Zurich. Pharmaceutical and chemicals firm Bayer fell 1.6% in Frankfurt.

Back in London, Network International shares added 6.0% to 384.60 pence. It agreed to a GBP2.2 billion takeover from entities backed by private equity firm Brookfield Asset Management.

Brookfield will pay 400 pence per Network International share, a 64% premium to Network International's 243.6p share price at the close of play on April 12, the day before the Middle East and Africa-focused payments provider first received buyout interest.

Back then, it was a private equity consortium featuring CVC Capital Partners and tech-focused investor Francisco Partners Funds that showed an interest. This then led to a 387p per share takeover proposal.

Network International Chair Ron Kalifa said: "The board has carefully considered the Brookfield offer in the context of the long term growth prospects and opportunities available to the business, balanced against the current challenges and uncertainty in the global macroeconomic environment and the expected timeframe that would be required to generate a similar level of value creation for Network shareholders. The Brookfield offer represents an opportunity for Network shareholders to crystallise, in cash, the value of their investments at a significant premium."

Amigo shares rose almost four-fold, trading at 1.22p after closing at 0.32p on Thursday. Amigo said it has granted exclusivity to shareholders and financier Michael Fleming, to "explore finding and completing a debt investment" in the firm.

Hopes of a financial reprieve for the credit provider lifted the stock, though Amigo tempered expectations.

"Shareholders should note that there remain significant impediments to any new capital being made available to the business. In addition, establishing a new business and potentially creating value for shareholders in the longer term, has significant execution risks and will require regulatory approval. The board recognises the very low likelihood of a successful conclusion to any discussions arising because of this agreement," Amigo said.

Amigo began winding down in March. It failed to receive sufficient investment interest to an equity capital requirement of GBP45 million.

Brent oil was quoted at USD75.64 a barrel early Friday, down from USD76.28 late Thursday. Gold was priced at USD1,964.40, down from USD1,966.33.

By Eric Cunha, Alliance News news editor

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