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LONDON BRIEFING: TP ICAP profit up; impairments sting Close Brothers

14th Mar 2023 07:58

(Alliance News) - Shares in London are called to open lower on Tuesday, amid Silicon Valley Bank contagion worries and inflation concerns, ahead of a US consumer price index reading.

Though markets are now largely pricing in a 25 basis point lift by the Federal Reserve later this month, instead of the half-point hike expected prior to SVB turmoil, stock market traders would still like to see the US inflation rate come down.

CPI inflation is expected to have ebbed to 6.0% in February from 6.4% in January, according to FXStreet.

"The collapse of Silicon Valley Bank on Friday has brought on the highest volatile market conditions of 2023 so far, particularly in the most critical asset of all US interest rates. And even with over 100 basis-points in cuts priced in [compared to previous market expectations for terminal rates], equities have not rallied hard, suggesting buyers think a fire sale is on the way, especially if the global financial plumbing gets clogged, which would clearly lead to some horrible market outcomes, not to mention recession risk seems more plausible again," SPI Asset Management analyst Stephen Innes commented.

"Indeed, it could be time for folks to start squirrelling money under the mattress."

Among UK corporate updates early Tuesday, TP ICAP posted improved yearly earnings, while impairments hurt half-year profit at Close Brothers.

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

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MARKETS

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FTSE 100: called down 0.2% at 7,536.33

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Hang Seng: down 2.6% at 19,183.68

Nikkei 225: down 2.2% at 27,222.04

S&P/ASX 200: closed down 1.4% at 7,008.90

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DJIA: closed down 90.50 points, 0.3%, at 31,819.14

S&P 500: closed down 0.2% at 3,855.76

Nasdaq Composite: closed up 0.5% at 11,188.84

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EUR: down at USD1.0687 (USD1.0737)

GBP: up at USD1.2168 (USD1.2157)

USD: up at JPY133.53 (JPY133.25)

GOLD: up at USD1,911.81 per ounce (USD1,904.07)

(Brent): down at USD80.04 a barrel (US81.23)

(changes since previous London equities close)

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ECONOMICS

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Tuesday's key economic events still to come:

1230 GMT US CPI

1255 GMT US Johnson Redbook retail sales index

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The UK unemployment rate was unchanged at the start of the year, defying expectations of a slowdown, figures showed. According to the Office for National Statistics, the UK jobless rate was 3.7% in the three months to January, unchanged from the three months to December. The reading topped an FXStreet-cited market forecast of a slight rise in the unemployment rate to 3.8%. This time last year, the jobless rate was 4.0%. Annual growth in average total pay, including bonuses, was 5.7% and growth in regular pay, excluding bonuses, was 6.5%. Total pay was in line with FXStreet-cited market consensus and slowed from 6.0%. Regular pay growth came in below consensus of 6.6% and slowed from 6.7% in the three months to December. Total pay was down 3.2% in real terms, while regular pay was down 2.4%.

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The UK chancellor is understood to be looking at increasing the lifetime pension allowance in a move that is being interpreted as attempting to reverse the trend of early retirements. The PA news agency understands Jeremy Hunt is considering allowing workers to put more money into their pension pot before being taxed as part of his budget package. Hunt is keen to bolster Britain's workforce as he looks to deliver on the prime minister's pledge of growing the UK's stalling economy. The lifetime allowance currently stands at GBP1.07 million, with savers incurring tax after that personal pension pot threshold has been exceeded. Reports differ about how much Hunt could put the LTA up by in his fiscal statement on Wednesday. The Times said the chancellor would hike it to GBP1.8 million, while The Daily Telegraph said it could be set to more than GBP1.5 million.

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The Federal Reserve said it is launching a review of the supervision and regulation of Silicon Valley Bank, following SVB's rapid collapse. US authorities pulled the plug on SVB last Friday, marking America's biggest banking failure since the 2008 financial crisis and raising fears of potential spillovers across the banking system. The review will be led by Fed Vice Chair for supervision Michael Barr, and this will be released by May 1, the Fed said in a notice. "The events surrounding Silicon Valley Bank demand a thorough, transparent, and swift review by the Federal Reserve," said Fed Chair Jerome Powell in a statement. Barr added that there is a need to "conduct a careful and thorough review of how we supervised and regulated this firm."

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BROKER RATING CHANGES

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SocGen cuts Ferguson to 'hold' ('buy') - price target 12,494 (12,500) pence

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Citi raises easyJet price target to 430 (270) pence - 'sell'

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Berenberg raises Flutter Entertainment price target to 16,000 (13,800) pence - 'buy'

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COMPANIES - FTSE 100

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British Gas owner Centrica said it has extended the lives of the Heysham 1 and Hartlepool nuclear power stations. These are now expected to close three years from now, two years later than previously planned. "These extensions are expected to add [six terrawatt hours] to Centrica's electricity generation volumes between 2024 and 2026 which equates to around 70% of Centrica's total nuclear volumes in 2022. Chief Executive Chris O'Shea said the move strengthens "the UK's energy security". "This continues our action to bolster security of supply in our core markets which includes reopening the Rough gas storage facility in the UK, sanctioning new gas-fired electricity generation capacity in Ireland, and securing increased volumes of gas and renewable power for our customers. We will continue to focus on supporting energy security in our core markets during these uncertain times," the CEO added.

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Grocer Sainsbury's said it has exchange contracts for the purchase of majority ownership in the Highbury and Dragon investment vehicles. The deal has been struck with London-listed Supermarket Income REIT. Supermarket Income holds a 51% stake, while Sainsbury's has owned 49% since the investment vehicles were created 23 years ago. "The transaction will result in Sainsbury's acquiring the freehold of 21 stores in the Highbury and Dragon investment vehicles which will continue to be operated as Sainsbury's supermarkets. The remaining five stores will be sold by Sainsbury's," the company said. The deal is expected to be sealed on Friday for a total sum of GBP430.9 million. The gross assets acquired as part of the deal total GBP431.5 million.

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COMPANIES - FTSE 250

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TP ICAP reported improved annual profit as it benefited from interest rate hikes. The interdealer broker said revenue in 2022 rose 13% to GBP2.12 billion from GBP1.87 billion in 2021. Pretax profit jumped to GBP113 million from GBP24 million. "We delivered a strong performance: high single-digit revenue growth and an increase in profitability. Significant monetary tightening in many economies benefited Rates, our largest business," CEO Nicolas Breteau said. "Capital management is an important part of our strategy. We committed to freeing up GBP100 million of cash, and reducing debt, by the end of 2023. Progress has been good with over GBP30 million already freed up in H2 2022. In addition, as previously announced, we continue to focus on identifying, and returning, any potential surplus capital to shareholders, subject to the ongoing assessment of our balance sheet and investment requirements." TP ICAP lifted its final dividend by 44% to 7.9 pence per share. It took its total annual payout to 12.4p per share, up 31% from 9.5p.

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Close Brothers said half-year profit declined amid provisions at Novitas, a provider of loans for legal proceedings. Pretax profit in the six months to January 31 plunged 91% year-on-year to GBP11.7 million from GBP128.9 million. Novitas provisions during the half totalled GBP114.6 million. Novitas was acquired by Close Brothers for around GBP31 million in 2017. In 2021, Close Brothers decided to permanently cease the approval of lending to new customers across all the products offered by Novitas and withdraw from the legal services financing market. Close Brothers said operating income edged up 0.6% on-year to GBP474.3 million from GBP471.6 million.

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OTHER COMPANIES

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Old Mutual reported sharply lower profit for 2022, as it grappled with the difficult economic environment and market volatility. The financial services firm said pretax profit dropped by 31% to ZAR9.20 billion, around GBP415.4 million, in 2022 from ZAR13.43 billion in 2021. Revenue slumped to ZAR113.21 billion, down 54% from ZAR247.81 billion. Old Mutual declared a final dividend of 51 rand cents, taking the full payout to 76 cents from 67 cents.

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Smart Metering Systems reported an improved yearly outcome and said it expects its outturn for the new year to be marginally ahead of previous expectations. Revenue in 2022 surged 25% to GBP135.5 million from GBP108.5 million. Pretax profit jumped 92% to GBP16.0 million from GBP8.3 million. Smart Metering lifted its dividend by 10% to 30.25p per share from 27.50p. For 2023, it now expects its pre-exceptions earnings before interest, tax, depreciation and amortisation to be "marginally ahead of" previous expectations. Underlying pretax profit is to be in line with previous expectations.

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By Eric Cunha, Alliance News news editor

Comments and questions to [email protected]

Copyright 2023 Alliance News Ltd. All Rights Reserved.

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