London stocks drifted lower early Wednesday with markets awaiting fresh Western sanctions on Russia and US central bank meeting minutes.
Ahead of the minutes, Federal Reserve Governor Lael Brainard warned the US central bank was ‘prepared to take stronger action’ if warranted to reign inflation in and could move to reduce the Fed's massive bond holdings as soon as its May meeting.
‘Brainard's comments likely put more emphasis on the theme of quantitative tightening ahead of this evening's release of the March Federal Open Market Committee minutes, where indications of wide consensus within the committee to shrink the balance sheet at a fast pace could keep bonds vulnerable and support the dollar,’ said Dutch bank ING.
The dollar was on the front foot as the minutes loom. The pound was quoted at $1.3050 early Wednesday, down from $1.3115 at the London equities close Tuesday.
The euro was priced at $1.0885, down from $1.0927. Against the yen, the dollar was trading at JP¥123.91 in London, up from JP¥123.38.
The FTSE 100 index was down 9.06 points, or 0.1%, at 7,604.66 early Wednesday. The mid-cap FTSE 250 index was down 12.71 points, or 0.1%, at 21,344.27. The AIM All-Share index was flat at 1,057.17.
The Cboe UK 100 index was up 0.2% at 757.62. The Cboe 250 was flat at 18,808.25, and the Cboe Small Companies was 0.3% higher at 15,576.61.
In Paris, the CAC 40 index was down 0.3%, while the DAX 40 in Frankfurt fell 0.2%.
In the FTSE 100, Imperial Brands was the best performer, up 2.6%, after the tobacco maker backed annual guidance and added it forecasts a ‘broadly flat’ first-half revenue performance, with tobacco market struggles in Europe offset by progress elsewhere.
Imperial Brands said net revenue for the six months ended March 31 is expected to be broadly flat annually on a constant currency basis, in line with expectations.
Interim adjusted operating profit is expected to grow by around 2% on a constant currency basis, benefiting primarily from reduced losses in the Next Generation Product range, which includes Blu. The tobacco performance, meanwhile, will be weighted to the second half.
In the first half of financial 2021, it reported net revenue of £3.57 billion. For the whole of that year, it reported revenue of £7.59 billion, as well as an organic adjusted operating profit of £3.57 billion.
Imperial said it was on track to deliver full-year results in line with revised guidance issued in March. It forecasts a full-year net revenue performance ranging from flat to 1% growth on a constant currency basis. It expects adjusted operating profit growth of around 1%.
In the FTSE 250, Redrow was down 2.0% after it became the latest housebuilder to sign the UK government's pledge to for developers fund the remediation of life critical fire safety issues on high-rise buildings.
The housebuilder said that in signing the pledge it will be remediating all the buildings in which it was involved, going back 30 years.
Redrow said this was a ‘highly complex matter’ and the exact remediation work required and for the exact number of buildings would take time to determine. Its existing provision for fire safety in high rise buildings is £36 million.
However, it believes an additional provision of £164 million would be required as a result of the pledge. This will be treated as an exceptional item in the results for the 2022 financial year, it explained.
Hilton Food Group was down 1.6%. The food packaging company said it delivered a strong annual financial performance with volumes and revenue both growing.
For the year ended January 2, the company generated revenue of £3.3 billion, up 22% from £2.8 billion the year before, driven by growth across proteins and geographies.
However, annual pretax profit was £47.4 million, down 12% from £54.0 million a year ago after exceptional items of £8.2 million. Adjusted pretax profit rose 13.0% to £67.2 million from £61.1 million.
Elsewhere, Avon Protection was down 18% after the military protection maker warned of lower-than-expected annual earnings after a soft start to its financial year.
Trading in the six months to the end of March saw a continuation of some of the challenges seen last year, it said, but with performance accelerating through the second quarter.
However, the personal protection company said half-year profit was hit by a weaker than expected sales mix and additional manufacturing costs, particularly in the helmets business, due to ‘supply chain and process inefficiencies.’
Profitability is expected to improve in the second half versus the first but still not offset the weakness seen in the first six months of its financial year - and, as a result, full-year underlying earnings will be below previous expectations.
In Asia on Wednesday, the Japanese Nikkei 225 index closed down 1.6%. In China, the Shanghai Composite ended flat, while the Hang Seng index in Hong Kong was down 1.3%. The S&P/ASX 200 in Sydney ended down 0.5%.
China's services sector contracted in March, as rising Covid-19 cases took their toll, survey data revealed on Wednesday.
The Caixin services purchasing managers' index fell to 42.0 points in March from 50.2 in February. March's figure moved below the 50.0 no-change mark, and it also suggested the sharpest activity decline since the virus first emerged back in February 2020.
China reported over 20,000 Covid-19 cases on Wednesday, the highest daily tally given since the start of the pandemic, with Shanghai the heart of the virus surge despite being in lockdown. The country's ‘zero-Covid’ strategy has come under immense strain as cases spike.
Until March, China had kept daily cases low with snap localised lockdowns, mass testing, and strict restrictions on international travel. But the caseload has hit thousands per day in recent weeks, with officials saying they have detected a mutation of the highly transmissible Omicron variant near Shanghai.
Brent was quoted at $106.80 a barrel Wednesday morning, down from $107.07 late Tuesday. Gold stood at $1,919.35 an ounce, soft from $1,926.80.
In the international economics events calendar on Wednesday, there is a UK construction PMI at 0930 BST, eurozone producer prices at 1000 BST and Fed meeting minutes at 1800 BST.
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