LONDON BRIEFING: Sainsbury's hails "biggest ever Christmas"

(Alliance News) - London's FTSE 100 is seen opening lower, with UK bond market nerves and US interest rate worries front-and-centre before a nonfarm payrolls report later.

"Gilts remain on shaky ground after another day of turmoil in UK assets, as participants look ahead to today's US labour market report," Pepperstone analyst Michael Brown commented.

"Gilts again lurched lower at yesterday's open, with 10- and 30-year yields rising 10bp apiece, to fresh multi-year highs, though the move did pare as trade progressed through the day. Still, there remains clear concern over the likelihood that all of the chancellor's fiscal headroom has now been eaten up."

Over in the US, Fed Governor Michelle Bowman said she had backed another rate cut in December but could have been persuaded against it.

"I supported the December policy action because, in my view, it represented the Committee's final step in the policy recalibration phase," she said.

"But given the lack of continued progress on lowering inflation and the ongoing strength in economic activity and in the labour market, I could have supported taking no action at the December meeting," added Bowman, who is a permanent voting member of the bank's rate-setting committee.

"We should be cautious in considering changes to the policy rate as we move toward a more neutral setting," she said.

The highlight of the day will be the latest set of US nonfarm payrolls at 1330 GMT. According to FXStreet cited consensus, the pace of US hiring is expected to have eased to 160,000 jobs in December, from 227,000 in November.

In early UK corporate news, Sainsbury's said it expects profit at the midpoint of guidance after what it described as a bumper Christmas. Among AIM listings, Alliance Pharma agreed to a takeover, but a Team Internet suitor has ruled out a deal.

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 0.1% at 8,307.79

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Hang Seng: down 0.9% at 19,066.83

Nikkei 225: down 1.1% at 39,190.40

S&P/ASX 200: down 0.4% at 8,294.10

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Financial markets in New York were closed on Thursday for a day of mourning following the death of former US president Jimmy Carter.

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EUR: lower at USD1.0291 (USD1.0295)

GBP: lower at USD1.2290 (USD1.2304)

USD: higher at JPY158.39 (JPY157.96)

GOLD: higher at USD2,676.42 per ounce (USD2.667.81)

(Brent): higher at USD77.33 a barrel (USD77.11)

(changes since previous London equities close)

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ECONOMICS

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Friday's key economic events still to come:

13:30 GMT US nonfarm payrolls

15:00 GMT US Michigan consumer sentiment index

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Rachel Reeves faces further pressure to balance the books as the UK's borrowing costs hit their highest level since the 2008 financial crisis. The chancellor is said to be prepared to impose more severe spending cuts on departments if necessary, having already ruled out increasing either borrowing or taxes. She has also asked ministers to draw up alternative plans for securing growth and "cease anti-growth measures" as she attempts to meet the government's aim of improving living standards across the country. Any further spending cuts could be announced in the chancellor's planned fiscal statement on March 26, ahead of a spending review that has already required government departments to find efficiency savings worth 5% of their budgets. The prospect of further cuts follows a rise in the yields on government bonds, which reflect how much it costs the government to borrow money. Yields on government bonds continued to rise on Thursday, up eight basis points to 4.89% for 10-year gilts, which is the highest since 2008. These yields settled later on Thursday afternoon, sitting one basis point higher for the day at 4.82% when London's market closed. The rise in gilt yields has an inverse effect on the price of these government bonds, which are falling as a result, with some saying the current market woes echo those seen in the fallout from the disastrous mini-budget of former prime minister Liz Truss in 2022.

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The Conservatives have criticised the chancellor for proceeding with her planned trip to China this weekend rather than remaining in the UK to address the rising cost of borrowing. Shadow Chancellor Mel Stride said Reeves was "missing in action" and accused her of "wheeling out her deputy to defend her loss of control of the public finances" as Treasury Chief Secretary Darren Jones answered questions in the Commons in her place. Jones said the trip was "important" for UK trade and would continue. While Stride said the government was making "a panicked attempt to reassure the markets", Jones insisted that the bond market was functioning in an "orderly way". Jones also pointed to global factors influencing the gilt market, saying there was "no need for emergency intervention". Government bonds have faced a sell-off around the world in recent months in the face of worries that US President-elect Donald Trump could introduce a tariff policy which would be inflationary for many international economies.

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French President Emmanuel Macron met with UK Prime Minister Keir Starmer on Thursday in Britain, where they discussed the conflicts in Ukraine and the Middle East. Starmer welcomed the French head of state to his Chequers country residence northwest of London, and the two leaders "underscored the need for unity in uncertain times", according to a readout from Downing Street. On Ukraine, Macron and Starmer reaffirmed their commitment to work together to support the country for "as long as necessary", according to a statement from Macron's office. They also stressed "the importance of continuing to supply the equipment needed to defend Ukrainian territory" and of guaranteeing financial support for Kyiv beyond 2025. European powers are preparing for the return to office on January 20 of US President-elect Trump, who has said he will end the Ukraine conflict. Ukraine and its allies are concerned that a settlement could be imposed on terms favourable to Russia, which invaded Ukraine in 2022. Macron had previously said the two sides had "a lot of convergence" on pressing issues including Ukraine and the Middle East. On the Middle East, Macron and Starmer "agreed on the importance of stability and security in the region, as well as the need to avoid regional escalation", according to Downing Street.

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The taoiseach and tanaiste have refused to be drawn on whether they consider Michael Lowry to be trustworthy, as they engage in Irish government formation talks with the independent TD. Simon Harris's Fine Gael and Micheal Martin's Fianna Fail are negotiating with independent TDs to form a government, with the parties' combined seat numbers falling just shy of a majority following the general election. The Regional Independent Group has included Lowry among seven TDs who are willing to negotiate as a bloc. Last year, it was reported that Lowry was interviewed by gardai from the Criminal Assets Bureau who are investigating matters related to the Moriarty Tribunal. The tribunal was set up in 1997 to examine payments made to former taoiseach Charles Haughey and Lowry. In 2011, it found that Lowry, a former Fine Gael TD, helped businessman Denis O'Brien secure a mobile phone licence in 1995. The tribunal also criticised his behaviour as "profoundly corrupt". At the time, Martin said Lowry should "consider his position" as a TD. Gardai confirmed on Thursday that a file relating to its investigations around the findings of the tribunal has been forwarded to the Office of the Director of Public Prosecutions.

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BROKER RATING CHANGES

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UBS raises Persimmon to 'buy' (neutral) - price target 1,540 (1,790) - pence

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Jefferies cuts Serco to 'hold' (buy) - price target 175 (225) pence

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COMPANIES - FTSE 100

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Sainsbury's hailed another Christmas period of market share gains and the grocer said it expects annual profit at the mid-point of guidance. In the 16 weeks to January 4, its third-quarter, total retail sales advanced 2.7% year-on-year. The measure excludes fuel. Including fuel, sales were flat. Excluding fuel again, like-for-like sales rose 2.8% on a year prior. For the Sainsbury's brand alone, sales rose 3.7%, including a 4.1% rise in the grocery offering. Sainsbury's general merchandise & clothing sales fell 0.1%. Argos sales, meanwhile, declined 1.4% on the prior year. For the final six weeks of that period alone, so a gauge of its trading over the key festive stretch, Sainsbury's brand sales rose 3.8% year-on-year, with grocery sales climbing at the same pace. Sainsbury's general merchandise & clothing advanced 3.4% on-year, while Argos sales rose 1.1%. "We have won grocery market share for the fifth consecutive Christmas, with more customers choosing Sainsbury's for their big shop. Driven by our leading combination of quality, value and service, we have achieved seven consecutive quarters of volume performance ahead of the market and further accelerated our two-year volume growth," Chief Executive Simon Roberts said. "The strength of our customer service and operational performance stood us apart in delivering our biggest ever Christmas." Looking ahead, Sainsbury's expects retail underlying operating profit in line with consensus and the midpoint of its GBP1.01 billion and GBP1.06 billion guidance range. It would represent annual growth of around 7%. "This reflects continued operating leverage from Sainsbury's grocery volume growth, strong growth in Nectar profit contribution and delivery of cost saving targets," it added. It expects total Financial Services underlying operating profit to be around GBP30 million, above its prior guidance range of GBP15 million to GBP25 million. The firm maintained its free cash flow outlook of at least GBP500 million.

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Telecommunications firm Vodafone Group said it successfully sold its stake in Indian telecoms infrastructure company Indus Towers, and has used some of the sale proceeds to up its holding in another investee in India. Vodafone completed the placing of its remaining 79.2 million shares in Indus Towers, representing a 3.0% stake, netting some USD330 million. It explained USD105 million will go towards repaying Vodafone's outstanding borrowings secured against Indian assets, as well as settling transaction fees. It added USD225 million has also been used to acquire 1.7 billion shares in telecommunications firm Vodafone Idea. It increases its stake in India's Vodafone Idea to just over 24%, from just under 23%.

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COMPANIES - FTSE 250

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Shipping services firm Clarkson expects results for 2024 to be "slightly ahead of current market expectations". The firm expects underlying pretax profit of no less than GBP115 million. It would represent a 5.3% rise from GBP109.2 million in 2023. Clarkson reports annual results on March 10.

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OTHER COMPANIES

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Alliance Pharma agreed to a GBP349.7 million cash buyout from DBAY Advisors, its largest shareholder. The deal prices each share in the consumer healthcare company at 62.5 pence, a 41% premium to its 44.4p closing price on Thursday. It is more than double the closing price of 29.4p on May 8, the day before DBAY first made an M&A approach to the Alliance Pharma board. The deal also has an alternative option for shareholders to receive an unlisted share alternative. "DBAY has followed Alliance's story for several years and began acquiring Alliance shares in December 2022," a statement said. DBAY has a roughly 28% stake in the company. "DBAY is supportive of Alliance's leadership team and believes in Alliance's future prospects but considers that Alliance needs to implement a range of operational and strategic initiatives, in conjunction with a period of accelerated investment and selective acquisitions of complementary products, in order to fulfil the growth potential of the business. It has become apparent to DBAY that Alliance needs time away from the public market to allow it to fully deliver these initiatives in a reasonable timeframe." Alliance Pharma's board backed the cash deal. Alliance Pharma Non-Executive Chair Camillo Pane said: "Since IPO, Alliance has grown to become a globally diversified player in the consumer healthcare market. Alliance now has several leading brands across its priority categories and a global operating platform. Led by our CEO Nick Sedgwick, who joined in May 2024, management is developing a plan to return to consistent, profitable growth in our target markets. Whilst the board has confidence in Alliance's strategy and team, many of the planned initiatives are at a relatively early stage, retain an element of execution risk and will take time to deliver value. The board of Alliance believes that the offer from DBAY represents an attractive and certain value in cash today for our shareholders."

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Team Internet suitor TowerBrook Capital Partners has said it does not plan to make a takeover offer for the London-based internet services company. Team Internet on Tuesday said it received two takeover approaches, which it was considering with advisers. One was from TowerBrook and another from Verdane Fund Manager and both were at 125 pence per share, valuing Team Internet at GBP315.1 million. "TowerBrook today confirms that it does not intend to make an offer for Team Internet," TowerBrook said.

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By Eric Cunha, Alliance News news editor

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