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The following is a summary of top news stories Wednesday.
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COMPANIES
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GSK has submitted to the UK Financial Conduct Authority its plan for the demerger of its consumer healthcare arm and its listing in London and New York as Haleon. The separation will take the form of a demerger of at least 80% of GSK's current 68% share of the consumer business to GSK shareholders. The remaining 32% of Consumer Healthcare currently is held by US peer Pfizer. Haleon will be listed as ordinary shares in London and as American depositary shares on the New York Stock Exchange. GSK will be a pure biopharmaceutical firm, focused on vaccines and specialty medicines. GSK said it will carry out a share consolidation following the demerger in order to keep its share price and earnings per share comparable to earlier periods. The company called a general meeting for July 6 to approve the plan.
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BHP confirmed it formally completed the all-share merger of its petroleum business with Woodside Petroleum, the Perth, Australia-based oil and gas company. The miner said it had paid the in specie dividend and distributed Woodside shares on Wednesday. The implied value of the in specie dividend was A$27.2 billion, or $19.6 billion. At this valuation, the dividend is about A$5.38. The merger creates one of the 10 largest independent energy producers in the world. Woodside shareholders will hold 52% of the new company, while 48% will be held by BHP shareholders. The all-stock merger was first announced back in August. The two companies formally entered a share sale agreement for the merger of their oil and gas portfolios on November 22. BHP shareholders received one newly issued Woodside share for every 5.5 BHP shares they held, amounting to 914.8 million Woodside shares.
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Citigroup completed the sale of its Australian consumer business to National Australia Bank. NAB agreed back in August to buy the business from Citigroup. The Australian consumer business includes credit cards, loans, retail banking, mortgages and wealth management solutions for high net worth individuals.
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Engineering and consulting firm John Wood Group has agreed to sell its Built Environment Consulting business to WSP Global for about $1.9 billion gross. The sale is expected to complete in the second half of 2022. John Wood said it will use the proceeds from the sale to reduce its debt and strengthen its balance sheet. The firm ended 2021 with net debt of about $1.4 billion. It expects now to be in a net cash position.
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Tullow Oil and Capricorn Energy have agreed to an all-share merger. Under the deal terms, Capricorn shareholders will receive 3.8068 new Tullow shares for each Tullow shares, giving Capricorn shareholders 47% of the enlarged firm. ‘The combination represents a unique opportunity to create a leading African energy company, listed in London, with the financial flexibility and human resource capability to access and accelerate near-term organic growth, add new reserves and resources cost-effectively, generate significant future returns for shareholders, and pursue further consolidation,’ Tullow said. Tullow Chair Phuthuma Nhleko is expected to become chair of the combined firm, with Capricorn Chair Nicoletta Giadrossi to become senior independent director. Tullow CEO Rahul Dhir will become CEO. Tullow Oil has a market cap of about £795 million, while Capricorn has a market cap of about £645 million.
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Salesforce.com reported a drop in first-quarter earnings, though the enterprise software maker raised its annual revenue guidance. For the three months to April 30, revenue was $7.41 billion, up 24% from $5.96 billion in the first quarter last year. Salesforce.com posted GAAP first-quarter net income $28 million, or $0.03 per diluted share, down sharply from $469 million, or $0.51 diluted EPS, last year. Looking ahead, Salesforce sees second-quarter earnings of $1.01 to $1.02 per share on an adjusted basis and revenue from $7.69 billion to $7.70 billion. It posted revenue of $6.34 billion and $1.48 earnings per share in the second quarter last year. For financial 2023, Salesforce expects earnings, excluding one-time items, to be between $4.74 and $4.76 a share, up from previous guidance of $4.62 to $4.64 a share.
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MARKETS
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Stock markets were mixed in Europe on Wednesday, following a similarly indecisive trading day in Asia. Oil prices were giving back some recent gains, with the Brent benchmark price back below $120 a barrel. Gold also was lower.
‘The value of the precious metal is declining in the markets, mainly due to its inverted correlation with the US dollar, as the American currency regains the front foot. Inflation related concerns remain at the top of Federal Reserve's agenda, with pressure piling up from the political side, too, as President Biden noted the need to control the escalation in consumer prices after meeting with Jerome Powell,’ commented Ricardo Evangelista at ActivTrades. ‘With alarming inflation data emerging globally, the likelihood of the Fed pausing after two rate hikes, in June and July, has once again decreased, resulting in a rise in treasury yields and dollar gains, in a dynamic that triggered gold losses.’
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CAC 40: up 0.3% at 6,485.81
DAX 40: up 0.4% at 14,438.64
FTSE 100: down 0.1% at 7,598.89
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Hang Seng: closed down 0.6% at 21,294.94
Nikkei 225: closed up 0.7% at 27,457.89
S&P/ASX 200: closed up 0.3% at 7,234.00
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DJIA: called up 0.5%
S&P 500: called up 0.2%
Nasdaq Composite: called flat
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EUR: firm at $1.0726 ($1.0722)
GBP: down at $1.2590 ($1.2605)
USD: up at JP¥129.40 (JP¥128.50)
Gold: down at $1,829.30 per ounce ($1,845.51)
Oil (Brent): down at $117.27 a barrel ($123.75)
(currency and commodities changes since previous London equities close)
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ECONOMICS AND GENERAL
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A reading on the health of the eurozone manufacturing sector fell to its lowest reading for 18 months in May, final survey data revealed. The S&P Global eurozone manufacturing purchasing managers' index fell to 54.6 points in May from 55.5 in April, signalling a weaker improvement in the health of the euro area's manufacturing sector.
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In Germany, the PMI score saw a slightly improvement from the 20-month low registered in April. The headline seasonally adjusted PMI inched up to 54.8 points in May from 54.6 the month prior. The survey indicated a sustained softening of demand for German manufactured goods, with a combination of heightened economic uncertainty and sharply rising prices. In addition, Covid-related lockdowns in China lead to a further decline in new orders.
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In France, the PMI figure was 54.6 points for May. This was down from 55.7 in April and its lowest reading since October 2021. The biggest influence on decline in the PMI score came from new orders which experienced a marked slowdown in growth. There were reports of clients becoming hesitant to place new orders due to higher prices, S&P Global explained.
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Spain, in contrast, experienced a slightly stronger rate of growth during May. The PMI score climbed to 53.8 points in May compared to 53.3 the previous year as output continued to rise and new orders remained unchanged.
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Unemployment in the eurozone in April fell on an annual basis, but remained stable month-on-month, data from Eurostat showed. For April, the euro area seasonally adjusted unemployment rate was 6.8%, in line with the reading from March, but down from 8.2% in April 2021. Market consensus had seen unemployment at 6.7%, according to FXStreet.
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The manufacturing sector in the UK saw growth slow in May, with a hit to demand leading to a seven-month low for output. The seasonally adjusted S&P Global-CIPS UK manufacturing PMI posted 54.6 points in May, unchanged from the earlier flash estimate and down from 55.8 in April. The reading was in line with market forecasts, according to FXStreet. S&P noted the sector was hit by falling output, new orders and employment.
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UK house prices were 11% higher in May than a year earlier, although the annual pace of growth is slowing, according to an index. Across the UK, the average property value in April had been 12% higher annually. Prices also increased by 0.9% month on month in May, taking the average house price to £269,914, Nationwide Building Society said.
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China's manufacturing sector contracted in May for the third month running, albeit at a slower pace than previously seen. Following the posting of a rise in the PMI for China's manufacturing sector by the National Bureau of Statistics on Tuesday, an alternative PMI compiled by business magazine Caixin broadly followed suit, showing a slight rise to 48.1 points for May from 46 points in April. While the official index tends to more accurately reflect sentiment in large and state-owned enterprises, which are able to better profit from government stimulus measures, the alternative index produced by Caixin is seen as a better barometer of sentiment in medium-sized or privately-owned firms.
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Shanghai eased a range of Covid-19 restrictions on Wednesday in a step towards returning to normal after a two-month lockdown that confined residents of the megacity to their homes and battered China's economy. The commercial hub of 25 million people was closed down in sections from late March, when the Omicron virus variant fuelled China's worst outbreak since Covid first took hold in 2020. After some rules were gradually relaxed over the past few weeks, authorities on Wednesday began allowing residents in areas deemed low-risk to move around the city freely.
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Japanese manufacturers indicated that operating conditions improved at a solid rate in May, albeit not so strongly as the month before, survey results showed. The headline au Jibun Bank Japan manufacturing PMI dipped slightly to 53.3 points in May from 53.5 in April. This marked the weakest improvement in manufacturing conditions since February. Growth was recorded for the third month in a row but the rate of the increase was the slowest in this period.
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The expansion of Australia's manufacturing sector slowed in May, according to S&P Global. The seasonally adjusted manufacturing PMI posted above the 50.0 no-change mark at 55.7 in May, down from 58.8 the previous month. This was the 24th consecutive month in which the sector has grown.
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US Treasury Secretary Janet Yellen has admitted inaccuracies in her earlier assessments of the high inflation currently being seen in the US. ‘I think I was wrong then about the path that inflation would take,’ Yellen told US broadcaster CNN on Tuesday, adding that she had underestimated the shocks to the economy from factors such as high energy prices and international supply chain problems. As recently as May last year, Yellen said that she did not expect inflation to become a problem. In April, however, consumer prices rose by 8.3% compared to the same month last year. At a meeting with Yellen and Federal Reserve Chairman Jerome Powell on Tuesday, US President Joe Biden stressed that the fight against inflation was his top priority. Federal Reserve Governor Christopher Waller said Monday that he backs several more half-point rate hikes ‘until I see inflation coming down closer to our two percent target.’
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The US on Tuesday hailed the EU decision to scale back Russian oil imports and called for long-term efforts to further reduce dependence on Moscow. ‘We applaud the steps by our European allies and partners to reduce their reliance on Russian oil and natural gas,’ State Department spokesman Ned Price told reporters. He said there was ‘broad support’ among US allies for ‘cutting off the strength of Russia's war machine, and that is Russia's energy market’. ‘The EU took an important step on that near-term path, but then there's also a longer-term path that has less to do with the day to day and more to do with trends over time and the broader need to lessen our reliance on Russian energy.’
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