TOP NEWS SUMMARY: Markets price in more risk of 75-point US rate hike

Writer,

The following is a summary of top news stories Tuesday.

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COMPANIES

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Cash-strapped French-Dutch airline, Air France KLM, raised some €2.26 billion from a new capital increase announced last month, which will mostly be used to pay back state aid. The Paris-based carrier said in a statement that demand for the new shares issued in the rights issue amounted to €2.6 billion, outstripping the number of shares on offer. Air France KLM has lost some €11 billion over the past two years as a result of the coronavirus pandemic. The French and Dutch governments participated fully in the capital increase, meaning their shareholdings of 29% and 9.3% respectively will remain unchanged.

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TotalEnergies will team with Adani Enterprises to develop a green hydrogen venture in India. Adani - which has assets in diversified fields such as mining services, edible oils and infrastructure - said it is India's largest ever green hydrogen by a company. Paris-based oil, gas and renewables firm TotalEnergies will take a 25% stake in Adani New Industries Ltd, with Adani holding the remainder. The duo, through Adani New Industries, will together invest over $50 billion in green hydrogen over the next 10 years.

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Kelsian urged shareholders of Go-Ahead to take no action on a rival takeover offer, saying it is in talks with Go-Ahead for a cash bid of its own. Kelsian is an Adelaide-based ferry, bus, and light rail operator in Australia, Singapore and the UK. Newcastle, England-based peer Go-Ahead on Monday had said it has agreed to a takeover offer from Gerrard Investment Bidco, a subsidiary of a consortium consisting of Kinetic Holding Co and Globalvia Inversiones. Kinetic is a bus operator in Australia and New Zealand, while Globalvia is a Madrid-based transport infrastructure firm. Under the terms of the deal, the consortium will acquire Go-Ahead for 1,500 pence per share, valuing Go-Ahead at £647.7 million. ‘Kelsian believes that the potential combination with Go-Ahead would create an international leader in multi-modal, mass transit supporting a sustainability agenda for its passengers and governments, with strong growth prospects,’ the company said.

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Entain said it has struck a deal to acquire a Dutch sports betting operator for an initial €300 million. The Ladbrokes owner said the consideration to buy BetEnt, which trades as BetCity, could climb to as high as €850 million. The deal includes a deferred contingent consideration of up to €550 million. Entain, however, expects the deal to cost just €450 million in total. Entain is acquiring BetCity from Sports Entertainment Media. The acquisition is expected to be sealed in the second half of the year. It will be funded from existing cash resources and drawings from Entain's revolving credit facility. BetCity is based in Amsterdam and received an online sports betting and gaming licence from the Dutch watchdog back in October.

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ITV unveiled plans to take a majority stake just shy of 80% in Plimsoll Productions, a producer of natural history television programmes, for £103.5 million. ‘Plimsoll Productions' has a strong network with all of the global streamers, and this acquisition will strengthen and deepen ITV Studios' relationships with the streamers,’ the broadcaster said, noting Plimsoll has made shows for platforms such as Apple+, Netflix and Disney, as well as for ITV itself.

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Equipment rental firm Ashtead posted a jump in annual profit and was upbeat on its outlook despite inflation and supply chain issues. Revenue for the financial year to April 30 rose 19% to $7.96 billion from $6.64 billion the year before. Pretax profit jumped 35% to $1.67 billion from $1.24 billion. Adjusted pretax profit of $1.82 billion, up 38% on the year before, was in-line with analyst consensus of $1.81 billion. Ashtead proposed a final dividend of 67.5 cents, taking the total payout for the year to 80.0 cents, up 38% from 58.0 cents the year prior. ‘The new financial year has started well, and the business has clear momentum. We are well positioned to navigate the challenges and capitalise on the opportunities arising from the market circumstances we face, including supply chain constraints, inflation, labour scarcity and economic uncertainty, all factors which we believe to be drivers of ongoing structural change,’ said Ashtead.

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Oracle reported a drop in fourth-quarter earnings as the database software and technology company hailed the acquisition of health information technology services provider Cerner Inc. For the three months to May 31, revenue was up 5.4% at $11.84 billion from $11.23 billion in the fourth quarter last year. Fourth quarter net income however was $3.19 billion, or $1.16 per diluted share, down from $4.03 billion, or $1.37 diluted EPS, last year. The Austin, Texas-based firm hailed the acquisition of Cerner saying together, the pair have all the technologies required to provide healthcare professionals with better information and better information that will ‘fundamentally transform healthcare’.

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Amazon.com plans to start flying some purchases to customers later this year, announcing drone delivery that will debut in a California town. Retail rival Walmart already offers drone delivery and in May announced it is dramatically ramping up the service, expanding to six US states by year-end with the potential to drop off one million packages annually. Amazon customers in the Northern California town of Lockeford will be able to sign up for free delivery by ‘Prime Air’ drones. ‘Air-eligible’ items ordered at the retailer's website will be packed into drones that will fly to the delivery addresses, deposit packages outside from safe heights, then fly away, according to Amazon. The drones can carry loads as heavy as five pounds in packages about the size of a large shoebox, an Amazon spokesperson told AFP. Items approved for drone delivery will include household products, beauty items, office supplies and tech gear, the spokesperson said.

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MARKETS

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Stock prices in New York were called to make a partial bounceback early Tuesday from the sell-off suffered on Monday. Major indices were set to rise by less than 1%, having tumbled by almost 5% in a dramatic start to a week that will be dominated by the US Federal Reserve interest rate decision on Wednesday.

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CAC 40: down 0.6% at 5,985.91

DAX 40: down 0.3% at 13,391.57

FTSE 100: down 0.1% at 7,196.15

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Hang Seng: closed marginally higher, up 0.41 point at 21,067.99

Nikkei 225: closed down 1.3% at 26,629.86

S&P/ASX 200: closed down 3.6% at 6,686.00

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DJIA: called up 0.4%

S&P 500: called up 0.6%

Nasdaq Composite: called up 0.8%

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EUR: up at $1.0456 ($1.0425)

GBP: flat at $1.2146 ($1.2150)

USD: up at JP¥134.26 (JP¥133.90)

GOLD: down at $1,822.80 per ounce ($1,826.77)

OIL (Brent): higher at $123.04 a barrel ($119.33)

(currency and commodities changes since previous London equities close)

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ECONOMICS AND GENERAL

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A hotter-than-expected US inflation reading last week has raised the stakes for this month's Federal Reserve meeting, with markets rapidly repricing the likelihood of a massive 75 basis point hike. The Federal Open Market Committee will conclude its two-day policy meeting on Wednesday and announce its decision at 1800 GMT. This will be followed by a press conference with Fed Chair Jerome Powell at 1830 GMT. The Fed carried out its first post-pandemic rate hike at its last meeting, held in May. The UK central bank raised the federal funds by 50 basis point in its first rate hike of that scale since 2000. The federal funds rate now stands at 0.75% to 1.00%. The odds of a 75 basis point hike have surged to 91%, according to the CME's FedWatch tool, having stood at just 23% a day ago and 3.9% one week ago. The last time the Fed hiked by 75 basis points was in 1994.

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Average pay in the UK is failing to keep up with rampant inflation, though the country's jobless rate remains at nearly a 50-year low, posing a conundrum for the Bank of England when it meets this week. Data from the Office for National Statistics showed the UK unemployment rate unexpectedly rose in April. The jobless rate rose to 3.8% in the three months to April, up from 3.7% in March and confounding market expectations, according to FXStreet, for an improvement to 3.6%. At the same time, average earnings excluding bonuses rose 4.2% on an annual basis, in line with the reading for March and ahead of FXStreet-cited consensus of 4.0%. Including bonuses, wages grew 6.8%, below consensus of 7.6% and softening from 7.0% in March. After accounting for soaring inflation, average pay including bonuses rose 0.4%, but when stripping bonuses out, pay fell 2.2% in real terms.

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German inflation in May was confirmed at a post-unification high, data from Destatis showed, due to energy prices. The annual inflation rate was 7.9% for May, accelerating from 7.4% in April and in line with an earlier flash reading. Energy product prices jumped 38% on a year before, with heating oil, natural gas and motor fuel prices all surging. On a pan-EU harmonised basis, prices rose 8.7% on a year before and 1.1% month-on-month, both readings confirming the flash figures.

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UK Prime Minister Boris Johnson has triggered a fresh dispute with the EU as his government set out plans to override the agreement governing Northern Ireland's post-Brexit trading arrangements. The Irish government said the measures marked a ‘new low point’ and accused Johnson's administration of ‘breaking the law’. The European Commission said it would take ‘proportionate’ action to secure the implementation of the protocol, beginning with the resumption of legal proceedings against the UK, which it suspended in September. The prime minister insisted the Northern Ireland Protocol Bill contained only minor, bureaucratic changes, while Downing Street said it was an ‘insurance mechanism’ in case a negotiated agreement with the EU could not be found.

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Ukraine's president has made an impassioned plea to Western allies to speed arms deliveries and help stem ‘terrifying’ casualties as Russian forces lay siege to the eastern city of Severodonetsk, destroying the last bridges into the industrial hub. The cities of Severodonetsk and Lysychansk have been targeted for weeks as the last areas in the eastern Donbas region of Lugansk still under Ukrainian control. President Volodymyr Zelensky said Monday the human cost of the battle for the region was ‘simply terrifying’. Zelensky expressed confidence in Ukraine's ability to reclaim territory, calling on the nation's allies to send more weapons.

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Industrial production in Japan fell at a slightly sharper pace than expected in April. According to the Ministry of Economy, Trade & Industry, industrial output in Japan shrank by 4.9% yearly in April, following a 1.7% decline in March. Output for April had been expected to fall by 4.8% yearly, according to consensus cited by FXStreet. On a monthly basis, industrial production fell by 1.5% in April, having risen 0.3% in March from February. The monthly figure for April fell short of expectations of a smaller 1.3% decline.

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The top Chinese and US security advisers have held lengthy talks, with both sides describing them as ‘candid’ following days of acrimonious exchanges over Taiwan and other flashpoint issues. Readouts of the meeting in Luxembourg on Monday were toned down compared with last week, when China's defence minister warned his country would not ‘hesitate to start a war’ over Taiwan, while the US defence secretary blasted Beijing's ‘provocative, destabilising’ military activity. But US security advisor Jake Sullivan and top diplomat Yang Jiechi did not indicate any compromise on their core points of disagreement, especially Taiwan. China considers the self-ruled island a part of its territory, to be seized by force one day if necessary.

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