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LONDON MARKET MIDDAY: Shares stable despite economic slowdown in China

European shares started the new week lower, reacting a two indicators of a weakening economy in China, but markets had recovered by midday.

China's retail sales slumped to their lowest in two years, while factory output plunged, official data showed on Monday, capturing the dismal economic fallout from Beijing's zero-Covid policy.

The world's second-largest economy has persisted with strict virus measures, choking global supply chains as dozens of Chinese cities – including key business hub Shanghai – grapple with restrictions.

The FTSE 100 index was up just 3.39 points at 7,420.58 midday Monday. The mid-cap FTSE 250 index was down 39.98 points, or 0.2%, at 19,881.86. The AIM All-Share index was down 3.30 points, or 0.4%, at 952.30.

The Cboe UK 100 index was slightly higher at 739.83. The Cboe 250 was down 0.2% at 17,551.51, and the Cboe Small Companies up 0.3% at 14,657.14.

In Paris, the CAC 40 stock index was down 0.3% and the DAX 40 in Frankfurt was 0.6% lower.

The National Bureau of Statistics in China released data showing that retail sales shrank 11% year-on-year in April.

It is the biggest slump since March 2020 as Chinese consumers remained cooped up at home or nervous about lingering restrictions.

Industrial production sank 2.9% a year before, reflecting damage from shuttered factories and transportation woes as officials ramped up Covid restrictions last month.

This figure is the weakest since early 2020 and swung from 5.0% growth in March.

‘The overview of the data paints a gloomy picture of the economy. Our GDP forecast of negative 1% year-on-year for the second quarter is confirmed by this activity data,’ analysts at ING said.

‘The main reason is the long lockdown in Shanghai. This hurt retail sales the most, and also those factories that do not have 'closed-loop operation', if they don't have dormitories for workers, they struggle to operate. Moreover, logistics were heavily disrupted as the movement in and out of Shanghai is difficult, and most logistics were used for transporting daily necessities and medical resources.’

Shanghai came under heavy restrictions in early April. Over the weekend, officials promised to start reopening the city in phases in the next month, while in other positive news, Xinhua news agency said US electric car maker Tesla had made its second overseas shipment after suspending production for nearly three weeks.

Brent oil was quoted at $110.76 a barrel midday Monday, lower from $111.00 late Friday. Gold stood at $1,804.40 an ounce, down against $1,812.69.

In London, Vodafone was up 2.3%, after it welcomed its newest major shareholder. Emirates Telecommunications Group took a 9.8% shareholding but said but it has no plans to make a takeover offer.

UAE-based Emirates Telecom was formerly known as Etisalat and now goes by the moniker 'e&'.

On Saturday, it said subsidiary Atlas 2022 Holdings purchased 2.77 billion Vodafone shares for about $4.4 billion, praising the quality of the business and its brand.

‘It does not seek board representation and is confident about the company's ability to unlock value from its organic business activity and other potential strategic transactions. e& plans to be a long-term and supportive shareholder in Vodafone and is not seeking to exert control or influence the company's board or management team,’ Emirates Telecom said in its statement on Saturday. ‘Similarly, e& has no intention to make an offer for Vodafone.’

Vodafone on Monday said: ‘We look forward to building a long-term relationship with Etisalat.’ Vodafone said it will provide an update on its strategic plans alongside its annual results on Tuesday.

In the FTSE 250, Plus500 was the best performer, up 3.4%. The online trading platform said trading in the second quarter has been ‘very strong’.

As a result, it expects annual earnings and revenue will be ‘significantly ahead of current market expectations’.

In 2021, Plus500 posted pretax profit of $386.4 million on revenue of $718.7 million.

‘The group's strong performance so far in 2022 has also been driven by the development of new proprietary technologies and product offerings, which will deliver growth and drive expansion and diversification across new geographies,’ Plus500 added.

Diploma shed 5.6%, despite being ‘delighted’ with its performance in the first half, with sales surging.

The London-based specialised technical products and services company said its revenue growth was driven by positive demand and pricing.

In the six months to March 31, revenue was up 23% to £448.5 million from £365.2 million, and pretax profit up 23% to £52.3 million from £42.5 million.

Diploma upped its interim dividend by 20% to 15.0 pence from 12.5p.

‘We are not complacent about the economic outlook, but the second half has started really well, and we are confident in our upgraded full year guidance,’ Chief Executive Johnny Thomson said.

Diploma is guiding for low double-digit underlying revenue growth and reported revenue growth of a ‘little over’ 20%.

Among London small caps, Made.com fell 11% after the furniture retailer lowered its guidance for 2022 due to ‘highly challenging’ market conditions.

It reported trading has been volatile and more challenging than anticipated in recent months and noted ‘third-party data’ suggests that the online furniture and home market is down 30% to 40% so far in 2022.

‘We now assume the market will remain highly challenging for the rest of 2022 despite the significantly easier comparatives for the second half,’ it said.

Made.com expects gross sales to remain flat or to decrease by a maximum of 15% compared to the year before.

Synairgen jumped 39% after its phase 3 Sprinter trial - which was evaluating the safety of SNG001 in treating Covid-19 - showed an ‘encouraging signal’ in the reduction in the relative risk of progression to severe disease or death within 35 days.

Chief Scientific Officer Phillip Monk said: ‘These results provide a strong clinical rationale to continue to investigate SNG001 in a trial evaluating progression and-or mortality in hospitalised patients with Covid-19 and more widely in patients with severe viral lung infections.’

The pound was quoted at $1.2251 midday Monday, higher than $1.2230 at the London equities close on Friday. The euro was priced at $1.0425, firm against $1.0410.

Against the yen, the dollar was trading at JP¥129.39 midday Monday in London, firm from JP¥129.28 late Friday.

Looking ahead to the open in New York, the Dow Jones Industrial Average was called down 0.1%, the S&P 500 down 0.2%, and the Nasdaq Composite down 0.4%.

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