What to watch: COVID hits BAT cigarette sales, Rio Tinto dividend, UK inflation and Bitcoin rise

Tom Belger
·Finance and policy reporter
·5-min read
A woman sells cigarette packages of Lucky Strike, Marlboro, Pall Mall, Hamilton and Camel at a street in Lima, Peru. Photo: Mariana Bazo/Reuters
A woman sells cigarette packages of Lucky Strike, Marlboro, Pall Mall, Hamilton and Camel at a street in Lima, Peru. Photo: Mariana Bazo/Reuters

Here are the top business, market, and economic stories you should be watching today in the UK, Europe, and abroad:

BAT stocks sink as COVID-19 hits tobacco sales

British American Tobacco (BAT, BATS.L) shares plunged 5.5% on Wednesday, after its profit growth fell short of investor hopes as COVID-19 hit tobacco sales.

The company saw its pre-tax profits rise from £7.9bn ($11bn) in 2019 to £8.7bn last year, but were lower than expected and revenue fell from £25.9bn to £25.8bn. The volume of cigarette sales dropped 4.6%, though revenues were up 2.8%.

The company said COVID-19 had knocked around 2.5% off its revenues, and it predicts the global tobacco industry will shrink by 3% in 2021. The outlook for the US market, worth around two-fifths of the industry, is "dependent on COVID-19 uncertainties."

The pandemic had a "severe impact" on consumption in a number of emerging markets, according to BAT, while worldwide travel restrictions hit overseas sales.

“Cost cutting was a big contributor to the better-than-expected performance and investors may be concerned about the sustainability of future growth given Covid-19 has served a further reminder of the health risks of smoking," said AJ Bell investment director Russ Mould.

“Like its rivals British American is investing in so-called new categories, essentially vaping, but traditional products still make up more than 90% of sales despite material growth in this area through the course of the year."

UK inflation creeps up in lockdown

UK inflation held relatively steady last month as the country returned to lockdown.

Consumer price inflation was 0.7% in January, the Office for National Statistics (ONS) said on Wednesday. January's figure was up slightly from December's reading of 0.6%, despite a return to lockdown at the start of 2021. Economists had forecasted a rate of 0.5% for the first month of this year.

“Inflation has started 2021 in much the same vein as it finished 2020, low and moving sideways," said Laith Khalaf, a financial analyst at stockbroker AJ Bell.

Furniture and routine maintenance costs were the biggest contributors to rising prices. Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said increased furniture costs reflected "the impact of the recent increase in shipping and Brexit-related costs on the price of imported consumer goods."

Food prices also rose, which Khalaf said could be linked to Brexit. "The January price variation of some common food items like cauliflowers, crisps and fish fingers suggests there may have been some temporary Brexit disruption at play too," Khalaf said.

Bitcoin surges past $51,000 in new highs

Bitcoin's (BTC-USD) price surged past $51,000 ($36,734) on Wednesday, a new record as the cryptocurrency gets acceptance among mainstream investors. Some analysts expect it could soon go as high as $70,000.

This was just a day after bitcoin topped $50,000. It went as high as $51,140, before trading at $50,828.83 as of 8.20am in London. Its new high extends a bull run that began last October.

Simon Peters, cryptoasset analyst at multi-asset investment platform eToro, said: “Bitcoin’s incredible rise this year shows no sign of abating. This latest landmark shows how it now has to be considered a mainstream investment asset."

WATCH: What are the risks of investing in cryptocurrency?

Rio Tinto announces biggest dividend in its history

Iron ore producer Rio Tinto announced the biggest dividend in its 148-year history as it posted a 3% increase in 2020 revenue, and separately said it plans to spend $1bn ($) on emissions reduction initiatives over the next five years.
Rio announced ordinary dividends during last year of 464 cents per share, with an additional special dividend of 93 cents. The total dividend was up 26% year-on-year.

"Higher commodity prices were key to their results, and this helped the company overcome some lower output levels," said Peter McNally, Global Sector Lead for Industrials, Materials & Energy at Third Bridge.

"As long as iron ore prices are sustained and Rio Tinto can deliver their volumes in a safe operating environment, their financial outlook remains healthy. New management continues to express regret for the destruction of the rock shelters at Juukan Gorge and is implementing action plans for more sustainable mining activities."

WATCH: Euro markets rally on rising government bond yields

Stock market rally 'petering out' on rising government bond yields

A global stock market rally is showing "signs of petering out," as a government bond sell-off forced up yields.

European stocks fell at the open after closing lower or flat the previous day. Britain’s FTSE 100 (^FTSE) slid 0.5%, Germany’s DAX (^GDAXI) shed 0.7% after reaching an all-time high on Monday, and France’s CAC 40 (^FCHI) lost 0.5% after hitting its own post-pandemic high on Monday.

It came after benchmark 10-year US Treasuries hit a new one-year high, with strong economic data and signs of progress on the US government's stimulus package fuelling recovery hopes and inflation expectations. Tuesday saw the biggest daily rise in US yields since the market upheaval of last March.

"The astonishing equity rally we’ve seen in recent days has showed signs of petering out over the last 24 hours," wrote Deutsche Bank analyst Jim Reid in a note.

"In sovereign bond markets...the selloff continued to gather pace as investors stuck with the reflation trade, not least as Congress is increasingly focusing on the passage of stimulus now that former President Trump’s impeachment hearing is out of the way."

Markets in China remain closed for the Lunar New Year holiday, but several leading indices elsewhere declined overnight. The Nikkei in Japan (^N225) lost 0.6%, slipping from a 30-year high. But the Hang Seng in Hong Kong (^HSI) made gains, up 1.2%.

S&P 500 (ES=F) futures and Dow (YM=F) futures were trading flat as markets opened in Europe, while Nasdaq (NQ=F) futures were down 0.1%.