ADVFN Morning London Market Report: Thursday 25 April 2019

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London open: Stocks drop as housebuilders weigh; Sainsbury’s-Asda merger blocked

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London stocks fell in early trade on Thursday, dented by ex-divs and weakness across the housebuilding sector as investors sifted through the latest quarterly results from Barclays and mulled news that Sainsbury’s merger with Asda has been blocked.

At 0830 BST, the FTSE 100 was down 0.7% at 7,420.31, while the pound was up 0.1% against the dollar and the euro at 1.2914 and 1.1575, respectively.

In equity markets, housebuilders were the standout losers after a series of downgrades by broker Shore Capital. It cut its stance on Barratt Developments, Bellway, Bovis Homes, Persimmon, Redrow, Crest Nicholson and Taylor Wimpey.

The latter was also in focus after a trading statement in which it hailed a “good” start to the year despite wider macroeconomic uncertainty.

Sainsbury’s was under the cosh as the Competition and Markets Authority blocked its proposed £10bn merger with Asda on the grounds that it would leave shopper worse off.

Chair of the inquiry group, Stuart McIntosh, said: “It’s our responsibility to protect the millions of people who shop at Sainsbury’s and Asda every week. Following our in-depth investigation, we have found this deal would lead to increased prices, reduced quality and choice of products, or a poorer shopping experience for all of their UK shoppers.

“We have concluded that there is no effective way of addressing our concerns, other than to block the merger.

Neil Wilson, chief market analyst at Markets.com, questioned where Sainsbury’s will go from here.

“Sainsbury’s is the squeezed middle, losing market share to discounters and simultaneously losing out to more premium brands,” said Wilson. “While Aldi and Lidl consistently gain market share and Tesco rebounds, Sainsbury’s is feeling the pinch. The worry is that it had no credible plan except this merger.”

CMC Markets analyst Michael Hewson said: “Having drawn a line under this episode CEO Mike Coupe will need to refocus his and management attention on the underlying business having seen it slip below Asda to number three UK supermarket in terms of market share. Next week’s numbers are likely to act as a wakeup call to refocus on that and decide how to react to the continued erosion of their business to the likes of Aldi and Lidl.”

Barclays was also in the red after it posted a 10% drop in first-quarter profit as total income also fell amid tougher times for its corporate and investment bank division, and said it might have to cut costs further to meet returns targets.

RBS was weaker as chief executive Ross McEwan resigned after five and a half years in the role, while Tullow Oil gushed lower after cutting production forecasts for this year due to problems at its Ghana fields.

Ex-dividends were also weighing on London’s equity markets, with Legal & General, William Hill, Glencore, Antofagasta, Wood Group, Informa, Rolls-Royce, Spirax-Sarco, Weir, Greggs, Petrofac, IWG and Fresnillo all in the frame.

On the upside, Meggitt rallied as it reported a 9% jump in first-quarter organic revenue, while Sirius Minerals racked up strong gains as it signed a major new European supply and distribution agreement.

 

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