ADVFN Morning London Market Report: Friday 12 July 2019

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London open: Stocks gain despite concern US might intervene n FX markets

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Stocks in London have started the session trading higher on the back of a record close overnight on the Dow Jones Industrials and continued hopes of looser central bank policies, with global trade still very much in focus.

As of 0845 BST, the FTSE 100 was advancing by 0.25% or 19.02 points to 7,527.22 even as cable was adding 0.14% to 1.25378 amid some speculation on the part of analysts at Goldman Sachs that the US might be tempted to push back on further dollar strength – by intervening in foreign exchange markets.

On Wednesday night, the Dow Jones Industrials climbed 0.85% which saw it climb past the psychological 27,000 point level to 27,088.08 in anticipation of looser policy by the Federal Reserve – but some analysts were questioning the merits of a hypothetical cut in rates.

“Should doubts be creeping in about what the Fed is doing here? Well the uptick in core CPI should certainly make policymakers think twice. Core CPI rose +0.3% month on month in June, the biggest jump in a year and a half,” said Markets.com‘s chief market analyst Neil Wilson.

“Core CPI is running at 2.1% – tell me again why the Fed is cutting rates…? And we’ve said before, the Fed is looking in the wrong places for inflation – try asset prices. Time to sound the stagflation warning klaxon again.”

On a more positive note, US and Eurozone officials are making positive sounding noises around trade talks between the two blocs, with the US Trading Representative having reportedly said that it was in the interest of both to avoid an escalation.

Nevertheless, the focus in the early part of the session was expected to be on Chinese foreign trade data covering the month of June which were scheduled for release later in the session.

Ahead of those figures, Singapore’s highly-dependent export driven economy was reported to have shrunk at a 3.4% quarter-on-quarter pace in the second quarter of 2019.

As an aside, the data stood in stark contrast with numbers out the day before showing that Irish GDP bounded ahead at a 2.4% pace in the first three months of 2019 following an expansion of 8.2% in 2018.

Scheduled for release later in the day were factory gate price data in the US covering the month of June at 1330 BST.

M&A in focus: China’s Fosun looking to take stake in Thomas Cook unit, WPP offloads to sell 60% of Kantar

British travel firm Thomas Cook announced on Friday that it was in “advanced discussions” with Chinese conglomerate Fosun regarding a £750m capital injection and the break-up of the group. The Chinese group’s plan would see it take a controlling stake in Thomas Cook’s tour operating business and a large interest in its embattled airline. A significant amount of Thomas Cook’s external debt would also be converted into equity, lighting its debt burden.

WPP said it planned to sell 60% of its Kantar market-research business to US private equity company Bain Capital, valuing Kantar at $4bn. The advertising giant said it would retain around 60% of net proceeds to reduce debt, with the balance, around $1.2bn returned to shareholders.

Global fund management group Ashmore saw its assets under management jump again during the fourth quarter of its trading year, albeit by less than expected by some analysts and with maket performance accounting for a larger proportion of the improvement than anticipated. AuM grew by $6.5bn, which was a tad short of the $6.9bn that analysts at UBS had penciled-in and the split between net inflows and market performance was less positive than anticipated.

Hiscox on Friday said the insurance market continued to deteriorate after 2018 catastrophes, as it forecast first-half pre-tax profits of $150m – $170m (£119m – £135m). The market was hit by events such as typhoon Jebi in Japan and hurricane Michael in Florida. Hiscox said the impact of reserve strengthening needed for those catastrophes would be around $40m.

Sales, marketing and support group DCC on the other hand said it had traded in line with expectations in the first quarter, with “good growth” in group operating profit, driven by acquisitions completed in the prior year. “DCC’s profits are significantly weighted towards the second half of its financial year. At what is still a very early stage in the financial year, the group reiterates its belief that the year ending 31 March 2020 will be another year of profit growth and development,” the company said in a trading statement.

Cloud networking and cybersecurity services provider Sophos Group updated the market on its trading in the first quarter on Friday, reporting a 3% improvement on revenue year-on-year to $180.2m, or 7% at constant currency. The FTSE 250 company said it saw “strong” subscription revenue growth of 10% at constant currency in the three month period ended 30 June, which was offset by a reduction in hardware revenue of 11%.

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