ADVFN Morning London Market Report: Monday 12 August 2019

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London open: Stocks rise after heavy losses last week; Thomas Cook tumbles

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London stocks rose in early trade on Monday, recovering from heavy losses last week, as investors continue to keep a close eye on trade relations between the US and China.

At 0830 BST, the FTSE 100 was 0.6% higher at 7,293.52, while the pound was up 0.2% against the dollar at 1.2054 and 0.3% firmer versus the euro at 1.0773. Sterling fell as low at 1.2010 against the dollar in Asian trade.

Neil Wilson, chief market analyst at Markets.com, said: “Without any real catalyst the 1.20 level is holding for now. But whilst 1.20 is being defended doggedly it’s hard to see it holding out much longer. A breach below 1.20 and a new post-Brexit low could open up further downside.

“The pound made a fresh low against the euro, with EURGBP breaking north to 0.93230 overnight to take out the 2017 low for sterling. The pound’s now at its weakest since October 2009.

“The pound fell sharply on Friday after the second quarter GDP print disappointed, bringing in to focus the threats to the UK economy. Whilst recession has been talked about, we should reiterate that stockpiling ahead of the October 31st Brexit deadline, combined with an anticipated recovery in car manufacturing, should support the Q3 numbers. Nevertheless, the combination of a slowing economy, global economic weakness, the increasing chance of a cut to interest rates and the risk of a no-deal Brexit will continue to anchor sterling. No-deal talk is the biggest concern – remove that and we get a big bounce even with the economic and monetary risks.”

More broadly, Sino-US trade relations remained in focus after US President Trump said on Friday that he “won’t do business with Huawei” and suggested that the planned trade meeting for September might not take place.

“Previously, the US promised to loosen the restrictions on the Chinese tech giant, and he appears to have done a U-turn,” said CMC Markets analyst David Madden. “Technology, national security, and intellectual property rights are an important component of the trade negotiations, so this is likely to hold up the prospect of a deal.”

In equity markets, SSE gained as the energy company confirmed it is in talks over the possible sale of its energy services business to rival Ovo Group.

Tullow Oil shares rallied sharply after the oil and gas exploration group said it has made a “substantial and high value” oil discovery in Guyana.

Student accommodation owner, Unite Group, was in the green as it exchanged contracts to buy a new 620-bed development site in Nottingham.

Shipping services company Clarkson advanced as it posted a rise interim revenue and underlying profit despite challenging markets.

Hammerson was boosted by an upgrade to ‘outperform’ at RBC Capital Markets, while Merlin Entertainments nudged up after an upgrade to ‘hold’ at HSBC.

On the downside, Acacia Mining was a touch weaker despite announcing that it can now resume gold exports from its North Mara mine in Tanzania after receiving government clearance. The ban was introduced in 2017 to keep processing activities in Tanzania.

UDG Healthcare was under pressure after being cut to ‘sector perform’ by RBC Capital Markets, while Ultra Electronics was knocked lower by a downgrade to ‘hold’ at Berenberg.

Outside the FTSE 350, shares of travel company Thomas Cook slumped after it said it is in talks with its creditors about a further £150m cash injection, on top of the £750m it is negotiating with Chinese shareholder Fosun. The company said existing shareholders are expected to be “significantly” diluted as part of the recapitalisation, which it expects to implement in early October.

 

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