ADVFN Morning London Market Report: Monday 21 June 2021

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London open: Stocks edge lower but Morrisons surges on £5.5bn bid

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London stocks edged lower in early trade on Monday amid concerns about inflation, but supermarket chains rallied after Morrisons rejected a £5.5bn bid.

At 0855 BST, the FTSE 100 was down 0.3% at 6,994.25.

Neil Wilson, chief market analyst at Markets.com, said the reverberations from the US Federal Reserve’s policy meeting last week continue to be felt across global markets.

“Stocks have fallen, bond yields too, amid a sharp repricing of the risks of the Fed raising rates. Asian shares fell as global markets continue to react to the Fed’s willingness to raise rates in the face of higher inflation and its admission that members are talking about talking about tapering,” he said.

“European markets followed suit with a broad sell-off in early trade Monday. US 10-year yields have fallen below 1.4%, whilst the dollar is surging. The funny thing about all this is that given the data coming out of the US the Fed didn’t do anything terribly surprising, it just seems to have caught some by surprise by saying it wasn’t going to keep things super easy forever. Let’s be clear – this is not a shift away from average inflation targeting or somehow the Fed abandoning its employment-first approach: only a realisation that two and a half years from now the economy should be pretty well recovered, and inflation will have been running above 2% for a good amount of months, so some tightening would be warranted.”

Wilson said yields declining after a ‘hawkish’ Fed is “frankly odd” and suggests the market thinks the stance is appropriate to keep a lid on inflation.

In equity markets, miner Rio Tinto was knocked lower by a downgrade to ‘sell’ at UBS. Miners more generally were under the cosh as iron ore and copper prices fell, with GlencoreAntofagasta, BHP and Anglo American all down.

On the upside, supermarket chain Morrisons surged more than 30% after saying it had rebuffed an unsolicited £5.5bn bid over the weekend from the US private equity firm Clayton, Dubilier & Rice, which had offered to pay 230p a share in cash.

Other supermarkets followed suit, with FTSE 100 peers Sainsbury’s and Tesco both sharply higher.

Outsourcer Capita was trading up after saying it was on track to post revenue growth for the first time in six years as trading in the first half of 2021 improved. It also announced the sale of its 51% stake in Axelos, a joint venture with the British government’s Cabinet Office, to PeopleCert International for £183.6m in cash.

Online supermarket Ocado was boosted by an upgrade to ‘overweight’ at Morgan Stanley, while Airtel Africa was lifted by an upgrade to ‘overweight’ at Barclays.

 

Top 10 FTSE 100 Risers

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# Name Change Pct Change Cur Price
1 Morrison (wm) Supermarkets Plc +31.58% +56.35 234.80
2 Sainsbury (j) Plc +4.04% +10.50 270.60
3 Ocado Group Plc +3.38% +63.50 1,944.50
4 Marks And Spencer Group Plc +2.79% +4.15 152.75
5 Tesco Plc +1.96% +4.35 226.10
6 Evraz Plc +1.60% +9.60 610.80
7 Rentokil Initial Plc +1.38% +6.70 493.40
8 Astrazeneca Plc +1.09% +91.00 8,475.00
9 Severn Trent Plc +1.00% +25.00 2,524.00
10 Ashtead Group Plc +0.96% +48.00 5,052.00

 

Top 10 FTSE 100 Fallers

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# Name Change Pct Change Cur Price
1 Rio Tinto Plc -2.05% -119.00 5,690.00
2 International Consolidated Airlines Group S.a. -1.98% -3.94 194.78
3 Easyjet Plc -1.80% -17.40 950.60
4 Tui Ag -1.54% -6.20 397.50
5 Bt Group Plc -1.45% -2.90 197.05
6 Carnival Plc -1.24% -21.60 1,714.40
7 Rolls-royce Holdings Plc -1.17% -1.26 106.26
8 Flutter Entertainment Plc -0.88% -120.00 13,515.00
9 Royal Dutch Shell Plc -0.86% -12.20 1,406.00
10 Bae Systems Plc -0.86% -4.60 531.40

 

Europe open: Shares lower as travel stocks offset Morrisons bid buzz

European shares fell at the opening on Monday as weaker travel-related stocks offset a sharp rise in the retail sector on the back of a £5.5bn bid for UK supermarket chain Morrisons.

The pan-European Stoxx 600 index was 0.60% lower, with all regional bourses in the red. Investors have taken a cautious turn since the US Federal Reserve shifted to a more hawkish position on interest rates last week.

An unsolicited bid for Morrisons by US private equity outfit Clayton Dubilier & Rice sent the stock soaring 31% to just above the offer price of 230p a share. The Nritish firm has rejected the offer, saying it undervalues the chain.

“The shares had previously fallen by 9% over the last year, contrary to the general market direction, and leading to relegation from the FTSE100 in March. Even so, the approach could stimulate some froth in the sector and even shake out other companies who are currently running the slide rule over UK plc,” said Interactive Investor head of markets Richard Hunter.

“The implications of this potential M&A activity have not been enough to prevent the UK indices receiving a hospital pass from both the US and Asian markets on inflationary concerns, and how central banks plan to deal with the situation.”

Supermarket and food supplier stocks rallied on the news, with SainsburyTescoOcadoB&M Value RetailCarrefourColruytICA GruppenKnorr-BremseAxfood and Kerry Group all higher.

Travel-related stocks fell as the UK recorded more Covid-19 cases related to the Delta variant, which originated in India. Budget airlines easyJet and Ryanair were lower, along with holiday company TUI and Aeroports de Paris.

Shares in Italian-American vehicle maker CNH Industrial were lower after the company agreed to a deal to buy Raven Industries at an enterprise value of $2.1bn.

 

US close: Stocks mixed following FOMC meeting, unexpected jump in jobless claims

Major US indices put on a mixed performance on Thursday after the Federal Reserve stepped up its timeline for rate hikes and weekly initial jobless claims jumped unexpectedly.

At the close, the Dow Jones Industrial Average was down 0.62% at 33,823.45, while the S&P 500 was 0.04% weaker at 4,221.86 and the Nasdaq Composite saw out the session 0.87% stronger at 14,161.35.

The Dow closed 210.22 points lower on Thursday, extending losses recorded in the previous session.

The move by Central bankers in the US to nudge up their individual projections for short-term interest rates in 2022 and 2023 at their two-day policy meeting remained in focus on Thursday, with the median projection of participants on the Federal Open Market Committee now being for two hikes in 2023.

However, Fed chair Jerome Powell stated the projections should be taken with “a big grain of salt” and said the central bank would continue to monitor the US economic recovery and vowed to provide “advanced notice” before any updates regarding the tapering of the central bank’s bond-buying program.

On the macro front, weekly jobless claims rose last week for the first time since April, according to the Department of Labor, with initial unemployment claims increasing by 37,000 over the week ending on 12 June to reach 412,000 – well ahead of analyst forecasts a reading of 350,000.

The four-week moving average, however, which smoothes out the variations in the claims figures from one week to the next, slipped by 8,000 to 395,000. Secondary unemployment claims, which reference the week ending on 5 June, edged up by 1,000 to 3.518m.

Elsewhere, manufacturing activity in the US mid-Atlantic region continued growing at a robust pace in June, the results of one of the most closely followed surveys for the sector showed. The Federal Reserve Bank of Philadelphia‘s factory sector index dipped from May’s reading of 31.5 to 30.7 for June. Economists had projected a fall to 30.5.

Still on data, the Conference Board‘s leading economic index increased by 1.3% in May to 114.5 in May, following a 1.3% increase in April and a 1.4% increase in March, with the CB now forecasting real GDP growth in the second quarter of 2021 could reach 9% on an annualised basis and year-on-year economic growth of 6.6% for the year as a whole.

In the corporate space, Lennar was in the green after posting better-than-expected earnings, while Wells Fargo and Citigroup closed lower despite hopes that higher rates will drive profits for banks.

 

Monday newspaper round-up: UK economic recovery, inflation, pensions

The UK’s economic recovery accelerated in May as tourism and recreation firms reopened, but the delay in ending Covid-19 restrictions is putting hospitality firms at risk, research shows. Eleven out of 14 UK sectors reported faster growth in output month on month in May, up from nine in April, according to the Lloyds Bank UK Recovery Tracker, as the UK moved further out of lockdown. – Guardian

The government should prepare for a jump in inflation this year that will eat into household living standards and force more low-income families into poverty, according to the Resolution Foundation. Inflation is on course to rise above 4% in the next few months as the economy opens up and consumers begin to spend some of the savings they have built up over the past 16 months, the thinktank says. Rising prices will squeeze average household incomes by £700 by the start of next year with low-income families among the worst affected, it forecasts. – Guardian

A summer season wiped out by new Covid variants and Britain’s strict travel rules will trigger a sharp rise in eurozone unemployment unless governments extend furlough schemes, economists have warned. Forecasters at HSBC predicted at least half a million furloughed workers will lose their jobs once the region’s wage support schemes are wound down but cautioned that figure could rise. – Telegraph

Treasury officials are drawing up plans for a pensions tax raid in the autumn to help pay for heightened public spending during the Covid pandemic, The Telegraph understands. Three different reforms to the way in which pension contributions are taxed are being considered amid pressure on the public finances, according to well-placed Whitehall sources. – Telegraph

The activist investor that has bought a big stake in Aviva has defended its approach to overhauling companies days after calling on the FTSE 100 insurer to hand billions to shareholders. Cevian Capital said it tried to work constructively with the bosses of businesses where it was pushing for change. Writing in The Times today, Harlan Zimmerman, senior partner, said it “aims to create value that is shared with all shareholders and stakeholders”. – The Times

 

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