London’s FTSE 100 achieved a record close on Monday, as sabre-rattling in the Middle East began to die down, while the pound struggled on renewed hope that the Bank of England is taming UK inflation.
Among individual shares, there was some M&A impetus for Tyman and Hipgnosis Songs Fund. A bullish broker note lifted some UK high street and grocer stalwarts, though model train maker Hornby went off the rails.
The FTSE 100 index rose 128.02 points, 1.6%, at 8,023.87, a new closing high. It achieved an intraday high of 8,044.98 on Monday, a touch off its best-ever level.
The FTSE 250 ended up 208.09 points, 1.1%, at 19,599.39, and the AIM All-Share rose 3.51 points, 0.5%, at 749.18.
The Cboe UK 100 ended up 1.7% at 801.72, the Cboe UK 250 rose 1.3% at 17,002.93, and the Cboe Small Companies closed up 1.8% at 15,045.10.
In European equities on Monday, the CAC 40 in Paris rose 0.2%, while the DAX 40 in Frankfurt ended up 0.7%.
In New York, the Dow Jones Industrial Average was up 0.1%, while the S&P 500 and the Nasdaq Composite were each up 0.3%.
A member of the Bank of England’s interest rate-setting committee has said he thinks UK inflation could return to the target level and stay there for longer than the central bank’s own predictions.
Dave Ramsden said the UK is no longer an ‘outlier’ but a ‘laggard’ when it comes to its inflation performance, meaning it is slowly but surely catching up with international peers including the US and the eurozone.
Analysts at ING commented: ‘The Bank of England is trying to tell us something, and markets are finally starting to take notice. Bank of England Governor Andrew Bailey has hammered home the message that the UK’s inflation outlook is ’rather different’ to the US. That sentiment was echoed by Deputy Governor Dave Ramsden last week who said that the UK is ’catching up fast’ on disinflation, a significant intervention from one of the more hawkish members of the committee.
‘Up to now, investors had been expecting the Bank of England to largely mirror the Fed on rate cuts this year, despite growing divergence between Fed and European Central Bank expectations. UK services inflation (6%) is noticeably higher than the US (5.3%) or eurozone (4.0%) and investors have understandably found it hard to see the BoE being able to cut ahead of the Fed. But that‘s changing. Investors now expect two rate cuts in the UK this year, starting in August. This repricing could have further to run.’
The pound was quoted at $1.2336 late on Monday afternoon in London, down markedly from $1.2410 at the equities close on Friday. The euro stood at $1.0642, lower against $1.0664. Against the yen, the dollar was trading at JP¥154.78, higher compared to JP¥154.52.
Rabobank analysts commented: ‘Recent escalations in the Middle East have strengthened USD as a safe-haven currency. That said, since the end of last week, perceived risk of escalation has subsided.’
US lawmakers approved $13 billion in new military aid to close ally Israel, even as global criticism mounts over the dire humanitarian crisis in the besieged Gaza Strip.
Much of the new military assistance approved by the US House of Representatives on Saturday was expected to be used to reinforce Israel’s air defences.
It comes after almost all of the hundreds of missiles and drones that Iran launched towards the country a week ago were intercepted, according to the Israeli military, with the help of Israel’s allies.
Iran’s first-ever direct attack on Israel was itself retaliation for a deadly April 1 strike on Tehran’s embassy consular annex in Damascus.
Fears of a wider war eased after Iran appeared to downplay the situation.
Brent oil was quoted at $86.92 a barrel late in London on Monday afternoon, down slightly from $87.01 late Friday. Gold was quoted at $2,337.50 an ounce, down against $2,391.85.
Gold is seen as a safe haven in times of uncertainty, so a calm weekend on the geopolitical front hurt bullion. It also has an inverse relationship with the dollar, so its price could be swayed by Federal Reserve rate expectations.
Eyes this week will be on a US gross domestic product report on Thursday, before the monthly core personal consumption expenditures index data on Friday. The latter is the Federal Reserve’s preferred inflation gauge.
SPI Asset Management analyst Stephen Innes commented: ‘The initial estimate of Q1 GDP from the world’s largest economy is on the horizon, with consensus expectations suggesting an expansion of 2.7% last quarter. It goes without saying that this figure contradicts the Federal Reserve’s efforts to engineer a slowdown, aiming for a more ’sustainable’ pace of growth. While a 2.7% growth rate would represent a notable slowdown compared to the latter part of 2023, it hardly suggests an economy ready to buckle.
‘As the Federal Reserve enters a self-imposed communications blackout ahead of the next policy gathering, many in the market see this as a welcome relief from the constant barrage of hawkish rhetoric.’
In London, shares in Next, Marks & Spencer, J Sainsbury and B&M European Value Retail were all prominent risers on Monday after Jefferies upgraded all four.
Jefferies upgraded J Sainsbury, Next and M&S to ’buy’ from ’hold. It raised B&M to ’hold’ from ’underperform’.
M&S added 4.4%, Sainsbury’s rose 3.9%, Next climbed 3.2% and B&M shares grew 2.8%.
Window and door components supplier Tyman jumped 31% to 386.71p. It agreed to a £788 million takeover offer from US peer Quanex Building Products.
The cash and shares bid values each Tyman share at 400 pence each, based on the Quanex closing share price of $34.64 on Friday in New York.
For every Tyman share held, investors will receive 240p cash plus 0.05715 of a Quanex share.
Hipgnosis Songs Fund rose 11% to 102.20p, after it said it would be ‘minded’ to accept an official cash bid from Blackstone, should one be forthcoming.
Hipgnosis Songs Fund, a music investment company, which has bought up the royalty rights to song catalogues of artists including the Red Hot Chili Peppers, Journey and Neil Young, had accepted a $1.40 billion bid from Alchemy Copyrights on Thursday. Alchemy trades as Concord Chorus.
The Blackstone bid values each Hipgnosis Songs Fund share at $1.24 each, the company overall at $1.50 billion.
Sky News reported BMG, which is wholly owned by the German media and publishing giant Bertelsmann, approached Hipgnosis Songs Fund several weeks ago with an indicative offer.
City sources said that BMG’s proposal was pitched significantly below those of both Blackstone and Concord Music, Sky said.
Sky said BMG’s interest in a takeover of Hipgnosis Songs Fund is said to have diminished, and insiders said they did not expect it to compete with the other suitors.
Meanwhile, Hipgnosis Songs Fund’s investment adviser, Hipgnosis Song Management, on Monday hit back against claims that it was to blame for the ‘many issues’ affecting the company.
HSM said it had ‘repeatedly been blamed’ for issues which were not its responsibility under the terms of its investment advisory agreement with Hipgnosis Songs Fund.
Hipgnosis Songs Fund is in dispute with its investment adviser, alleging misconduct against Hipgnosis Songs Management and its founder Merck Mercuriadis.
The dispute was sparked by an arrangement, later rejected by Hipgnosis Songs Fund shareholders, to sell part of the fund’s portfolio to a joint-venture between Hipgnosis Songs Management and Blackstone. This triggered board changes at the fund.
PayPoint shot up 9.7%.
The payment services provider said it remains on track to deliver around £80 million in underlying earnings before interest, tax, depreciation and amortisation for the current financial year to March 31, up 31% from £61.3 million in financial 2023, and underlying pretax profit in line with undefined expectations.
‘The strength of this performance, underpinned by sustained strong cash flow and our confidence in the delivery of continued growth and achieving our financial targets, has enabled the board to now have under active consideration a share buyback programme to further enhance shareholder returns,’ PayPoint said.
Model railway maker Hornby slumped 12%. It said sales for the year ended March 31 grew 2.0% to £56.2 million from £55.1 million last year.
Whilst the company’s direct-to-consumer sales increased by 18% over the year, during the fourth quarter sales declined 8% year-on-year as hostilities in the Red Sea delayed deliveries.
Hornby added: ‘Our underlying loss before tax has weakened since the half-year point. Nonetheless, this still represents a slight improvement in H2 profitability compared to the previous year, despite facing higher interest rate charges on borrowings and increased tooling amortisation from prior year’s tooling purchases now in production. The result for the year is in line with our expectations.’
Tuesday’s economic events calendar has a slew of flash purchasing managers’ index readings, including the eurozone at 0900 BST, the UK at 0930 and the US at 1445.
The local corporate diary has half-year results from Primark owner Associated British Foods and housebuilder Taylor Wimpey.
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