The FTSE 100 started the week on the front foot, seemingly unfazed by President Joe Biden’s decision to bow out of the re-election race, although the travel sector stalled after a Ryanair warning.
The FTSE 100 index traded up 30.98 points, or 0.4%, at 8,186.70. The FTSE 250 was up 55.40 points, 0.3%, at 21,123.08, while the AIM All-Share was up just 0.29 of a point at 784.42.
The Cboe UK 100 was up 0.6% at 817.16, the Cboe UK 250 was 0.4% higher at 18,422.74, and the Cboe Small Companies was flat at 17,353.73.
The CAC 40 in Paris rose 0.6%, while Frankfurt’s DAX 40 traded 0.4% higher.
The pound traded at $1.2927 early Monday, up from $1.2915 at the time of the London equities close Friday. Against the dollar, the euro was unchanged at $1.0885. Versus the yen, the dollar faded to JP¥156.50 from JP¥157.36.
US economic data will be a key focus this week, with a gross domestic product reading on Thursday, before the Federal Reserve’s preferred core personal consumption expenditures inflation gauge on Friday.
Political developments hogged the spotlight at the start of the week, however, after Biden opted against pursuing a second term as US president.
‘President Biden’s announcement that he will not be standing in November’s election has caused barely a ripple in financial markets. At the margin, US yields and the dollar opened fractionally weaker in Asia, but it looks as though investors had been expecting it,’ ING analysts commented.
‘On the subject of politics, it looks like the US data this week could actually be good news for the Democrats. Second quarter US GDP on Thursday is expected to bounce back above 2% quarter-on-quarter annualised, while Friday’s release of June’s core PCE inflation data should see the Federal Reserve’s preferred gauge of inflation coming in on target at 0.2% month-on-month. This set of releases looks unlikely to move the needle on the pricing of Fed cuts this year, where the market currently expects a 57bp reduction.’
In New York on Friday, the Dow Jones Industrial Average ended down 0.9%, the S&P 500 lost 0.7% and the Nasdaq Composite fell 0.8%.
In China, the Shanghai Composite fell 0.6%. The Hang Seng in Hong Kong added 1.6%. The Nikkei 225 in Tokyo fell 1.2%, while the S&P/ASX 200 in Sydney was down 0.5%.
China’s central bank on Monday cut two benchmark interest rates in a bid to boost lending and kickstart growth in the world’s second-largest economy.
Beijing is battling an unprecedented crisis in the country’s vast real estate sector, continued weak consumption and a high youth unemployment rate, while geopolitical tensions with Washington and the EU threaten its foreign trade.
A year and a half after the lifting of health restrictions that stunted economic activity, the much-hoped-for post-Covid recovery was brief and less robust than expected.
Monday’s rate cuts, anticipated by some economists, are supposed to encourage commercial banks to grant more credit and at more advantageous rates.
The one-year loan prime rate, which constitutes the benchmark for the most advantageous rates that banks can offer to businesses and households, was cut from 3.45% to 3.35%, having been last lowered in August.
The five-year rate, the benchmark for mortgage loans, was reduced from 3.95% to 3.85%, following a trim in February.
In London, Rentokil surged 12%, the top FTSE 100 performer. The former chief executive officer of BT Group is leading a possible takeover offer for the pest control firm, the Times reported on Sunday.
Philip Jansen is in talks with private equity firms over a plan that would see him become executive chair of the FTSE 100 company, the newspaper said without citing sources. The Times noted that Jansen is close to Bain Capital.
The Times said ‘it is understood’ that, if successful, Jansen and his backers would use Rentokil as a consolidation vehicle to buy other pest control companies in the US, before looking to re-list it in New York.
Travel stocks sat at the other end of the large-cap index, however, with easyJet falling 7.7% and British Airways parent IAG giving back 3.4%. In the FTSE 250, Wizz Air lost 6.3%. In Dublin, Ryanair plunged 12%.
It said quarterly profit nearly halved, as revenue declined slightly due to lower ticket prices despite carrying more passengers. The weakness in fares is expected to continue throughout the summer, it warned.
The Dublin-based budget airline reported pretax profit of €400.8 million for the three months that ended June 30, down 46% from €740.7 million a year before.
Total operating revenue was €3.63 billion, down 0.6% from €3.65 billion. Ancillary revenue - for example from onboard food and drink sales - grew by 10% to €1.30 billion from €1.18 billion, but scheduled revenue from ticket sales declined by 5.9% to €2.33 billion from €2.47 billion.
‘While Q2 demand is strong, pricing remains softer than we expected, and we now expect Q2 fares to be materially lower than last summer (previously expected to be flat to modestly up),’ Chief Executive Officer Michael O’Leary said in a statement.
Hammerson added 7.1% as the property investor announced a deal to sell its stake in Bicester Village operator Value Retail, netting it £600 million.
The deal with ‘certain affiliates of L Catterton’ gives Value Retail an enterprise value of £1.5 billion. L Catterton came about in 2016 after consumer-focused private equity firm Catterton teamed with LVMH and the family holding company of Bernard Arnault, the CEO of the Paris-listed luxury goods firm.
The sale offers Hammerson a ‘clean exit from a complex structure at an attractive price’. The firm plans to put the disposal proceeds towards reducing debt, reinvestments in ‘core markets’ and a £140 million shareholder return through a stock buy back.
The firm also proposed a 1 for 10 share consolidation, to ‘simplify its share capital’ and to increase distributable reserves.
Elsewhere in London, Ceres Power surged 15%. It said it has won a manufacturing licence partnership with an Asia Pacific-based original equipment manufacturer.
The deal is for the ‘manufacture of Ceres’ proprietary solid oxide electrolyser cell’.
Ceres will earn revenue through licence fees, engineering services and hardware over multiple years. It can also earn royalty payments.
In addition, Ceres said it now expects annual revenue in the range of £50 million to £60 million. It has previously expected to ‘double’ revenue from the £22.3 million achieved in 2023.
For the first half of 2024, it expects revenue to more than double to between £27 million and £29 million, from £11.7 million a year prior.
Brent oil was quoted at $82.96 a barrel early Monday, down from $84.04 at the time of the London equities close on Friday. Gold was quoted at $2,404.05 an ounce, largely flat from $2,404.10.
In Paris, Vivendi shares rose 0.5% as it offered more details on break-up plans, as it looks to call time on its ‘significantly high conglomerate discount’.
Included in the plans are a proposal to list its Canal+ unit in London, to ‘reflect the company’s international dimension’.
‘With close to two thirds of its subscribers outside of France, a film and TV series distribution network present on all continents, and growth drivers resulting from its recent developments on the African, European and Asia-Pacific markets, a London-based listing would represent an attractive solution for international investors likely to be interested in the group,’ Vivendi explained.
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