The FTSE 100 opened lower on Wednesday, although headlines were dominated by the UK property sector.
Housebuilder Barratt offered to buy FTSE 250 rival Redrow in a takeover deal, which values Redrow at £2.5 billion, while both cut dividends amid lower first half profit and revenue. Meanwhile, UK house prices rose for the fourth consecutive month, according to fresh data.
The FTSE 100 index opened down 12.46 points, 0.2%, at 7,668.55. The FTSE 250 was down 14.08 points, 0.1%, at 19,157.26, and the AIM All-Share was down 0.43 of a point, 0.1%, at 753.74.
The Cboe UK 100 was down 0.2% at 767.96, the Cboe UK 250 was down 0.1% at 16,602.08, and the Cboe Small Companies was down slightly at 14634.82.
The pound was quoted at $1.2624 early on Wednesday in London, higher compared to $1.2590 at the equities close on Tuesday. The euro stood at $1.0763, up against $1.0749. Against the yen, the dollar was trading at JP¥148.03, lower compared to JP¥148.09.
All eyes are on the UK property sector on Wednesday, on the back of takeovers, earnings, and new economic data.
FTSE 100 housebuilder Barratt Developments announced that it will be taking over FTSE 250-listed Redrow.
Barratt lost 6.3% at the London open, whilst Redrow jumped 14%.
The all-share takeover offer values smaller peer Redrow at £2.52 billion.
Under the takeover offer from Barratt, each Redrow shareholder will receive 1.44 new Barratt shares for each Redrow share. Following completion, shareholders in Redrow will hold around 33% of the combined group, while Barratt shareholders will hold around 67%.
Directors of both Redrow and Barratt have unanimously recommended that shareholders vote in favour of the scheme at the court and general meetings.
The combined group will be renamed Barratt Redrow PLC upon completion.
‘We believe that the combination will create an exceptional UK housebuilder in terms of quality, service and sustainability, delivering excellence and driving innovation for customers, employees, sub-contractors and the supply chain,’ said Barratt.
‘The combination will bring together two companies with highly complementary geographic footprints and three highly respected brands - Barratt Homes, David Wilson Homes and Redrow - with which to accelerate the delivery of much-needed housing across the UK and provide the opportunity for shareholders to participate in future value creation in the combined group.’
Separately, the two firms announced interim results. Both slashed dividends amid lower profit and revenue.
Barratt reported that revenue in the six months ended December 31 fell 34% to £1.85 billion from £2.78 billion a year earlier. Pretax profit plummeted 70% to £157.1 million from £521.5 million.
In response to the lower profit, Barratt slashed its interim dividend to 4.4p from 10.2p.
In the same period, Redrow said its own revenue fell to £756 million from £1.03 billion a year earlier. Pretax profit fell to £84 million from £198 million.
It halved its interim dividend to 5.0p from 10.0p.
Redrow blamed the results on a ‘subdued housing market’ in the UK.
Also on Wednesday, new data from Halifax showed that UK house prices rose for the fourth consecutive month in January, showing signs of recovery in the sector.
The Halifax house price index rose 1.3% on a monthly basis in January, after rising by 1.1% in December. The typical UK home cost £291,029 in January, up £3,924 compared to December.
‘The recent reduction of mortgage rates from lenders as competition picks up, alongside fading inflationary pressures and a still-resilient labour market has contributed to increased confidence among buyers and sellers. This has resulted in a positive start to 2024’s housing market,’ said Halifax Mortgages director Kim Kinnaird.
Housebuilders Taylor Wimpey and Persimmon rose 1.1% and 0.2%, respectively.
Moving away from London, stocks in New York rallied at the close on Tuesday, ending in positive territory as investors weighed comments from the Federal Reserve to seek further clues on interest rates.
The Dow Jones Industrial Average closed up 0.4%, the S&P 500 up 0.2% and the Nasdaq Composite up 0.1%.
‘The Fed members are on the battlefield, fighting the doves. Loretta Mester said there is no rush to cut rates and Neel Kashkari said that the Fed hasn’t reached its inflation goal yet. The game is now being played for a May cut, with around two thirds probability attached to it,’ said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
Minneapolis Fed President Neel Kashkari said the central bank is ‘not done yet’ with inflation, although it has come down quickly with 3-month and 6-month inflation data ‘basically’ at the Fed’s 2% goal.
However, Cleveland Fed President Loretta Mester said that if the US economy performs as she expects, this could open the door to rate cuts. But she was not ready yet to suggest a timing for an easing of policy.
On Sunday, Powell told CBS’s 60 Minutes show that ‘almost all’ of the members of the Federal Open Market Committee think the US central bank will cut rates from their current 23-year high of 5.25% to 5.5% at some point over the course of 2024.
In other news, US Secretary of State Antony Blinken was in Israel on Wednesday, where he was expected to press for what he called an ‘essential’ truce agreement as the war with Hamas entered its fifth month.
The diplomat was due to meet Israel’s leaders as part of a Middle East crisis tour after earlier stops in Saudi Arabia, Egypt and Qatar.
Qatar, which mediated a temporary ceasefire earlier in the conflict, said Hamas had given a response to a new proposed deal to pause the fighting.
‘The reply includes some comments, but in general it is positive,’ Qatari Prime Minister Mohammed bin Abdulrahman Al-Thani said after meeting Blinken in Doha.
Oil prices ticked up slightly, as the Middle East conflict continued to play on minds. Brent oil was quoted at $78.80 a barrel early in London on Wednesday, up from $78.57 late Tuesday.
In European equities on Wednesday, the CAC 40 in Paris was flat, while the DAX 40 in Frankfurt was down 0.2%.
In Asia on Wednesday, the Nikkei 225 index in Tokyo was down 0.1%. In China, the Shanghai Composite was up 1.4%, while the Hang Seng index in Hong Kong was down 0.3%. The S&P/ASX 200 in Sydney closed up 0.5%
Gold was quoted at $2,034.11 an ounce on Wednesday, lower against $2,036.43 late Tuesday.
Still to come on Wednesday’s economic calendar, there is US trade balance data at 1330 GMT.
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