Glaxosmithkline Share News (GSK)

LONDON (Alliance News) - The FTSE 100 closed lower Monday, ensuring that it recorded its first monthly decline since March.

However, following a strong performance in both April and May, the blue-chip index posted a significant increase in the second quarter of the year.

The FTSE 100 had virtually the same number of sessions in June when it closed in the black as it did in the red, but heavy declines posted on the back of some worrying US gross domestic product data, the World Bank's downgrade of its global growth forecasts, and escalating violence within Iraq was enough to see it close the last month of the first half firmly lower.

The index ended down 0.2% at 6,743.94 Monday, and down 1.5% for the month. Despite the decline, it still posted an increase of 2.2% in the second quarter of the year, and is just fractionally lower in the year to date, down 0.1%.

It was a similar story for the FTSE 250 and AIM All-Share index in June. While the mid-cap index closed up 0.3% Monday at 15,723.56, it was down 1.8% for the month. The AIM All-Share index closed up 0.4% at 785.39 on Monday, but down 3.7% for the month. However for the second quarter, the mid- and small-cap indices starkly underperformed, with the FTSE 250 down 3.4% in the quarter, while the AIM All-Share fell 7.7%.

In Europe, the DAX 30 in Frankfurt closed up 0.2% Monday, but down 1.1% for the month, while the CAC 40 closed down 0.3% Monday, and down 2.1% for the month.

"There certainly hasn’t been a lack of economic data released during the European session," said Craig Erlam, a market analyst at Alpari. "The problem is that most of this was just a lot of noise. Only certain data releases tend to have a noticeable impact on the markets, and the majority of the data released today does not fall into that category." he added.

The Bank of England revealed that UK mortgage approvals for house purchases fell for the fourth consecutive month in May, slipping to 61,707 from 62,806 in April, but were still stronger than the larger decrease to 61,600 that economists had been forecasting.

"Housing activity is steadying after the temporary hit from the more demanding mortgage regulations introduced in April," said Robert Wood, chief UK economist at Berenberg. "After the temporary disruption from tighter regulations has passed, we expect approvals to return to their upward trend, and we look for house prices to gain 10% in 2014 and 2015," he added.

At the same time, the BoE said UK consumer credit increased by GBP0.74 billion in May, in line with the average monthly increase over the last six months, and slightly higher than the GBP0.65 billion increase seen in April. Net lending to individuals rose by GBP2.7 billion in May versus a GBP2.4 billion rise in April.

"One release that can have quite a significant market impact is the eurozone CPI inflation reading, as this can directly affect how hawkish or dovish the ECB is," said Erlam. "However, this month the reaction was always going to be more muted than we’ve seen so far this year. The ECBs decision to throw everything but the kitchen sink at the deflation threat last month has left the odds of further action in the short term very low," he added.

Eurozone consumer price inflation remained stable at 0.5% month-on-month in June, the preliminary reading from Eurostat revealed, coming in below the 0.6% that had been expected. This is the seventeenth consecutive month that inflation in the single currency area has come in below the European Central Bank's target of "below, but close to, 2%".

In the forex market, while both the pound and the euro remained little changed in the immediate aftermath of the data, both currencies did edge slightly higher against the dollar Monday. At the UK equity market close, sterling trades at USD1.7102, while the euro trades at USD1.3686.

At the individual UK equity level, shares in FTSE 100-listed Diageo and SABMiller rose Monday, on the back of speculation regarding a potential merger between the two beverage giants, a deal which would create a company worth roughly GBP101.6 billion at current market values.

In a report late on Friday, the Financial Times said a merger of the world’s number-one spirits firm and number-two brewing business "would create a potent new force in the total beverage alcohol category," citing analysts at Barclays.

The FT article also suggested an alternative possibility; according to Citigroup analysts Belgium-based beverage and brewing giant Anheuser-Busch InBev could buy Diageo’s beer business as an alternate route into Africa, although it cited Citigroup analysts as saying that a bid for SABMiller would be the "best and most likely option."

Diageo's shares closed up 1.2%, while SABMiller's ended the day up 0.6%.

Shire was another big winner in the blue-chip index, closing up 0.5%. The pharmaceutical company's shares jumped after it said it has received a USD248 million cash refund from the Canadian revenue authorities, and said it expects a further USD162 million in late 2014. Shire added that it intends to use the cash to repay debt, giving it increased capacity to invest in business development activities

Additionally, according to a report by the Financial Times late on Sunday, US-based drugmaker AbbVie Inc's Chief Executive Richard Gonzalez is set to hold talks with Shire's investors when he flies to London this week. Gonzalez will speak to shareholders in an effort to increase pressure on Shire's board to enter negotiations, after it rejected three indicative offers. AbbVie first approached Shire in early May with a GBP39.50 cash and shares offer, that would have valued Shire at GBP23.3 billion. Its third and latest offer was GBP46.26 a share in cash and shares, it said, valuing Shire's share capital at GBP27.2 billion.

Heading in the other direction, GlaxoSmithKline closed down 0.6%. The pharmaceutical giant said that it has "zero tolerance for any kind of corruption" in its business, and said it has committed "significant resources" to finding out what happened in China, following reports that a sex tape of top executive Mark Reilly had surfaced amongst bribery investigations in the country.

The video was attached to an email alleging that Glaxo was bribing doctors in China, according to a report in the Sunday Times.

Glaxo has been weathering a significant investigation from Chinese authorities over allegations that Glaxo executives had been involved in payments of up to USD500 million to doctors and hospital executives over the past six years.

It was easyJet, however, that ended the day as the index's biggest loser, closing down 6.5%. Shares in the airline company nose-dived after Bank of America Merrill Lynch downgraded the company to Underperform, from Neutral, and lowered its price target 36% to 1,150 pence from 1,800p. "The bank cited rising fuel costs and recent profit warnings from sector peers for its more pessimistic outlook on the sector," said Michael Hewson, chief market analyst at CMC Markets.

Sports Direct International, closing down 2.4%, was another heavy FTSE 100 faller. The UK's biggest sporting goods retailer by revenue said that it is not considering an offer to acquire UK footwear retailer, Office, following recent trade speculation. The company quashed the rumours, saying that such speculation was "unhelpful to the customers, staff, suppliers and other stakeholders of both companies."

FirstGroup was among the biggest losers in the FTSE 250, closing down 2.3%. The bus and rail company is set to face a backlash from investors over its annual remuneration report, led by Sandell Asset Management Corp, which said Monday that it intends to vote against the report due to concerns regarding corporate governance practices at the company.

In a letter to FirstGroup Chairman John McFarlane, Sandell Asset Management - which has an interest of approximately 3.1% in the company - said it will also encourage other shareholders to vote against FirstGroup's annual remuneration report, citing CEO pay and poor sector expertise as drivers behind this.

Sandell's letter noted that FirstGroup's CEO remuneration package has risen 209% over the past five years and that Tim O'Toole is the highest paid CEO amongst his peers. However, during this five year period FirstGroup shares are the worst performing shares in its peer group, having returned a negative 8% compared to a positive 231% for its peers.

In the data calendar Tuesday, the China Federation of Logistics and Purchasing and Markit Economics release Chinese manufacturing purchasing managers' index readings at 0200 BST and 0245 BST, respectively. The latest reading of the Italian Markit manufacturing PMI is scheduled at 0845 BST, with the French equivalent at 0850 BST, the German reading at 0855 BST, and the figure for the wider eurozone area at 0900 BST. The UK Markit manufacturing PMI reading is due at 0930 BST.

The German unemployment rate reading for June is released at 0855 BST, shortly before Italian and eurozone readings for May at 0900 BST and 1000 BST, respectively.

In the US, Treasury Secretary Jacob Lew gives a speech at 1300 BST. June's reading of Markit manufacturing PMI from the world's largest economy is scheduled for 1445 BST, with construction spending and ISM manufacturing PMI data released shortly after at 1500 BST.

In the corporate calendar, FTSE 250-listed Ocado Group and St. Modwen Property release half-yearly results Tuesday.

By James Kemp; jameskemp@alliancenews.com; @jamespkemp

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