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LONDON (Alliance News) - Stocks in London are trading higher mid-morning Tuesday with the focus on a flurry of company updates and M&A activity, while the pound is higher following an in-line preliminary reading of second quarter UK GDP.
The UK economy expanded at a faster pace in the second quarter largely driven by an improvement in services output, the preliminary estimate from the Office for National Statistics showed. Gross domestic product grew 0.7% quarter-on-quarter, in line with forecast, following a 0.4% rise in the first quarter.
Services expanded 0.7% and production increased 1%. Construction growth came in flat and agriculture contracted 0.7%.
GDP was 2.6% higher in the second quarter compared with the same quarter a year ago. The annual growth figure also matched expectations.
The pound rose sharply against other major currencies following the data, coming off session lows of USD1.5526 against the dollar to trade at USD1.5596.
"As steady growth points to improving living standards, and with the concerns around Greece finally begin to subside, the temptation for Bank of England Governor Mark Carney to hike interest rates is increasing by the month," says Dennis de Jong, managing director at UFX.com.
"However, a subsequent strong pound could adversely affect manufacturing and exports. The interest rate decision will continue to be a balancing act for Carney," de Jong adds.
The Bank of England's Monetary Policy Committee will meet next week to make a decision on interest rates and asset purchases, with economists largely expecting no changes to be made to either. Meanwhile, a US interest rate decision is due later this week.
The FTSE 100 trades up 0.8% at 6,558.96, the FTSE 250 is up 0.7% at 17,390.60, and the AIM All-Share index is flat at 747.49.
In Europe, the CAC 40 in Paris and DAX 30 in Frankfurt both are trading up 1.0%.
Oil prices slid to a near six-month low due to concerns of oversupply in the oil market. Brent oil fell to a low of USD52.26 a barrel, its lowest price since early February, while West Texas Intermediate fell to a low of USD46.66 a barrel, its lowest level in four months.
"The selling pressure on oil prices remains high as there is no shortage of bearish news in the market. The sell-off in equities and concerns about the Chinese economy, the surprising up-tick in US shale drilling activity, the reduction in Iranian floating storage, and record Iraqi exports have all been factors weighing on oil prices as of late," says Norbert Ruecker, head of commodities research at Julius Baer. "However, sentiment is down to exceptionally bearish levels, and most of the negative trends seem well anticipated in prices."
The Shanghai Composite continues lower Tuesday, down 1.7%, after falling 8.5% on Monday.
On the London Stock Exchange, RSA Insurance Group shares have surged 14% after Zurich Insurance Group expressed interest in purchasing the FTSE 100-listed group. In a short statement, the Swiss insurer confirmed it is evaluating a potential offer for RSA. It added that the announcement does not represent a firm offer to buy RSA and said there is no assurance that any offer will be made.
Hikma Pharmaceuticals is up 7.2% after it said it agreed a USD2.65 billion deal to acquire Roxane Laboratories and Boehringer Ingelheim Roxane from Boehringer Ingelheim, the German pharmaceutical company. The Roxane businesses are a US specialty generics operation, Hikma said.
Under the terms of the deal, Hikma will issue 40 million shares to Boehringer at 2,350 pence per share, along with a USD1.18 billion cash payment. Hikma shares closed Monday at 2,080.00p and trade at 2,230.00p Tuesday morning.
GKN is also one of the biggest gainers in the blue-chip index, up 7.2%. The engineer said its pretax profit declined in the first half of the year, hit by continued weakness in some of its key markets, and said it has agreed a EUR706 million deal to acquire Fokker Technologies Group.
The company, which manufactures components for the aerospace, automotive and industrial sectors, said its pretax profit for the six months to the end of June was down to GBP212 million from GBP224 million a year earlier, despite an increase in sales for the group to GBP3.62 billion from GBP3.57 billion.
GKN also said it will pay EUR706 million to acquire Fokker Technologies, a Dutch maker of aerostructures, electrical wiring systems, landing gear and associated services. GKN said the deal will strengthen its position in the aerospace market and will expand its presence in the Chinese, Turkish, Indian and Mexican markets.
Royal Mail is the biggest decliner in the FTSE 100, down 3.3% after UK media and communications regulator Ofcom said it has issued a statement of objections to the postal service operator, with a provisional view that the company breached competition law by discriminating in its wholesale pricing against postal operators that competed with it on delivery.
Ofcom said the provisional findings, part of the investigation launched following a complaint by Whistl, a former competitor of Royal Mail, found that Royal Mail's changes to prices, terms and conditions for the provision of access services included "unlawful price discrimination".
Shares in Drax Group are trading 12% higher. The power plant operator said it swung to a pretax profit in the first half of 2015, leading to a higher interim dividend in line with its policy, but the electricity generator reiterated that it will be hit by changes to the UK climate change levy in the second half of the year.
Drax reported a pretax profit of GBP53.0 million in the first half of 2015, swinging from a GBP10.8 million loss a year earlier, as revenue for the period rose to GBP1.24 billion from GBP1.05 billion.
Melrose Industries is up 11% after it said it sold its Elster business to US industrial conglomerate Honeywell International for GBP3.3 billion in cash. It said that in addition to the cash consideration, Honeywell will assume the majority of the pension schemes on Melrose's books.
Melrose is planning to use the consideration for the Elster businesses to return more than GBP2 billion to its shareholders and for general corporate purposes, including paying down its debt obligations.
Still ahead in the economic calendar is US Markit services and composite purchasing managers' index at 1445 BST and consumer confidence at 1500 BST. In addition, the US Federal Open Market Committee begins its two-day meeting ahead of its interest rate announcement on Wednesday at 1900 BST.
By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1
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