3i Group Share News (III)

LONDON (Alliance News) - Stocks in the UK ended strongly Thursday, with the FTSE 100 index climbing to a high it hasn't seen since August 2015, after Bank of England Governor Mark Carney held a press conference aimed at rebuilding economic confidence and hinted at a summer interest rate cut.

The FTSE 100 ended up 2.3%, or 144.27 points, at 6,504.33, its third-consecutive winning session after sharp losses on Monday and on Friday last week. The blue-chip index ended June 4.4% higher, having recovered completely from its post-Brexit sell-off.

The FTSE 250 rose 1.5%, or 242.21 points, to 16,245.11. The mid-cap index, more closely aligned to the UK domestic economy, ended June down 5.5%. The AIM All-Share added 1.5% Thursday, or 10.32 points, to 707.88. The AIM All-Share lost 4.3% in June.

"There are several plausible reasons why the prices of equities and other riskier assets have recovered after the UK's vote to leave the EU," said Julian Jessop, chief global economist at Capital Economics.

"Some of these may be temporary, notably short covering. More positively, though, we think that the markets are right to recognise that Brexit, and especially some form of Brexit-lite, would not be as damaging as so many were arguing ahead of the referendum," Jessop noted.

Jessop also said that markets have also been supported by expectations of a longer period of loose monetary policy in the UK and elsewhere.

Governor Carney said the near-term challenges facing the UK economy "can't be wished away". But he said "they can be addressed".

"A clear plan is needed, and its measures must be implemented with resolute determination," Carney said.

"The UK can handle change," said Carney. He said the question is not whether the UK will adjust "but rather how quickly and how well". Nonetheless, Carney said the decision to leave the European Union "marks a major regime shift".

"In the coming years, the UK will redefine its openness to the movement of goods, services, people and capital. In tandem, a potentially broad range of regulations might change," Carney said.

Specifically, Carney said: "In my view...the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer," fuelling expectations of a possible cut in UK interest rates from their current 0.5%.

The pound was quoted at USD1.3294 at the equities close, compared to the USD1.3519 at the equities close Wednesday. Sterling took a hit following Carney's comments. Nevertheless, the currency remained above its post-Brexit 31-year low of USD1.3118.

The UK economy expanded as expected in the first quarter, the third estimate from the Office for National Statistics showed. Gross domestic product grew 0.4% in the first quarter from previous three months, unchanged from the last published estimate.

It was slower than the 0.7% expansion seen in the fourth quarter of 2015. Nonetheless, this was the 13th consecutive quarter of positive growth since first quarter of 2013. On a yearly basis, UK GDP climbed 2.0% as estimated previously in the first quarter.

Another report from ONS showed that the UK current account gap narrowed to GBP32.6 billion from a revised deficit of GBP34.0 billion in the fourth quarter. The narrowing in the current account deficit was mainly due to a narrowing in the deficits on secondary income and primary income.

Following the decision by Prime Minister David Cameron to step down following the UK vote to leave the EU, Home Secretary Theresa May formally launched her campaign to succeed him Thursday, while Justice Secretary Michael Gove also entered the race. In a big shock for many, former London mayor and Leave campaign leader Boris Johnson said he will not stand.

The new leader of the Conservative party will be announced in September, and that person will be the one driving the separation process from the EU. Until then, uncertainty remains as London delays invoking Article 50 of the Lisbon Treaty, while European leaders urge the UK government to do it as soon as possible.

European stocks ended mixed, with the CAC 40 index in Paris up 1.0% and the DAX 40 in Frankfurt up 0.7%. The euro was standing at USD1.1032 at the European equities close compared to USD1.1111 at the close Wednesday. The accounts of the European Central Bank will be released on July 7 at 1230 BST.

Eurozone inflation turned positive in June as the pace of decline in energy prices slowed further, flash data from Eurostat showed. Consumer prices edged up 0.1% in June from prior year, compared to a 0.1% fall in May. Prices increased for the first time in five months. Prices were expected to remain flat in June.

Core inflation, which excludes energy, food, alcohol and tobacco, rose to 0.9% in June from 0.8% in May. This was the fastest rate since March 2016. Economists had forecast core inflation to remain at 0.8%.

In New York, stocks were higher at the London close, with the Dow 30 index up 0.6%, the S&P 500 up 0.5% and the Nasdaq Composite up 0.6%.

US Labor Department data showed that first-time claims for US unemployment benefits rose by a little more than expected in the week ended June 25, reflecting a rebound from a nearly two-month low. The report said initial jobless claims rose to 268,000 from 258,000 in the previous week. Economists had expected jobless claims to edge up to 266,000.

Gold stood at USD1,318.96 at the London stock market close, compared to USD1,323.55 at the same time Wednesday. Meanwhile, Brent crude was at USD50.32 a barrel, slightly higher than the USD49.96 late Wednesday.

On the London Stock Exchange, 3i Group ended as the best performer in the FTSE 100, up 7.8%. The private equity provider said it has increased the book value of its investment in Action, the Benelux-based non-food retailer, following strong trading and a number of approaches the 3i has received in respect of the investment.

Given the third-party interest in the business and continued growth, 3i said it has increased the book value of its investment in Action to GBP1.46 billion from GBP902.0 million at the end of March. Though 3i said it remains actively engaged in developing Action and is not intending to sell or float the business in the near term, SocGen analyst Michael Sanderson believes actions will be taken in the medium future.

"While there is no detail on the timings of any realisation activity in the announcement, we anticipate some form of realisation event to occur in 2018 in line with the requirements of 3i's limited partner co-investors," said Sanderson.

Mining stocks also performed well, with the FTSE 350 Mining sector index up 3.8%. Antofagasta added 5.0%, Glencore up 4.2% and Anglo American also up 4.2%.

In the red, Royal Bank of Scotland Group lost 4.8% after being downgraded to Equal Weight from Overweight by Morgan Stanley.

Shares in builders' merchant Travis Perkins ended down 1.6% after Berenberg downgraded it to Hold from Buy. Travis Perkins's long-term strategy is sound, Berenberg said, but the bank is cautious on the effect of Brexit uncertainty on UK consumer sentiment and the housing market.

In the FTSE 250, esure Group ended among the biggest mid-cap gainers, up 9.8%. The insurer said it has not received any approached from potential buyers following press speculation it was being circled by private equity suitors.

Sky News reported buyout groups, including US-based KKR, have been exploring takeover offers for esure in recent weeks following the FTSE 250-listed firm saying it was exploring options for its GoCompare price comparison business. On Thursday, esure said no such approach has been received, and it continues to focus on its strategic review of GoCompare.

Zoopla Property Group dropped 4.5%. The property portal's share price decline in the wake of the Brexit vote last week has further to go, says Panmure Gordon, which slashed its rating on the property buying portal to Sell from Buy.

Following the Leave vote by Britain on Friday, Zoopla's share price had fallen by 22% but had rebounded on Tuesday and Wednesday. Panmure analyst Jonathan Helliwell believes there is further to go on the downside for Zoopla shares, as its estate agent customers now face a prolonged period of market uncertainty and lower volumes.

In the UK corporate calendar, Trinity Mirror issues a trading statement, while SVM UK Emerging Fund publishes full-year results.

Highlights in the economic calendar Friday are Japan's consumer price index and unemployment rate at 0030 BST. China's Caixin manufacturing PMI is at 0245 BST, while Japan's Nikkei manufacturing PMI is at 0300 BST.

Markit manufacturing PMIs from France and Germany are at 0850 BST and 0855 BST, respectively. The same for the UK is at 0930 BST. In the US, Markit manufacturing PMI is at 1445 BST.

By Daniel Ruiz; danielruiz@alliancenews.com

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