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(Alliance News) - London's FTSE 100 is set for an underwhelming start to the week, ahead of a slew of purchasing managers index readings from the continent to come.
Risk sentiment improved last week, following a US jobs report which has been more tepid than other recent readings. It strengthened the case for the Federal Reserve to continue deciding against hiking rates.
It also hurt the dollar, with the pound and euro advancing, though a stronger sterling proved of little help to the international earner-heavy FTSE 100.
"There were a number of catalysts, with the Federal Reserve being at the heart of them, while the US bond market also saw a big rebound after the US treasury outlined lower than expected bond issuance for the quarter. Throw in a goldilocks non-farm payrolls report and a couple of disappointing US ISM reports, and US 10-year yields saw their biggest weekly decline since March, as markets started to price in the prospect of rate cuts sometime in the summer of next year," CMC Markets analyst Michael Hewson commented.
"While the markets were revising their estimates for when US rates might start to get cut, economic data in the UK and Europe pointed to an even deeper economic malaise, as it slowly became apparent for all of the hawkishness of the ECB, as well as the Bank of England, that both of them are also done on the rate hike front, and that we could start to see rate cuts from the ECB as soon as Q1 next year, with the Bank of England sometime in H2 of 2024."
Hewson continued: "In Europe, today’s services PMIs are expected to reinforce this weak demand outlook, having already had sight of the flash numbers from Germany and France at the end of October."
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: called up 0.1% at 7,426.63
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Hang Seng: up 1.7% at 17,955.11
S&P/ASX 200: closed up 0.3% at 6,997.40
Nikkei 225: closed up 2.4% at 32,708.48
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DJIA: closed up 222.24 points, or 0.7%, at 34,061.32
S&P 500: closed up 0.9% at 4,358.34
Nasdaq Composite: closed up 1.4% at 13,478.28
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EUR: up at USD1.0736 (USD1.0730)
GBP: up at USD1.2389 (USD1.2369)
USD: up at JPY149.56 (JPY149.37)
Gold: down at USD1,983.73 per ounce (USD1,990.11)
Oil (Brent): down at USD85.60 a barrel (USD86.44)
(changes since previous London equities close)
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ECONOMICS
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Monday's key economic events still to come:
09:00 GMT EU services PMI
08:55 GMT Germany services PMI
09:30 GMT UK construction PMI
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Hezbollah chief Hassan Nasrallah warned that war between Israel and Hamas could turn into a regional conflict if attacks on Gaza continue, placing responsibility firmly on the US. In his first speech since war broke out almost four weeks ago between Hamas militants and Israel, the head of the powerful Iran-backed movement warned that "all options" were open for an expansion of the conflict to Lebanon. "America is entirely responsible for the ongoing war on Gaza and its people, and Israel is simply a tool of execution," Nasrallah said in a televised broadcast, calling the conflict "decisive". "Whoever wants to prevent a regional war – and this is addressed to the Americans – must quickly stop the aggression on Gaza," he said.
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The UK government revealed plans to mandate oil and gas licensing in the North Sea in a bid to reduce dependency on "hostile foreign regimes", it will be announced in the King's Speech. The plans were set to provide job security for 200,000 workers in the GBP16 billion industry more secure, and to help with the transition to net zero in 2050. Legislation to be set out later this week in the King's Speech will require the North Sea Transition Authority to invite applications for new production license on an annual basis to "safeguard the prosperity of our country".
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BROKER RATING CHANGES
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RBC cuts Next to 'sector perform' ('outperform') - price target 7,700 (8,000) pence
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RBC raises Dunelm to 'sector perform' ('underperform') - price target 1,100 (1,000) pence
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COMPANIES - FTSE 100
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Scottish Mortgage Investment Trust reported a net asset value per share decline over the first six months of its financial year. "We will have periods when we underperform the market, and the six months in question was one," the tech-focused investor said. Its net asset value per share, with borrowings at fair value, fell 3.0% to 818.9 pence on September 30 from 843.9p at the end of March. It maintained its dividend at 1.60p per share. The company added: "Our objective is to find companies with the potential for exceptional growth and then own them patiently as they deliver. There are times when stock markets reward this approach and times, as now, when they do not. We constantly revisit the case for our investments and expect that we will sometimes find our optimism misplaced. However, we do not revisit the underlying investment philosophy that has served us well for many years."
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Melrose Industries said its GKN Aerospace Engines has inked a "major new agreement" with GE Aerospace. Melrose said the total incremental sales from this new deal will be around USD5 billion over the 30-year duration of the GEnx engine programme. "GKN Aerospace and GE Aerospace have significantly widened their long-term partnership with a new agreement that expands RRSP participation on the GEnx programme, the fastest-selling high-thrust engine. The new agreement also covers new technology insertion, aftermarket repair of high-volume engines structures, and production of fan cases for a range of GE engines," Melrose said.
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Prudential reported a surge in new business profit in the third quarter of 2023, continuing first-half "momentum". The Asia-focused insurer said it saw "ongoing demand for both savings and health and protection products" in domestic and Chinese Mainland visitor customers in Hong Kong. At actual exchange rates, new business sales rose 36% on-year in the third quarter to USD3.25 billion. New business profit was 34% higher at USD1.60 billion. "Our diversified business model and strong capitalisation positions us well to navigate ongoing challenges in the macro-economic and geopolitical environment. Looking forward the environment continues to be challenging but new business momentum has continued into the fourth quarter supported by our multi-market growth engine," Prudential said.
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COMPANIES - FTSE 250
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Embattled Hipgnosis Songs Fund said it does not expect to declare any dividends before the new financial year. Hipgnosis Song Management, its investment advisor, has been reviewing the firm's financial position. Catalogue bonus provisions are expected to increase by roughly USD23 million to USD68 million at September 30. It now expects 10 out of the firm's 146 catalogues will meet "performance hurdles". Hipgnosis added: "The USD68 million would be payable over a period of three years from 30 September 2023, with USD40 million due within 12 months, USD24 million due within 1-2 years and USD4 million due within 2-3 years. In addition, there are a further nineteen catalogues with active bonus provisions totalling USD75 million, that are unlikely to meet performance hurdles; these are not recognised as provisions but are contingent liabilities and will be disclosed in the forthcoming interim results with associated sensitivity analysis." It added: "In light of this information, the board has determined that it will not declare dividends before the new financial year. The operating cash flow of the company during this time will therefore be used to ensure that the company has sufficient cash resources to fund the payment of the catalogue bonuses as required."
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OTHER COMPANIES
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Delivered wholesale firm Kitwave expects an annual outturn in line with expectations for the year ended October 31. It noted a strong performance at West Country Food. The integration of fresh produce wholesaler West Country is progressing, it added. Kitwave added: "Following a strong performance in the first half of FY2023, positive momentum continued across all of the group's divisions. As a result, and following the significant upgrade in July 2023, the board expects the full-year financial results to be in line with current market expectations. Whilst acknowledging the prevailing macroeconomic landscape, which has created broader inflationary challenges, the board remains confident in the group's ability to utilise its extensive experience and expertise to mitigate these risks effectively."
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By Eric Cunha, Alliance News news editor
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