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(Alliance News) - Stocks in London are called lower on Monday, with investor focus on UK government finances, US mid-term elections, and Covid-19 measures in China.
China damped hopes for an end to its economically damaging virus curbs as it doubled down on its zero-Covid policy. It also reported its highest daily Covid caseload in six months Monday.
With just 10 days until an autumn statement, UK Chancellor Jeremy Hunt is looking at ways to plug a black hole in UK government finances. The autumn statement is delivered on November 17, though ministers must present to Office for Budget Responsibility crucial parts of the plan so an economic forecast can be prepared in time.
Elsewhere on Monday, figures from Halifax showed annual UK house price growth slowed in October, and a month-on-month decline was steeper.
On the UK corporate front, Flutter achieved a legal win connected with US operation FanDuel, and PayPoint will acquire AIM listing Appreciate Group for over GBP80 million.
In focus this week will be US politics, with midterm elections on Tuesday. The Republicans go into polling day as favourites to win the House of Representatives, though the race to secure the Senate is expected to be much closer.
"It would also strongly suggest a strong Red base for a presidential win in 2024 with an even larger Congressional majority…and, yes, led by Donald Trump, as potential rivals already start to drop out, and shots are taken across the bows of others," analysts at Rabobank commented.
Here is what you need to know ahead of the London market open:
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MARKETS
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FTSE 100: called down 0.8% at 7,273.54
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Hang Seng: up 2.8% at 16,617.51
Nikkei 225: up 1.2% at 27,527.64
S&P/ASX 200: closed up 0.6% at 6,933.70
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DJIA: closed up 401.97 points, or 1.3%, at 32,403.22
S&P 500: closed up 1.4% at 3,770.55.
Nasdaq Composite: closed up 1.3% at 10,475.26
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EUR: higher at USD0.9930 (USD0.9915)
GBP: firm at USD1.1307 (USD1.1301)
USD: higher at JPY147.50 (JPY147.16)
GOLD: up at USD1,673.20 per ounce (USD1,672.83)
OIL (Brent): firm at USD97.67 a barrel (USD97.52)
(changes since previous London equities close)
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ECONOMICS
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Monday's key economic events still to come:
1700 GMT UK BoE Chief Economist Huw Pill hosts virtual Q&A event
2300 GMT US Fed Richmond President Thomas Barkin speaks
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UK house price growth slowed to 8.3% on an annual basis in October, figures from Halifax showed. They had surged 9.8% in September. On a monthly basis, house prices fell 0.4% in October from September. They had slipped 0.1% in September from August. "Average house prices fell in October, the third such decrease in the past four months. The drop of 0.4% is the sharpest we have seen since February 2021, taking the typical property price to a five-month low," Halifax analyst Kim Kinnaird said.
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UK Chancellor Hunt is looking at tax rises and spending cuts totalling up to GBP60 billion as he aims to address the black hole in the public finances. PA reported that Treasury sources confirmed that up to GBP35 billion of the "fiscal tightening" could come in the form of reduction in spending, signalling a further squeeze on hard pressed services. Hunt's room for manoeuvre has become more constricted after the Bank of England warned last week that the country is facing the longest recession in more than a century. Speaking on Sky News, the Cabinet Office Minister Oliver Dowden acknowledged that there would have to be "difficult decisions" on both tax and spending. "We are going to have to face difficult decisions both on the tax side – we haven't got to the end of the difficult decisions there – and difficult decisions on the spending side," he said.
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UK Prime Minister Rishi Sunak said inflation is the "number one enemy", as he vowed to rebuild trust in the government following Liz Truss's calamitous tenure in No 10. Sunak said he is doing everything he can to "grip" the issue and limit rises in mortgage repayments, as the Bank of England is forced to put up interest rates to curb rising prices. On Thursday, the bank warned the country is facing the longest recession in a century as it hiked base rates by 0.75 percentage points to 3% – their highest level in 15 years. With many families now facing crippling rises in their monthly mortgage bills, Sunak told The Times that he understood their concerns as they worried how to make ends meet. "I absolutely recognise the anxiety that people have about mortgages. It's one of the biggest bills people have," he said. "So what I want to say to people is that I'm going to do absolutely everything I can to grip this problem, to limit the rise in those mortgage rates. "I think inflation is the number one enemy, as Margaret Thatcher rightly said. Inflation has the biggest impact on those with the lowest incomes. I want to get a grip of inflation."
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Rail services in the UK will continue to be disrupted on Monday, despite a series of planned strikes being called off. Passengers are being warned to check with train operators before they travel with some still expected to run a reduced timetable due to the change coming at such short notice. Members of the Rail, Maritime & Transport union and Transport Salaried Staffs Association were set to stage walkouts in the coming few days in a long-running dispute over jobs, pay and conditions. But RMT suspended the strikes, saying it had secured "unconditional" talks with Network Rail and the promise of a pay offer from the train operating companies. The union said the dispute remains "very much live" and it is continuing its re-ballot of members to secure a fresh mandate for action with the result due on November 15. Talks will now be held over the next few weeks to try to resolve the dispute over pay, jobs and conditions.
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BROKER RATING CHANGES
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Credit Suisse cuts Kingfisher to 'neutral' (outperform) - price target 247 (305) pence
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Goldman cuts Shell to 'neutral' (buy) - price target 38 (40) EUR
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JPMorgan cuts RS Group to 'underweight' (neutral) - price target 820 (1,050) pence
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COMPANIES - FTSE 100
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Paddy Power-owner Flutter Entertainment won an arbitration ruling related to media company Fox's option to acquire just shy of a 19% stake in US arm FanDuel. The duo argued over the consideration for the stake, with Fox believing it should only acquire the holding at the same price Flutter paid back in December 2020. However, Flutter on Monday said an arbitration confirmed the fee that Fox would pay for the stake would be based on a FanDuel valuation of USD20 billion. With annual compounding, this equates to a valuation for FanDuel of USD22 billion and a cost of USD4.1 billion for Fox to acquire an 18.6% stake, Flutter said. In April 2021, Fox filed an arbitration suit against Flutter to enforce its right to buy an 18.6% stake in FanDuel, at the same price Flutter paid roughly five months earlier. But Flutter said Fox's position was "incorrect" and that both companies agreed to a fair market valuation as of July 2021. It would be a "windfall to Fox" if Flutter sold the FanDuel stake at an USD11.2 billion valuation, Flutter said in April of last year. The dispute goes back to Flutter's merger with US gambling company The Stars Group in 2019. The deal gave Fox Sports, the media partner of The Stars Group, an option to buy a stake in FanDuel. Futter Chief Executive Peter Jackson said on Monday: "Today's ruling vindicates the confidence we had in our position on this matter and provides certainty on what it would cost FOX to buy into this business, should they wish to do so."
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COMPANIES - FTSE 250
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Energean lauded a "a commercial gas discovery" from exploration at its Zeus-01 well in Israel. Findings indicate the structure contains 13.3 billion cubic meters of recoverable natural gas resources, compared to pre-drill estimates of 10 billion to 12 billion. Energean said its reserve auditor has certified contingent resources of 11.75 billion cubic meters at Athena, which houses Zeus-01, an increase of 3.75 billion from a preliminary estimate. "Following the start of production from our Karish reservoir last week, I am pleased that our drilling programme, which has now delivered five successful wells from five, continues to deliver value, ensuring security of supply and energy competition across the region. We are evaluating a number of potential commercialisation options for the Olympus area that leverage both new and our existing, unique Med-based infrastructure, and we expect to commit to a development concept in 1H 2023," CEO Mathios Rigas said.
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Paypoint said it has struck a deal to acquire AIM-listed prepaid gift card and voucher provider Appreciate Group. The deal values the Liverpool-base firm at GBP83 million. PayPoint, a payment services provider, said the deal will "broaden the universe that PayPoint serves and strengthens the client and retailer proposition". PayPoint will pay 33 pence in cash and 0.019 of a new PayPoint share for each Appreciate share. At completion, PayPoint shareholders will own 95% of the enlarged firm, and Appreciate investors the remaining 5%.
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OTHER COMPANIES
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Kingspan said sales so far in 2022 have surged, and price pressures "appear to have peaked". The building materials company expects full-year trading profit of EUR830 million, up from EUR755 million in 2021. Sales in the nine months to September 30 jumped 33% to EUR6.25 billion. Third-quarter sales alone rose 17%. Kingspan added: "A feature of the current environment is the lack of visibility beyond the next short period of months. Sentiment is cautious for the most part although not uniformly so. The sharp increases we have seen in raw material prices over the last eighteen months appear to have peaked, at least for now. Certain key inputs are likely to reduce in price in the fourth quarter."
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By Eric Cunha; ericcunha@alliancenews.com
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