LONDON BRIEFING: UK GDP rise eases pressure on pound; Emis buy backed

(Alliance News) - The pound bounced back Friday morning after bullish UK gross domestic product data, though the FTSE 100 is called to open lower, giving back some of its progress in the week to date.

A stronger pound could inhibit the FTSE 100, given the blue-chip index's large number of international earners.

According to the Office for National Statistics on Friday, the UK economy grew 0.2% quarter-on-quarter in the three months to June, following a 0.1% climb in the first-quarter. It easily topped the FXStreet-cited consensus, which had forecast the UK economy to flatline.

Year-on-year, the UK economy expanded 0.4%, beating expectations of a 0.2% climb, which was also the pace of annual growth in the first-quarter.

In June alone, there was chunky GDP growth beat. The economy rose 0.5%, shaking off the impact of industrial action, after an unrevised 0.1% decline in May and a 0.2% rise in April. An expansion of 0.2% was expected for June, according to FXStreet.

Quilter Investors analyst Marcus Brookes said the UK economy is not necessarily out of the woods yet.

"Earlier this week the National Institute of Economic & Social Research published forecasts that predicted the UK is facing five years of economic stagnation, and looking around you can see why such pessimistic views are percolating," Brookes said.

"Interest rates take a while to feed into the economy, but it is clear that they may be starting to have an effect. While there is unlikely to be one this year, the UK can still be put on recession watch for 2024 as it seeks to resolve its more unique set of economic circumstances."

The data supported the pound. Sterling climbed to USD1.2714 after the readings, from USD1.2683 beforehand. It is still down from the level seen at the London equity market close on Thursday, however.

In early UK corporate news, miner Rio Tinto reported progress at a joint venture in Guinea, UnitedHealth's buy of Emis received an important endorsement, while FTSE 250 constituent GCP Infrastructure Investments set out tie-up plans with one, and possibly another, Main Market-listed firm.

Here is what you need to know at the London market open:

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MARKETS

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FTSE 100: called down 0.5% at 7,577.90

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Hang Seng: down 0.9% at 19,076.81

Japan Mountain Day: financial markets closed

S&P/ASX 200: down 0.2% at 7,340.10

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DJIA: closed up 52.79 points, 0.2%, at 35,176.15

S&P 500: closed little changed at 4,468.83

Nasdaq Composite: closed up 0.1% at 13,737.98

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EUR: down at USD1.0994 (USD1.1014)

GBP: down at USD1.2713 (USD1.2728)

USD: up at JPY144.75 (JPY144.46)

GOLD: up at USD1,917.29 per ounce (USD1,916.01)

(Brent): down at USD86.16 a barrel (USD87.02)

(changes since previous London equities close)

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ECONOMICS

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Friday's key economic events still to come:

08:30 EDT US PPI

10:00 EDT US University of Michigan survey of consumers

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UK industrial production surged 1.8% on a monthly basis in June, soaring past the expected growth of 0.1%. Production had declined 0.6% in May from April. On an annual basis, output rose 0.7% in June, following a 2.1% fall in May. It was the first annual rise in industrial output since September 2021. Output had been expected to fall 1.1% on-year, according to FXStreet. "The monthly increase in IoP output in June 2023 resulted from a rise in two of the four production sectors, with manufacturing being the main positive contributor, with a smaller contribution from water supply and sewerage; electricity and gas remain unchanged on the month, with growth partially offset by a small contribution from mining and quarrying, which negatively contributed 0.1 percentage points," the ONS said.

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The average price paid for UK motor insurance has surged by just over a fifth , or nearly GBP90 in cash terms, over the past year, to reach the highest levels since records started in 2012, according to the Association of British Insurers. The average premium paid for private comprehensive motor insurance in the second quarter of 2023 was GBP511, which was also up by 7% on the previous quarter. Back in the second quarter of 2022, the average price paid for motor insurance was GBP88 less, at GBP423. The ABI said "sustained cost pressures" faced by insurers, such as vehicle repairs, energy costs and labour rates, have pushed up the price of motor insurance. It said that, in total, insurers paid out GBP2.4 billion in all motor insurance claims – including theft, vehicle repairs, and personal injury – in the first quarter of this year. This was a 14% increase compared with the first quarter of 2022.

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BROKER RATING CHANGES

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RBC cuts CVS Group to 'sector perform' ('outperform') - price target 2,200 (2,300)

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Credit Suisse raises Deliveroo price target to 183 (159) pence - 'outperform'

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COMPANIES - FTSE 100

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Rio Tinto said the Simfer joint-venture "reached an important milestone" after sealing an agreement with the Republic of Guinea and a consortium. The pact creates the legal framework for the development of more than 600 kilometres of new multi-use rail, with port facilities, for iron ore export from Simandou mining concessions. The Simfer JV includes the government of Guinea and Simfer Jersey. Simfer Jersey itself is a joint-venture between Rio Tinto and Chalco Iron Ore. Chalco is owned by "leading Chinese state-owned enterprises", Rio explained. Rio separately on Thursday said it will begin construction of the largest solar power plant in northern Canada on the site of its Diavik diamond mine. Rio Tinto plans to install 6,600 solar panels at Diavik, a major diamond production centre 185 miles northeast of Yellowknife near the Arctic Circle. Construction on the solar site will start within weeks, and when operational in the first half of 2024 will generate around 4,200 megawatt-hours of electricity per year, Rio Tinto said in a statement. The solar site will power up to a quarter of Diavik's electricity as it moves toward ceasing operations. Diavik has been in production since 2003 but its lifespan is drawing to a close, with commercial diamond production scheduled to cease in 2026, before complete closure in 2029.

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COMPANIES - FTSE 250

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GCP Infrastructure Investments said it has agreed terms for a tie-up with GCP Asset Backed Income Fund and that it is also in talks for the enlarged group to possibly combine with RM Infrastructure Income. The GCP Infrastructure and GCP Asset Backed Income combination will be conducted through a contractual scheme of reconstruction, resulting in a solvent winding-up of the latter. GCP Asset Backed Income assets will be transferred to GCP Infrastructure in exchange for new shares in the FTSE 250-listing. GCP Infrastructure will continue to be advised by Gravis Capital Management after the tie-up but will propose some changes to its investment policy. "The board believes that, if completed, the GABI scheme will bring benefits to both the existing and any new shareholders in the company. The board has further proposed that, following the completion of the GABI scheme, there will be an increased return of capital to shareholders and the company will reduce its leverage. GCP Infra's investment policy will be amended to maximise access to attractive investment opportunities, with a focus on sustainable assets," GCP Infrastructure said. Any further tie-up with RM Infrastructure will also be effected through a scheme of reconstruction. A "material proportion" of RMI assets will be transferred to GCP Infrastructure in exchange for new shares. GCP Infrastructure added: "The company will provide a further update as and when appropriate." RMI, currently undergoing a strategic review, said it is also considering one other proposal it has received. "For the avoidance of doubt, neither approach anticipates any offer for the company, recommended or otherwise, under the City code on takeovers and mergers," RMI added.

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OTHER COMPANIES

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UnitedHealth Group's buy of London-listed healthcare software and services provider Emis has been provisionally cleared by the UK's competition watchdog. The Competition & Markets Authority said: "Optum, part of the US healthcare giant UnitedHealth, currently supplies software used by GPs when prescribing medicines, as well as data analytics and advisory services that the NHS uses to help improve overall healthcare and health service provision. While the merging businesses do not supply competing services, Optum and its competitors use the data that Emis holds and integrate their own software with Emis's electronic patient record system to compete in other markets, including the supply of population health management services and medicines optimisation software." The CMA's phase 1 probe had found "initial concerns" that the GBP1.24 billion takeover, which was agreed in June last year, would bring competition worries. The CMA will report a final decision on October 5.

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By Eric Cunha, Alliance News news editor

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