LONDON MARKET CLOSE: Hikma And Shire Sold Down Amid Firm Market

LONDON (Alliance News) - Stocks in Europe closed moderately higher Monday, buoyed by a strong open on Wall Street and some broadly positive manufacturing Purchasing Managers' Index data from Europe, the US and the UK.

At the individual UK stock level, drug companies were in the spotlight Monday, with both Hikma Pharmaceuticals and Shire ending the day among the biggest losers in the UK's blue-chip index, closing down 5.1% and 0.8%, respectively.

"Manufacturing data came in above expectations, lessening fears that China’s slowdown is weighing on the global economy," said Jasper Lawler, market analyst at CMC Markets. "For multiple benchmark stock averages, October was the best month in years so the worry has been that it'll be a tough act to follow," he added.

Figures from the Chartered Institute of Procurement & Supply and Markit Economics revealed that the UK's seasonally adjusted Purchasing Managers' Index climbed notably to 55.5 in October from 51.8 in September, exceeding economists' expectations for a slight decline to 51.3 from September's originally estimated score of 51.5.

"The start of the final quarter saw UK manufacturing spring back into life and record its best month of factory output growth since June 2014," said Rob Dobson, senior economist at Markit. "The revival provides a tentative suggestion that the manufacturers are pulling out of their recent funk, having been dogged by recession since the start of the year, and may help boost economic growth in the fourth quarter."

That said, Spreadex's financial analyst Connor Campbell remains cautious, saying: "This all begs the question: has [UK Chancellor] George Osborne’s 'march of the makers' finally materialised? Or is this figure an anomaly that will only create a greater sense of disappointment next month?"

It was a similarly positive scenario in Europe, where the PMI index for the eurozone's manufacturing sector rose to 52.3 in October from 52.0 in September, coming in ahead of the expected 52.0

"Growth in the eurozone has been quite sluggish for much of this year and the revised PMI data this morning was expected to support this view," said Craig Erlam, senior market analyst at OANDA. However, "while the numbers weren’t great, they did provide more cause for optimism than was expected," he said.

The FTSE 100, which had spent much of the day trading in negative territory, closed fractionally higher at 6,361.80, while the FTSE 250 closed up 0.3% at 17,167.40 and the AIM All-Share index closed up 0.4% at 741.01.

In Europe, the CAC 40 in Paris ended up 0.4% and the DAX 30 in Frankfurt closed up 0.9%.

Stocks across Europe had opened lower Monday, following a sell-off of equities in Asia, as investors reacted to the release of the latest round of data from China over the weekend. The Shanghai Composite index, the Japanese Nikkei 225 index and the Hang Seng index in Hong Kong all closed between 1.2% and 2.1% lower.

In data released ahead of the UK equity market open Monday, survey results published by Caixin and Markit Economics revealed that China's manufacturing sector continued to contract in October. The manufacturing PMI rose to 48.3 in October from 47.2 in September, but remained below the critical level of 50, the pivot between expansion and contraction.

Meanwhile, on Sunday, the official manufacturing PMI, released by the China Federation of Logistics and Purchasing, remained unchanged at 49.8 in October. At the same time, official data also showed the non-manufacturing PMI slid to 53.1 in October from 53.4 in September.

"It is therefore not surprising that against this backdrop that Chinese Prime Minister Li [Keqiang] stated last week that China would need an average growth rate of 6.53% over the next five years to remain moderately prosperous," said Michael Hewson, chief market analyst at CMC Markets UK.

"Setting aside the fact that the suggested rate seems remarkably specific, the comments do beg the question as to whether the markets are about to be softened up for an official downgrade to growth expectations for the Chinese economy over the next few days," he added. The current government growth target is 7.0%.

At the close of the UK equity market, shares in the US were higher. The NASDAQ Composite index, DJIA and S&P 500 were trading between 0.5% and 0.9% higher.

Activity in the US manufacturing sector saw a slight expansion in October, according to a report released by the Institute for Supply Management. The ISM said its PMI edged down to 50.1 in October from 50.2 in September, although a reading above 50 still indicates growth in the manufacturing sector. Economists had expected the index to dip to 50.0.

In the forex market, following the slew of data releases, the pound traded at USD1.5433 at the UK equity market close, while the euro traded at USD1.1025. In the commodities markets, gold was quoted at USD1,134.90 per ounce, while Brent was trading at USD48.78 a barrel.

In London, Hikma Pharmaceuticals ended the day as the worst performer in the FTSE 100.

Shares in the company fell after it warned on its outlook for the full year following continued sluggishness in its Generics business, even as the rest of the company remains robust.

Hikma said it has seen continued strong demand for its legacy products within the Generics business, with any declines in line with its expectations due to greater competition. But colchicine, its gout treatment, has suffered due to Hikma having to sell the drug under both the Mitigare brand name and as an authorised generic version.

This 'hybrid' brand strategy has meant growth in sales of the drug has been "more gradual" than expected, Hikma said, and it has cut its revenue guidance in the Generics business to USD150.0 million for the full year, down from USD175.0 million to USD200.0 million previously.

Fellow FTSE 100 drug maker Shire was another big blue-chip faller Monday.

The Dublin-based company took a break from its ongoing attempt to acquire the US's Baxalta to strike a USD5.9 billion deal to buy US-based Dyax in order to boost its hereditary angioedema treatment pipeline and its broader rare diseases portfolio, the latter also being the key driver behind the Baxalta bid.

On Thursday, Shire Chief Executive Flemming Ornskov reiterated Shire's commitment to the pursuit of Baxalta, saying it still has sufficient financial firepower to cover that deal as well as the acquisition of Dyax. Shire will pay USD5.9 billion in cash upfront to buy Dyax, with a further USD646.0 million payable upon the approval of Dyax's DX-2930 drug.

Having a better day, banking stocks Barclays, Royal Bank of Scotland Group and Lloyds Banking Group were among the biggest winners in the blue-chip index Monday, closing up 1.4%, 1.4%, and 1.2%, respectively. The gains came after the companies said that they had agreed to sell their stakes in Visa Europe as part of the EUR16.5 billion takeover of the business by US payments company Visa.

Lloyds expects to make a pretax gain of around GBP300.0 million on the sale, the total consideration for which will include an upfront cash payment plus shares in Visa Inc. It did not provide any further financial details on the sale.

Barclays, meanwhile, expects to make a post-tax profit of GBP400.0 million on the sale and also did not provide any details on the total consideration it will receive. RBS will make an initial pre-tax gain of GBP200.0 million on completion of the transaction.

The disposal is expected to complete in the second quarter of 2016.

Fellow bank HSBC Holdings, which reported higher third-quarter profit Monday, close down 1.0%.

Recently listed payments processing company Worldpay Group also said it had agreed to sell its stake in Visa Europe.

Worldpay's portion of the consideration will total EUR1.25 billion, including an upfront cash payment of EUR592.0 million and a further EUR374.0 million in shares in Visa Inc, also upfront. It will get a further EUR283.0 million in deferred consideration based on Visa Europe hitting earnings targets for the 16 quarters following the deal.

Worldpay will, however, only retain 10% of the total consideration for the stake, with the other 90% to be paid to holders of contingent value rights, a separate class of share in Worldpay, which listed in London last month. The stock closed up 2.2%.

In the data calendar Tuesday, October's reading of the UK Purchasing Managers' Index is scheduled to be released at 0930 GMT. According to FXStreet.com, economists' expectations are for the reading to decline to 58.8, down from the 59.9 posted in September.

In the afternoon, US Redbook index data are scheduled for 1355 GMT, ahead of the ISM New York index at 1445 GMT and US factory orders at 1500 GMT. The US economic optimism index, released by The Investor's Business Daily TechnoMetrica Institute of Policy and Politcs, also is released at 1500 GMT.

Investors will also be keeping a close eye on the Reserve Bank of Australia's interest decision ahead of the UK equity market open on Tuesday and a speech by European Central Bank President Mario Draghi after the closing bell at 1900 GMT.

In Japan, markets are closed Tuesday for the celebration of Culture Day.

In a busy day in the corporate calendar, FTSE 100-listed Associated British Foods and Imperial Tobacco Group are scheduled to release full-year results Tuesday with fellow blue-chips Direct Line Insurance Group and Standard Chartered expected to publish third-quarter interim management statements. Standard Chartered generally reports after the market open.

In the FTSE 250, Regus, Just Eat, Jardine Lloyd Thompson Group, Weir Group, Amec Foster Wheeler and Indivior all are scheduled to release trading updates.

By James Kemp; jameskemp@alliancenews.com; @jamespkemp

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