LONDON MARKET CLOSE: Stocks rebound after US Fed's hawkish pivot

(Alliance News) - Stocks in London ended higher on Monday recovering from steep losses on Friday after the US Federal Reserve threw investors a curveball over taper talk.

Global stocks took a hit last week after the US central bank on Wednesday shifted to a more hawkish posture, with St Louis Fed President James Bullard pointing to a rate hike as early as 2022. In addition, the central bank started discussions on when to taper the pace of bond buying, now at USD120 billion a month.

The FTSE 100 index closed up 44.82 points, or 0.6%, at 7,062.29. The mid-cap FTSE 250 index ended up 132.89 points, or 0.6%, at 22,457.08. The AIM All-Share index lost 8.50 points, or 0.7%, to close at 1,221.30.

The Cboe UK 100 index closed up 0.7% at 703.40. The Cboe 250 ended up 0.8% at 20,183.00, but the Cboe Small Companies lost 0.2% at 15,168.10.

In Paris the CAC 40 ended up 0.5%, while the DAX 30 in Frankfurt ended up 1.0%.

IG Group's Josh Mahony said: "The US open has helped to lift sentiment throughout Europe, as markets fight back despite the ramp-up in fears over a ramp-up in hawkish sentiment throughout central banks. Friday's sharp declines had resulted in a dramatic 3% decline the Japanese Nikkei overnight, yet Western markets appear to have a different idea as the Dow leads the US and European recovery.

"Recent declines in the US 10-year yield highlighted growing fears that rampant inflation would soon result in a move to withdraw stimulus before the economic recovery had fully played out. However, today has seen yields rise, with traders instead focusing on the economic resurgence that looks likely irrespective of whether we see a gradual tightening of conditions over the coming years."

In the FTSE 100, Ocado Group ended the best performer, up 4.0%, after Morgan Stanley upgraded the online grocer to Overweight from Equal Weight. The US investment bank said recent weakness in the stock price presents investors with a window of opportunity to snap up shares.

At the other end of the large-caps, SSE ended the worst performer, down 0.7%, after Jefferies downgraded the energy company to Hold from Buy.

In the FTSE 240, Wm Morrison Supermarkets ended the standout performer after the grocer rebuffed a takeover bid from private equity firm Clayton, Dubilier & Rice, believing it "significantly undervalued" the company.

Morrisons said it rejected a conditional cash offer from CD&R of 230 pence per share - which amounts to just over GBP5.5 billion. The stock ended 34% higher at 239.80p - valuing the supermarket chain at GBP5.77 billion.

Blue-chip peers J Sainsbury and Tesco ended up 3.8% and 1.7% respectively in a positive read-across.

The New York-based private equity firm, which has until July 17 to make a firm offer, is set to push ahead with a deal, the Financial Times reported, citing people close to the transaction. The firm will consider investor and political reaction before deciding on next steps.

"The takeover has many parallels with the recent acquisition of UK grocer Asda by forecourt operator EG Group," analysts at Berenberg noted. In October, EG Group and private equity backers TDR Capital agreed a deal to take control of the UK supermarket chain from US retailer Walmart.

"With press articles indicating that CD&R is still set to pursue the UK grocer, another offer is likely in our view," the German bank added.

Capita closed up 9.1% after the outsourcer agreed to sell Axelos, its joint venture with the UK government, to PeopleCert International.

The deal values Axelos at GBP380.0 million on a cash-free, debt-free basis. Capita owns 51% of the business, and will receive proceeds of GBP172.5 million from the sale plus an GBP11.1 million dividend, for a total of GBP183.6 million.

The pound was quoted at USD1.3915 at the London equities close, up sharply from USD1.3799 at the close Friday.

The euro stood at USD1.1915 at the European equities close, up from USD1.1854 late Friday. Against the yen, the dollar was trading at JPY110.15, down from JPY110.26 late Friday.

Stocks in New York were sharply higher at the London equities close, bouncing back from last week's rout as markets monitor Capitol Hill talks on a large infrastructure package.

The DJIA was up 1.5%, the S&P 500 index up 1.2% and the Nasdaq Composite up 0.6%.

A bipartisan group of senators is crafting a USD1.2 trillion package that could potentially break the logjam on Capitol Hill. But the proposal has garnered a sceptical response from progressive lawmakers who want greater investment.

London-listed equipment rentals firm Ashtead Group, which generates a bulk of its revenue in the US via its Sunbelt division, closed up 2.4%.

Brent oil was quoted at USD74.21 a barrel at the equities close, up from USD73.56 at the close Friday.

Gold was quoted at USD1,786.00 an ounce at the London equities close, higher against USD1,775.60 late Friday.

The economic events calendar on Tuesday has Japan unemployment data overnight, UK mortgage approvals at 0930 BST and Germany inflation readings at 1300 BST. US Fed Chair Jerome Powell testifies before Congress at 1400 EDT.

The UK corporate calendar on Tuesday has annual results from recycled packaging firm DS Smith, recruiter Staffline and from industrial fastenings supplier Trifast. In addition, the latest UK grocery market share figures from Kantar will be released at 0800 BST.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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