LONDON MARKET MIDDAY: Aston Martin jumps on backing from Saudi fund

(Alliance News) - Stocks in London were broadly higher at midday on Friday, amid easing fears over future US interest rate hikes, while the AIM market was weighed down by a lowered earnings guidance from highly rated Fevertree Drinks.

The FTSE 100 index was up 0.9%, or 64.39 points, at 7,104.20. The FTSE 250 rose 1.0%, or 177.67 points, to 18,658.33, and the AIM All-Share was down 0.2%, or 1.38 points, to 868.87.

The Cboe UK 100 index was up 0.7% at 707.83. The Cboe 250 was up 1.0% at 16,219.64, and the Cboe Small Companies was down 0.4% at 13,073.05.

In mainland Europe, the CAC 40 stock index in Paris was up 0.5%, while the DAX 40 in Frankfurt was up 1.6%.

"Stocks traded higher in Europe on Friday, with all sectors in the green, despite a mixed open following disappointing macro figures from China. Investors have been slightly worried about seeing the Chinese economy slowing down in Q2 after GDP and industrial production both fell short of expectations. However, the strong retail sales data topping estimates has eased concerns somewhat," said Pierre Veyret of Activtrades.

China logged its slowest economic growth since the initial Covid outbreak, official data showed, with gross domestic product expanding just 0.4% in the second quarter from a year before, with lockdowns and property market weakness nudging a government target further out of reach. This print fell short of FXStreet-cited expectations of a 1.0% annual rise.

However, industrial production rose 3.9% on-year in June, up from 0.7% in May as Covid controls eased. But retail sales picked up 3.1% after plummeting 6.7% in May, in what analysts called an encouraging sign.

"Elsewhere, it seems most market operators are buying the news after selling the rumour of more monetary tightening brought by a higher US PPI yesterday. Investors are now anticipating a 0.75-1% rate hike from the Fed at the end of the month, with an end to this tightening cycle projected around 3.2% in 2023, where policies will then be expected to ease in order to combat slower economic conditions, brought by a potential recession," Veyret added.

The next Federal Reserve policy meeting is on July 26 and 27.

According to the CME FedWatch tool, market expectations for the meeting are almost equally split. Expectations for a 75-basis-points hike are at 51%, while expectations for a 100-point rise stand at 49%.

This was after data from the US on Thursday showed inflation continuing to heat up in June, with the producer price index soaring 11.3% on an annual basis, the largest increase since a record 11.6% jump earlier this year, in March. This was faster than the 10.9% growth clocked in May and defied expectations of a slowdown to 10.7%.

The PPI report followed data on Wednesday showing consumer prices rose by 9.1% in June, a 40-year-high pace.

The Dow Jones Industrial Average was called up 0.4%, the S&P 500 0.3% higher, and the Nasdaq Composite up 0.2%. On Thursday, the Dow Jones closed down 0.5% and the S&P 500 down 0.3%, but the Nasdaq Composite ended marginally higher.

In the FTSE 100, Burberry remained the worst performer, down 5.6%. The fashion retailer said its sales growth in the first quarter was held back by lockdowns in mainland China.

For the 13 weeks ended July 2, Burberry's retail revenue increased 5.4% to GBP505 million from GBP479 million in the same period a year before, driven by stronger sales outside of China from the Europe, Middle East, India & Africa region and higher tourist spend in the Americas.

However, comparable store sales growth was 1%, compared to a 90% increase a year prior, hindered by Covid-related lockdowns in mainland China. Excluding that region, comparable store sales grew 16%.

Admiral was 2.2% lower, after JPMorgan cut the Cardiff-based insurer's rating to 'underweight' from 'neutral'. Admiral shares had dropped 17% on Thursday after a negative trading update from peer Sabre Insurance.

Elsewhere in London, Fevertree Drinks plunged 27%. Despite posting revenue growth for the first half of 2022, the premium tonic water maker lowered its guidance for earnings before interest, tax, depreciation and amortisation to a range of GBP37.5 million to GBP45 million, down from a prior range of GBP63 million to GBP66 million. In 2021, the company achieved Ebitda of GBP63.0 million.

The company flagged labour shortages in the US, resulting in greater UK production, which means greater exposure to increasing sea freight rates. In addition, glass availability has become "severely restricted" and industry-wide cost pressures, such as glass, have increased.

Racing ahead in the FTSE 250, Aston Martin rose 19% at 442.80 pence. The luxury carmaker set out plans to raise GBP653 million in equity, with backing from the sovereign wealth fund of Saudi Arabia, after rejecting an alternative GBP1.3 billion investment offer.

Aston Martin proposed an equity raise of GBP653 million, comprising a placing of 23.3 million shares at a price of GBP3.35 each for GBP78.0 million, followed by an underwritten rights issue to raise GBP575 million.

Aston Martin said Saudi wealth fund PIF will be given two seats on the board, assuming it has a 10% stake in the company following the equity raise. Meanwhile, the stake held by Mercedes Benz will slip to 9.7% from 11.7% currently, despite it taking up its full entitlement of shares.

Aston Martin said it had rejected an alternative offer from Investindustrial Group Holdings and Geely International Hong Kong - collectively the Atlas Consortium - for an equity investment of up to GBP1.3 billion, comprising a GBP203 million firm placing and subsequent GBP1.11 billion underwritten rights issue.

Sterling was quoted at USD1.1839 midday Friday, up from USD1.1803 at the London equities close on Thursday. The euro traded at USD1.0056 midday Friday, higher against USD1.0010 late Thursday.

Against the yen, the dollar was quoted at JPY138.72 in London, down from JPY139.09.

Gold stood at USD1,706.00 an ounce midday Friday, lower than USD1,707.30 on Thursday afternoon. Brent oil was trading at USD101.17 a barrel midday Friday, up from USD96.82 late Thursday.

Still to come in the economic calendar on Friday is retail sales from the US at 1330 BST, and industrial production at 1415 BST.

By Dayo Laniyan; dayolaniyan@alliancenews.com

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