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LONDON MARKET MIDDAY: Brexit Deal Hopes Temper Ahead Of EU Summit

Mon, 14th Oct 2019 11:58

(Alliance News) - Last week's excitement had eased by midday on Monday as investors await further news on a Brexit deal ahead of this week's EU summit, while London-listed miners were lower following soft Chinese trade data.

The FTSE 100 stock index was 44.60 points lower, down 0.6%, at 7,202.48 Monday midday, while the FTSE 250 was down 291.24 points, or 1.5%, at 19,750.47 and the AIM All-Share was down 0.2% at 867.37.

The Cboe UK 100 index was down 0.5% at 12,214.52. The Cboe UK 250 was 1.5% lower at 17,687.05 and the Cboe UK Small Companies down 0.1% at 10,935.44.

In mainland Europe, the CAC 40 in Paris and DAX 30 in Frankfurt were down 0.9% and 0.8% respectively in early afternoon trade.

US markets are on course for a lower start to the week, with the Dow Jones pointed down 0.4%, the S&P down 0.5% and the Nasdaq down 0.6%.

"Some of Friday's trade war and Brexit euphoria has worn off, particularly for equities, but overall indices find themselves in much stronger form than they did a week ago," said Chris Beauchamp, chief market analyst at IG. "Even if this is only a partial trade deal, with plenty of issues left to solve, the mere fact that the US and China were able to get together to hammer out agreement on some issues provides hope that this pernicious issue could be resolved eventually."

"The drop from Friday's high for sterling against the dollar and the euro might also provide a buying opportunity for those brave enough to expect further progress towards a UK-EU deal. There was little progress over the weekend to back up the promising talk of last week, and hopes of a deal may well founder on the rocks of detail like backstops and customs deals," Beauchamp added.

The pound was quoted at USD1.2561 at midday, down from USD1.2698 late Friday.

UK Prime Minister Boris Johnson is coming under pressure to concede more ground to Brussels as hopes for an early breakthrough in the Brexit talks appeared to falter.

UK and EU officials will resume talks in the Belgian capital on Monday with the prospects of an agreement in time for Britain to leave with a deal on October 31 in the balance. Time is rapidly running out if there is to be an agreement to put to EU leaders to sign off on at their two-day summit starting on Thursday.

The EU's chief negotiator Michel Barnier said "technical-level" talks between officials over the weekend had proved "constructive". But in a briefing to ambassadors of the remaining EU27 on Sunday in Brussels, he said that "a lot of work remains to be done".

Earlier Johnson told senior ministers that while a "pathway" to a deal could still be seen, there was "still a significant amount of work to get there". In a Cabinet conference call, he said that they still had to be prepared to leave on Halloween without a deal.

And remaining on the topic of international deals, US and Chinese trade negotiators on Friday reached agreement on some key US demands, including intellectual property and financial services, producing what US President Donald Trump called phase one of a "substantial deal."

In exchange the US agreed to postpone a tariffs increase - from 25% to 30% - set to take effect on Tuesday on billions of dollars of imported Chinese goods.

Trump said the deal had been reached "in principle" and which still must be put onto paper and signed. But he stressed that it "fully covered" some of the US demands, including trade in agricultural goods, with China agreeing to increase purchases to as much as USD50 billion annually within two years from about USD8 billion currently.

Trump provided details of the agreement to reporters at the White House after US and Chinese negotiators ended two days of talks in a process that has lasted nearly a year and triggered a trade war between the world's top two economies.

In a sign that trade tensions having been biting, China's imports and exports fell more than expected in September, official data showed Monday.

Globally, China's exports dropped 3.2% in September from the same period last year, while imports dived 8.5%, according to data from the customs administration. The figures were worse than a Bloomberg forecast, which estimated exports to drop 2.8% and imports fall 6.0%.

The EU has also replaced the US as China's top trading partner amid the bruising tariffs spat, with imports from the US down 26.4% on-year in September.

Following this disappointing Chinese trade data, miners in London were trading lower at midday. Glencore was down 2.5%, Anglo American down 2.4% and Rio Tinto down 1.7%.

Elsewhere in the FTSE 100, online grocer Ocado was down 2.3% after JPMorgan cut the stock to Underweight from Neutral.

The FTSE 250, meanwhile, was lower despite Sophos surging 36% to 578.80 pence on news of a takeover offer.

Thoma Bravo has offered USD7.40, or 583 pence, per Sophos share. Cybersecurity company Sophos closed at 425.5p on Friday in London, meaning the offer price is at a 37% premium. The price values Sophos at GBP3.01 billion, and gives it an enterprise value of GBP3.11 billion when including its debt.

Sophos listed on the London Stock Exchange in July 2015 with 225p share price and GBP1.01 billion market cap.

Hargreaves Lansdown noted that the takeover offer is denominated in dollars.

"Given the volatility we've seen in sterling recently that means the final pounds and pence value of the deal could end up being significantly different to that reported today," said Hargreaves analyst Nicholas Hyett.

"If sterling weakens then that's good news for UK investors, but should a Brexit deal be agreed, a rally in sterling could leave investors out of pocket," he added. "For those unwilling to stomach the volatility and who want to lock in the current price, it might make sense to sell the shares now rather than hold on until the deal completes – even if that does rule out the possibility of a bump in price from any rival bid."

By Lucy Heming; lucyheming@alliancenews.com

London Midday is available to subscribers as an email newsletter. Contact info@alliancenews.com

Copyright 2019 Alliance News Limited. All Rights Reserved.

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