LONDON MARKET MIDDAY: Eyes on central banks; M&A adds spark in London

(Alliance News) - Blue-chip stocks in Europe nudged cautiously higher midday Monday, recovering earlier losses which were driven by fears of a more hawkish tilt by the US Federal Reserve.

Asian stocks were under pressure after James Bullard, president of the Federal Reserve Bank of St Louis, on Friday tipped an interest rate hike as early as next year. European equities, having largely dealt with the fallout of Bullard's comments on Friday, ending that session sharply lower, regained some poise on Monday.

M&A activity added some impetus to equities in London, with grocer Wm Morrison Supermarkets and engineering firm Senior adding more than 30% and 10%, respectively, on the back of private equity interest.

The FTSE 100 index was up 8.06 points, or 0.1%, at 7,025.53 on Monday at midday. The mid-cap FTSE 250 index was down 62.51 points, 0.3%, at 22,261.68. The AIM All-Share index was down 0.7% at 1,221.75.

The Cboe UK 100 index was up 0.3% at 700.40. The Cboe 250 was marginally higher at 20,024.65, and the Cboe Small Companies down 0.2% at 15,165.57.

In mainland Europe, the CAC 40 in Paris was up 0.3%, while the DAX 30 in Frankfurt was up 0.6%.

IG Chief Market Analyst Chris Beauchamp noted a "cautiously positive start to the week" in Europe.

"The combination of a surprisingly-exciting Fed meeting and options expiry on Friday meant that many markets were dramatically shaken out of their complacency, with the Dow, gold and key FX pairs seeing sharp drops. Some of those losses are being reversed this morning, but there is a long way to go before we can be certain that the previously-quiet atmosphere of 2021 has reasserted itself," Beauchamp added.

"Any attempt at a rally in stock markets is going to struggle given the lack of news, and for the FTSE 100 some dollar weakness would be good to lift mining stocks from their current poor run. Rising instances of the Delta variant in Europe will likely weigh on European markets, but the overall view continues to be that the second half of the year will see a further return to normality, boosting earnings in the medium term."

Equity markets in New York were called for an upbeat start to the week, putting Friday's losses behind them.

The Dow Jones Industrial Average is called up 0.6% - recovering somewhat after Friday's 1.6% slide - while the Nasdaq Composite and S&P 500 are called 0.4% higher.

Central banks will continue to be in focus over the course of the week, with a speech from European Central Bank President Christine Lagarde at 1330 BST on Monday, New York Federal Reserve chief John Williams speaking at 2000 BST, and the Bank of England's latest interest rate decision on Thursday.

Analysts at ING commented: "A recent speech by a normally-dovish committee member has sparked a debate on whether the Bank of England will hike rates in 2022, ahead of the Fed. We wouldn't rule this out, though for now we're in the camp looking for the first move in early 2023. Either way, we suspect policymakers will be keen to avoid offering new hints at Thursday's meeting."

Sterling was quoted at USD1.3880 at midday in London, up from USD1.3799 late Friday.

The euro traded at USD1.1894, rising from USD1.1854. Against the Japanese yen, the greenback fetched JPY110.07, down from JPY110.26.

Brent oil was trading at USD73.55 a barrel midday Monday, largely unchanged from USD73.56 late Friday. Gold was quoted at USD1,784.44 an ounce, up from USD1,775.60.

The precious metal took advantage of a weaker dollar to post its "first gain in seven sessions", Bannockburn Global Forex analyst Marc Chandler noted.

In London, the mid-cap FTSE 250 index failed to keep its head above water, despite hefty share price gains from Morrisons and outsourcer Capita.

Capita climbed 5.7%. It has agreed to sell its stake in Axelos, its joint venture with the UK government, to professional services firm 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 UK government will sell its 49% holding.

Separately on Monday, Capita said that trading has improved in the first half of 2021, in line with its expectations. First-half revenue is expected to be flat year-on-year, while full-year revenue will grow for the first time in six years.

Morrisons surged 32% after the grocer rejected a GBP5.5 billion takeover bid from a private equity firm, believing it "significantly undervalued" the company. Clayton, Dubilier & Rice offered 230 pence per Morrisons share.

The stock was trading at 235.15p, valuing the firm at GBP5.67 billion.

CD&R over the weekend noted press reports of a potential transaction involving Morrisons and confirmed that it was "considering a possible cash offer".

"Historically the UK supermarket sector has been viewed as a slow growth, highly competitive market. As such, it wasn't seen as a natural source of takeover activity. Mergers were more plausible, such as we saw with Sainsbury's trying to marry Asda to gain scale and find a new source of earnings growth. But non-trade buyers swooping for deals didn't seem like an obvious play until we saw the Issa brothers snap up Asda after the Sainsbury's deal collapsed," AJ Bell investment director Russ Mould commented.

The news lifted the grocer's blue-chip peers. Tesco rose 1.7%, Sainsbury's climbed 3.7% and Ocado was up 4.2%.

Senior, also the object of takeover interest, was higher midday Monday. Lone Star Global Acquisitions said it has made a fifth and final takeover bid for the engineering firm.

The latest 200p per share offer values Senior at GBP838.8 million. Senior shares were up 12% at 169.30p, valuing the company at GBP708.4 million.

By Eric Cunha; ericcunha@alliancenews.com

Copyright 2021 Alliance News Limited. All Rights Reserved.