LONDON MARKET MIDDAY: Sainsbury's Surge Helps FTSE 100 Above 6,000

LONDON (Alliance News) - Global stocks were staging a broad-based rebound Wednesday, looking to close the quarter on a positive note, with the FTSE 100 edging back above the 6,000-point mark.

London's blue-chip index traded up 2.2% to 6,039.05 points at midday. The FTSE 250 index was up 1.3% at 16,651.61, and the AIM All-Share index was up 0.3% to 722.33.

European stocks also were doing well. The CAC 40 in Paris was up 2.8% and the DAX 30 in Frankfurt up 2.6%.

Earlier, Asian equities similarly had posted a strong trading session. The Japanese Nikkei 225 index closed up 2.7%, the Hang Seng rose 1.4% and the Shanghai Composite added 0.5%.

US stock futures pointed to a higher open on Wall Street. The DJIA was indicated up 1.1%, while the S&P 500 was pointed up 1.2% and the Nasdaq 100 up 1.3%.

The gainers in the FTSE 100 were led by J Sainsbury which traded up 13%. The grocer said its full-year underlying pretax profit will be "moderately ahead" of consensus after it achieved growth in sales in the second quarter of its financial year.

Sainsbury's said that total retail sales in the 16 weeks to September 26 grew 0.3% excluding fuel, but fell 1.8% including fuel. Like-for-like retail sales, however, declined for the seventh consecutive quarter, falling 1.1% excluding fuel and 3.3% including fuel. This was an improvement on the first quarter, though, when like-for-like revenue excluding fuel decreased 2.1% and total sales excluding fuel declined 0.6%.

Sainsbury's expectations for a moderately better full-year propped up the share price of fellow supermarkets. Wm Morrison Supermarkets' shares rose up 7.6% and Tesco's climbed 5.9%.

Jasper Lawler, market analyst at CMC Markets, said that investors may be jumping the gun with Sainsbury's, particularly with Aldi's intended entry into online shopping.

"Sainsbury’s is a household name, and retail investors especially, will keep trying to pick the bottom before profits grow again," Lawler said. "An unusually large part of Sainsbury’s float is being shorted for a large cap stock so there’s some big time short-covering going on. Even the smallest sign that the worst is behind the big supermarkets is likely to see double-digit reactions in share prices like today."

Glencore shares were posting a second day of recovery after its 29% decline on Monday. The multi-commodity miner traded up 9.9% midday Wednesday, building on its 17% rise on Tuesday, as it moved to defend its financial position following recent concerns about its debt pile which have caused its shares to plunge, exacerbating declines it had faced due to the tough conditions in commodities markets.

Glencore said it has "taken proactive steps to position our company to withstand current commodity market conditions", adding the company "remains operationally and financially robust" and has "positive cash flow, good liquidity and absolutely no solvency issues."

In the FTSE 250, Entertainment One was the worst midcap performer after the media company said it has agreed to buy 70% of 'Peppa Pig' producer and creator Astley Baker Davies, which it will fund through a significantly discounted rights issue to raise GBP193.6 million.

Entertainment One said it plans to raise the GBP195.3 million by way of a 4 for 9 rights issue of around 131.5 million new shares at a price of 153.0 pence, a 44% discount to its closing price of 272.0p Tuesday. The company traded down 8.3% to 249.312 pence

Astley Baker Davies jointly holds the ownership rights to the 'Peppa Pig' franchise, a big growth driver for Entertainment One. The company said that through this acquisition it will increase its share of the earnings from 'Peppa Pig' to 85% from 50%. Analysts from Numis and N+1 Singer were supportive of the deal, with Numis calling it "strategically sensible".

In another busy day of news for small-cap stocks, electrical retailer Darty said that it has received a GBP533 million all-share takeover proposal from Groupe Fnac SA on the basis of one Fnac share for every 39 Darty shares.

The proposal valued Darty at 101 pence per share based on Fnac's closing price of Tuesday, compared to Darty's closing price on Tuesday of 81p. Darty shares are up 16% at 94.25p midday Wednesday.

AIM-listed aerospace company Strat Aero was up 35% after it said it has entered into an agreement to acquire unmanned aerial vehicle company Geocurve Holdings in cash and shares.

Geocurve is a privately-owned company which focuses on providing UAV-operated topographical surveys an inspection services, counting the likes of French energy company EDF Energy and UK construction firm Carillion amongst its clients. Strat Aero said the deal is in line with its strategy of building a vertically-integrated UAV product offering, covering all aspects of the value chain, including software, hardware and services.

DQ Entertainment, up 29%, said it has received a requisition for a general meeting from shareholders holding a cumulative 51.78% of the company, seeking to appoint new directors to the company. The requisition came from Platinum Consulting Group, Anil Chintapalli and Corporate Computer Services, together holding 29.1 million shares in the company.

The request is for Chintapalli, and Suresh Chitturi, to be appointed as directors with immediate effect. The company said it is currently seeking advice in regards to the validity of the requestion, and will make a further announcement in due course.

Indian online fashion retailer Koovs reported a pretax loss in its last financial year as it increased marketing and overhead costs in a bid to build the online retailing business, although revenue rose as visits to the website continue to grow.

Koovs said that it made a pretax loss of INR922.6 million in the year ended March 31, 2015, although revenue rose to INR204.1 million. This compares with a INR202.2 million loss in the six months to March 31, 2014 on revenue of INR64.4 million. Profit was hit by higher marketing expenditure in an Indian market which Koovs said is "growing extremely quickly", adding that heavier-than-anticipated marketing investment will continue in order for it to achieve its goals in the competitive environment. The company's shares traded down 31% in London.

On the economic front, data from the Office for National Statistics showed that UK gross domestic product grew 0.7% from the first quarter, unrevised from the second estimate published on August 28. This was faster than the 0.4% expansion seen in the first quarter. However, on a yearly basis, GDP gained 2.4%, revised down from 2.6% estimated previously.

Kallum Pickering, senior UK economist at Berenberg, said while UK economic growth in the first half of 2015 was strong, driven by domestic demand, the second half is expected to be slower due to external factors.

"In Q3, owing to heightened external risks, namely a China slowdown, financial market volatility and the [emerging markets] crisis, which are mainly affecting the UK via impacts on sentiment, quarterly growth will soften to 0.6%, before the key drivers of growth - labour market gains and growth in the UK's key trading partners the US and Eurozone – begin to reaffirm themselves," Pickering added.

Another report from ONS showed that the UK current account deficit narrowed to GBP16.8 billion in the second quarter, from a revised deficit of GBP24.0 billion in the prior quarter.

In Europe, eurozone inflation turned negative in September for the first time in six months, flash data from Eurostat showed. Consumer prices fell unexpectedly by 0.1% year-on-year in September, offsetting a 0.1% rise in August. Economists had forecast prices to remain flat.

Meanwhile, the unemployment rate in the trading bloc remained unchanged in August. The jobless rate held steady at double-digit 11% in August. It was expected to remain at July's originally estimated rate of 10.9%.

Still ahead in the economic calendar, investors will be paying close attention to the US ADP employment change at 1315 BST ahead of non-farm payroll data on Friday. Elsewhere, New York Federal Reserve President William Dudley will be speaking at 1300 BST, just before the Chicago purchasing managers' index at 1445 BST and Energy Information Administration crude oil stocks at 1530 BST. Fed Chair Janet Yellen will be speaking after the London close at 2000 BST.

By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1

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