LONDON MARKET MIDDAY: Stocks on shaky ground after hot EU inflation

(Alliance News) - European markets were looking for direction at midday on Monday, ahead of key interest rate decisions to come later in the week and after a stronger-than-expected consumer price inflation print from the eurozone.

London's major indices were mixed, while the pound was lower.

The FTSE 100 index was up 8.26 points, 0.1%, at 7,055.93. The FTSE 250 was down 16.02 points, also 0.1%, at 17,900.65, and the AIM All-Share was up 0.57 of a point, 0.1%, at 805.94.

The Cboe UK 100 was up 0.2% at 705.00, the Cboe UK 250 was down 0.1% at 15,369.78, and the Cboe Small Companies was down 5.14 points at 12,353.67.

The pound was quoted at USD1.1552 at midday in London on Monday, compared to USD1.1593 at the close on Friday.

In European equities on Monday, the CAC 40 in Paris was down 0.1%, while the DAX 40 in Frankfurt was up 0.3%.

Growth in the eurozone economy slowed as expected, according to preliminary figures from the EU's statistical body, while consumer inflation picked up the pace.

According to a flash estimate from Eurostat, on a seasonally-adjusted annual basis, eurozone gross domestic product grew by 2.1%, slowing from 4.1% in the second quarter.

The reading came in line with FXStreet-cited consensus.

"While cracks in the eurozone economy are clearly showing, the economy continued to expand in the third quarter....Overall, the picture remains bleak though...With interest rates up and the economic outlook uncertain, investment expectations are weakening too. We therefore still expect the economy to contract over the coming quarters," said IG's Bert Colijn.

The euro stood at USD0.9936 on Monday, down slightly against USD0.9943 late Friday.

Meanwhile, a Eurostat flash estimate revealed eurozone inflation is likely to have accelerated more quickly than expected in October.

On a harmonised basis, eurozone consumer prices are estimated to have risen by 10.7% annually in October, speeding up from 9.9% in September. The reading was ahead of consensus of 10.2%, as cited by FXStreet.

On a monthly basis, harmonised consumer prices rose 1.5% in October, heating up from a 1.2% increase in September. The rise considerably overshot the consensus of 0.6%.

"Overall there is still clear evidence that the second round effects of the supply-side shocks to the economy keep pushing up inflation despite moderating demand," said IG's Colijn.

Noting the dovish tone of the European Central Bank press conference on Thursday, IG's Colijn said: "Today's data will provide more ammunition for the hawks to show that there is no need to make a sudden pivot yet."

Providing the focus for the week ahead, there will be interest rate decisions from the US Federal Reserve on Wednesday and the Bank of England on Thursday. Both are expected to enact 75 basis point hikes.

"There are still deep worries that inflation is becoming entrenched in American economy, which have the power to spook investors again and already the bond markets are pricing in a higher peak for interest rates...That has energised the dollar again, with the mighty greenback showing little signs of losing its muscle, as the Federal Reserve stays ahead on the central bank policy curve," explained Hargreaves Lansdown's Susannah Streeter.

Against the yen, the dollar was quoted at JPY148.06 early Monday in London, up from JPY147.54 late Friday.

Stocks in New York were called to open lower, with the DJIA seen down 0.3%, the S&P 500 index down 0.4%, and the Nasdaq Composite down 0.6%.

In London's FTSE 100 index, International Consolidated Airlines Group was up 4.4%. The Times reported that British Airways-owner is eyeing a potential acquisition of the budget airline, as part of renewed plans to consolidate the European airline industry,

IAG also has its eye on Portugal's flag carrier TAP. It already owns Spain's Iberia and Vueling and Ireland's Aer Lingus.

Last week, IAG chief executive said: "We are a platform for consolidation. We will only do what makes sense, but we see there are opportunities to be stronger. We are a group that wants to consolidate the industry."

easyJet was 6.9% higher.

"Many airlines will have been watching easyJet's share price collapse and weighing up their options. An opportunistic takeover bid now could net them a bargain in the long term, but equally it's a bold move to take given the gloomier economic outlook which could cause further disruption to earnings over the coming year," said AJ Bell investment director Russ Mould.

But IAG may have some competition if it wants to make a play for easyJet, Mould maintains.

"Wizz Air has been linked as a potential suitor for easyJet in the past and there is also logic behind a tie-up of those two companies. Eastern Europe-focused Wizz Air could strengthen its position in Western Europe by owning easyJet. Additional airlines may also find a good rationale for owning easyJet."

Wizz Air was up 5.4%.

International Distributions Services, formerly known as Royal Mail, added 7.5%. This follows news that the Communications Workers Union have cancelled a planned strike over the next fortnight, in a long running dispute over pay and conditions.

Additionally, IDS said the UK business secretary has confirmed that no further action will be taken with regards to Vesa Equity Investment's 22% stake in IDS. Vesa is a Luxembourg-based company, and its stake was being reviewed under the National Security & Investment Act 2021.

Vesa is controlled by Czech billionaire Daniel Kretinsky, who also owns stakes in West Ham United football club and Sainsbury's.

On AIM, TP Group shares soared, almost tripling in value.

The consulting, software and engineering company has agreed to a GBP17.5 million takeover by Science Group.

TP shareholders will receive 2.25 pence per share in cash, which is almost triple that of the closing price of 0.78p on Friday. Around 11.7% TP shareholders have given a letter of intent to accept the offer. Science Group itself already holds a 28% stake, meaning almost 40% support in total.

Science Group was up 4.7%.

Gold was quoted at USD1,640.55 an ounce at midday on Monday, slightly higher than USD1,640.91 on Friday. Brent oil was trading at USD94.48 a barrel, higher than USD93.34.

By Elizabeth Winter; elizabethwinter@alliancenews.com

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