LONDON MARKET OPEN: Insurers fall; Euromoney surges as backs takeover

(Alliance News) - Stocks in Europe kicked off the new week on the front foot as expectations of a chunky 100 basis point rate hike from the US Federal Reserve ebbed, with markets now largely pricing in a 75 basis point increase.

Focus in Europe this week will be on its own monetary policy developments, with the European Central Bank's latest interest rate decision on Thursday. On the corporate front, meanwhile, US earnings season continues with both Goldman Sachs and Bank of America reporting before the opening bell in New York on Monday.

The FTSE 100 was up 87.47 points, or 1.2%, at 7,246.48 early Monday. The FTSE 250 index climbed 150.16 points, or 0.8%, at 18,983.96. The AIM All-Share index was up 7.57 points, or 0.9% at 881.92.

The Cboe UK 100 index was up 1.0% at 721.81. The Cboe 250 was up 0.8% at 16,506.71, and the Cboe Small Companies was up 0.2% at 13,120.74.

In mainland Europe, the CAC 40 stock index in Paris was up 1.1%, while the DAX 40 in Frankfurt was 0.9% higher.

In China, the Shanghai Composite closed up 1.6%, while the Hang Seng in Hong Kong was 2.5% higher. In Sydney, the S&P/ASX 200 closed up 1.2%. Financial markets in Tokyo are closed for Marine Day.

"Good news is that, the week starts with improved odds of seeing a 75bp hike at the next [Federal Open Market Committee] meeting, rather than a 100bp hike. The probability of a 75bp hike is back to 70%, up from around 20% following the scary inflation report that was released last week in the US," Swissquote analyst Ipek Ozkardeskaya.

The dollar was weaker as Fed tightening expectations calmed. The next Fed decision is due on July 27.

The pound was quoted at USD1.1941 early Monday, up from USD1.1853 late Friday. Against the yen, the dollar was trading at JPY138.15, down from JPY138.56.

The euro stood at USD1.0143 early Monday in London, up from USD1.0074 at the European equities close on Friday. Last week, the single currency briefly fell below the USD1 mark for the first time in 20 years.

A key risk event for markets this week is Thursday's European Central Bank interest rate decision.

The ECB has said it will lift its key interest rates at its July 21 meeting, like by 25 basis points. It would be the ECB's first rate hike since 2011.

Last month, the Frankfurt-based central bank kept the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility unchanged at 0.00%, 0.25% and -0.50% respectively.

The ECB makes its decision as Europe faces a potential energy supply crisis.

Since last week Monday, Nord Stream 1 has not been delivering gas due to scheduled maintenance work. The work is scheduled to last until Thursday. Several Western politicians have expressed scepticism about whether Gazprom will deliver gas again afterwards.

Later on Monday, Goldman Sachs and Bank of America become the latest bellwethers to report quarterly results in what has been a largely disappointing corporate earnings season from the US banking sector so far.

JPMorgan Chase and Morgan Stanley kicked off proceedings last week Thursday, both reporting profit falls. Wells Fargo did the same on Friday.

In London, business media and events firm Euromoney surged 9.3% as it accepted a takeover tilt from a consortium of Luxembourg-based private equity firm Astorg Asset Management and London-based private equity firm Epiris.

The stock was trading at 1,452.60 pence. It has a market capitalisation of GBP1.45 billion.

The offer from Becketts Bidco values the FTSE 250 listing at GBP1.61 billion on a fully diluted basis and GBP1.66 billion on an enterprise value basis.

Becketts will pay 1,461p per Euromoney share, a 10% premium to its 1,328.00p close price on Friday. The bid is a 34% premium to Euromoney's last "undisturbed" stock price of 1,094p on June 17, the final trading day before Euromoney confirmed the takeover approach on June 20.

"The board believes the offer represents value for shareholders and reflects the attractions of Euromoney's business model and performance," Euromoney Chair Leslie Van de Walle commented.

In addition, Euromoney said it now expects annual results to top board expectations.

Revenue in the nine months to June 30 surged 30% to GBP304.3 million, it said. Euromoney's financial year ends in September.

At the other end of the mid-caps, insurer Direct Line cautioned on "heightened volatility across the UK motor insurance market". The stock plunged 12% in early trade.

"We have seen claims inflation in motor in the first half of 2022 spike above the levels assumed in our pricing. As a result, we are revising our combined operating ratio target range for 2022 to 96% to 98%," Chief Executive Officer Penny James commented.

Direct Line had previously targeted a combined operating ratio range of 93% to 95%. A ratio below 100% indicates an insurer is making underwriting profit. A ratio of 98% would be only barely profitable.

In addition, the company said it will not proceed with a second GBP50 million tranche of a GBP100 million buyback. It expects an unchanged interim payout of 7.6p.

Shares in peer Admiral were down 8.2% in a negative read across.

Fevertree added 14%, recovering some of a sharp 28% plunge on Friday. The drink mixers maker had said rising costs and supply chain woes are putting pressure on profit, leading the firm to slash full-year guidance.

Both Deutsche Bank and Jefferies cut the stock to 'hold' from 'buy' on Monday. Berenberg, however, backed its 'buy' recommendation.

Property portal operator OntheMarket climbed 5.6%. Estate agent Foxtons will list all its residential sales and letting properties on the OnTheMarket.com portal.

Foxtons shares were 0.3% higher.

Brent oil was quoted at USD104.17 a barrel early Monday in London, up from USD101.57 late Friday. Gold stood at USD1,719.75 an ounce, up from USD1,704.08.

By Eric Cunha; ericcunha@alliancenews.com

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