LONDON MARKET OPEN: Lower start; Morrisons M&A interest lifts grocers

(Alliance News) - Stock prices in Europe were lower early Monday, with the prospect of US interest rates potentially rising next year souring sentiment, while in London, potential M&A activity lifted the grocer sector.

The FTSE 100 index was down 43.70 points, or 0.6%, at 6,973.77 early Monday. The mid-cap FTSE 250 index was down 60.89 points, or 0.3%, at 22,263.30. The AIM All-Share index was down 0.2% at 1,226.81.

The Cboe UK 100 index was down 0.5% at 695.01. The Cboe 250 was down 0.2% at 19,973.56, and the Cboe Small Companies lost 0.4% at 15,138.29.

In mainland Europe, the CAC 40 in Paris and the DAX 30 in Frankfurt were both down 0.8% early Monday.

The Nikkei 225 index in Tokyo closed down 3.3%. In China, the Shanghai Composite inched up 0.1%, while the Hang Seng index in Hong Kong was down 1.3% in late trade. The S&P/ASX 200 in Sydney ended down 1.8%.

"Market sentiment remains dominated by a risk-off tone. Led by Japan, major equity indices are trading lower across the Asia-Pacific region as markets continued to focus on the hawkish tilt to last week’s US Federal Reserve meeting," analysts at Lloyds Bank commented.

James Bullard, president of the Federal Reserve Bank of St Louis, told CNBC on Friday that "I think it's natural that we've tilted a little bit more hawkish here to contain inflationary pressures."

Lloyds analysts added: "Further insight on the Fed's thinking is likely to come from Powell’s testimony to Congress tomorrow and the slew of other Fed speakers this week. Today, Bullard and [Robert] Kaplan discuss the US economic outlook at a conference (14:45 BST), while [John] Williams is due to speak at a banking conference.

Kaplan is the chief of the Federal Reserve Bank of Dallas, while Williams is his New York counterpart.

Sterling was quoted at USD1.3809 on Monday morning in London, up from USD1.3799 late Friday. The euro traded at USD1.1858, up from USD1.1854 late Friday, but off intraday highs of USD1.1884 on Monday. Against the Japanese yen, the greenback fetched JPY109.95, down from JPY110.26.

In London on Monday, supermarket chains were trading higher. Sainsbury's rose 4.5%, the best performing large cap stock, Tesco rose 2.8% and Ocado was up 3.0%.

Wm Morrison jumped 32%, by far the best mid-cap performer, after the grocer rejected a GBP5.5 billion takeover bid from a private equity firm, believing it "significantly undervalued" the company.

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

Interactive Investor analyst Richard Hunter said on Morrisons: "The shares had previously fallen by 9% over the last year, contrary to the general market direction, and leading to relegation from the FTSE100 in March. Even so, the approach could stimulate some froth in the sector and even shake out other companies who are currently running the slide rule over UK PLC."

CD&R, which has until July 17 to announce a firm intention to make an offer under UK takeover rules, added in a statement that there can be "no certainty an offer will be made".

Travel stocks were lower after scientists warned further lockdowns in winter are a possibility.

Calum Semple, a member of SAGE, has said that children and elderly people will be vulnerable to endemic viruses at the end of the year.

Susan Hopkins, the strategic response director for Covid-19 at Public Health England also warned of a possible rise in cases at the end of the year.

She told the BBC's The Andrew Marr Show: "We may have to do further lockdowns this winter, I can't predict the future, it really depends on whether the hospitals start to become overwhelmed at some point.

British Airways parent International Consolidated Airlines Group fell 2.5%, budget carrier easyJet lost 3.1% and Wizz Air fell 2.2%. Ryanair was down 2.3%.

Capita shares rose 3.5% after the outsourcer predicted its first revenue growth in six years. It said its first half has progressed in line with expectations.

"Capita remains on track to deliver revenue growth in 2021, for the first time in six years, despite the ongoing impact of Covid lockdowns, in particular in its Specialist Services division," the company said.

Capita noted its "significant" contracts this year, including a GBP925 million UK Royal Navy pact and a GBP528 million win with a European telecommunications firm.

It has also progressed with its cost saving programme and is "well advanced in our plans to implement the next phase of our transformation".

Brent oil was trading at USD73.50 a barrel early Monday, soft on USD73.56 late Friday. Gold was quoted at USD1,777.08 an ounce, up from USD1,775.60.

By Eric Cunha; ericcunha@alliancenews.com

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