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FTSE 100 closes lower as Carillion collapses on Blue Monday

Last updated: 18:15 15 Jan 2018 GMT, First published: 06:35 15 Jan 2018 GMT

London, City skyline
  • FTSE 100 and FTSE 250 close lower

  • GBP sees post-Brexit high, but this is a 'dollar story'

  • Carillion drops into liquidation

FTSE 100 closed in the red, as did the FTSE 250, whose constituent Carillion Plc (LON:CLLN), and its downfall, was of course the biggest corporate story of the day.

FTSE 100 closed down 9.5 points at 7,769, while FTSE 250 was off around 26 at 20,832.

Carillion, the UK’s second biggest construction company, has filed for compulsory liquidation.

"Whilst the government has confirmed that it will continue to pay for Carillion workers which are providing public services, so as to reduce the impact, it was a costly mistake by the government to continue handing out contracts to the troubled firm, despite several profit warnings," said Fiona Cincotta, senior market analyst at City Index.

Peers of the builder were also hit, such as Galliford Try which will now have to fork out an extra £40 million to complete a joint venture that it was working on with the failed group.

On Footsie, the biggest laggard was Micro Focus International (LON: MCRO), which shed 2.94% to 2,211p, while the top gainer was engineer GKN plc (LON:GKN), which surged 4.14% to 437.40p.

Investors were buoyed by continuing commentary around its £7bn  bid for Melrose. News was today that  Melrose was to meet with GKN shareholders on Monday to convince them of the merits of the takeover.

4:15pm: FTSE 100 to end Monday slightly lower with Carillion collapse weighing on sentiment

The FTSE 100 was set to end Monday’s session where it started, slightly lower.

Standing at 7,770 the blue-chip benchmark was down 8 points or 0.1% after much of the day’s attentions focussed on the demise of Carillion Plc.

“It is still unclear how the collapse of this company will impact the broader UK economy, particularly further down the supply chain in terms of the smaller businesses who rely on the revenue from its sub contracted work,” said Michael Hewson, analyst at CMC Markets.

“We’ve already seen some contagion in the share prices of sector peers Balfour Beatty and Galliford Try who both reported that they were setting aside significant provisions for extra costs as a result of this morning’s news.”

He added: “Balfour Beatty, who went through their own woes back in 2013 announced in a brief statement that it would set aside a sum of between £35m and £45m as an exceptional underlying charge in its 2018 income statement, in respect of its joint ventures with Carillion.

“It is likely that a lot of the company’s government work will be re-tendered where possible, or in the case of joint ventures its project partners will step into the breach.”

3:15pm: FTSE 100 slightly lower while British pound sees post-Brexit high

London’s FTSE 100 remained lower, down 6 points or 0.08%, changing hands at 7,772.

Meanwhile, the British pound on Monday sat at its highest level since the Brexit vote, changing hands above US$1.38.

It was helped by dollar weakness, which is exacerbated by the lower US participation in foreign exchange markets – with American trading volumes dimmed by the Martin Luther King public holiday.

Indeed, ETX Capital analyst Neil Wilson has highlighted that forex traders are experiencing a ‘dollar story’ rather than Brexit-related strength.

“With markets a touch quiet due to the Martin Luther King holiday in the US, thin volumes left traders going merrily with the trend, which has turned decidedly bearish on USD.

“Having hit an intra-day high of $1.38197, the path is now clear to $1.3860, which is the 61.8% retracement of the move from $1.50 down to $1.1950 – the pre-Brexit high to post-referendum low (excluding the flash crash in October).

“It’s also where cable found firm support in February 2016. If that goes on the upside then there is little resistance above, clearing the way to $1.40. But GBPUSD faces a stiff test as there is also firm trend line resistance at the same level which could bring sellers back to the table.”

Wilson added: “Ultimately this is a dollar story as much as anything else, and the greenback – while rocking - looks oversold and may be poised to bounce back, which could prevent sterling from breaking out just yet.”

2:30pm: Versarien Plc, Velocys Plc and Greatland Gold among small cap movers

Versarien Plc (LON:VRS) was up around 35% driven by news that it is to establish a graphene manufacturing base in China, with a letter-of-intent signed with the Shandong Institute of Industrial Technology Fund along with other Chinese groups.

The initial aim is to set up a 100,000 Square foot facility, which will produce and sell proprietary graphene based products, ahead of establishing a larger ‘industrial park’.

Elsewhere, Tri-Star Resources Plc (LON:TSTR) was probably the standout small-cap share, leaping around 90% at one point, although there was no tangible news item for investors.

Internet-of-things (IOT) investor Tern PLC (LON:TERN) shares advanced more than 54% as the company gave details of a planned investor call, due to take place on January 24.

Equity dilution was a factor for Velocys (LON:VLS) which was down more than 50% as the renewable fuels group unveiled a £18mln funding – with new shares being sold to investors/

Greatland Gold plc (LON:GGP) was another faller as it was revealed that the Newmont Mining will no longer be involved in the Ernest Giles project in Australia.

12:30pm: FTSE 100 in still in negative territory, but only slightly

London’s FTSE 100 is still in negative territory, albeit only slightly, with the blue chip benchmark down about 5 points changing hands at 7,773.

With the US market closed today, much of the attention is on forex exchanges.

“Equities are back at rising support this morning, as persistent USD weakness in spite of solid US macro data and tax reform benefits translate to GBP and EUR strength further fuelled by optimism about a soft Brexit, German coalition talks and hawkish ECB minutes,” said Mike van Dulken, analyst at Accendo Markets.

“This is holding back both the UK FTSE and German DAX , more-so the latter - while US equity futures remain close to fresh overnight highs in spite of today's Martin Luther King markets holiday.”

Defensive stocks such as British American Tobacco plc (LON: BATS) and Unilever plc (LON:ULVR) were trading higher, up around 1% and 0.5% respectively, while Glencore Plc (LON:GLEN) was up 0.7% to 410.4p. Ad-firm WPP Plc (LON:WPP) rose 2.2% to trade at 1,383.5p.

HSBC Holdings Plc (LON:HSBA), meanwhile, was among the weaker blue-chip stocks, down 0.94% to 784.24p.

Miner Rio Tinto Plc (LON:RIO) stalled, falling 0.6% to 4,144p, whereas major oil firm dropped 0.5% to 532p.

12:00pm: US dollar sell-off sees Euro and GBP higher

US markets are closed for the Martin Luther King Day public holiday, though the US dollar is still a key feature in the market.

“The US dollar has continued its sell off in earnest this morning, with EURUSD boosted above 1.2250 as the market still cheers news from Friday of a breakthrough in coalition talks in Germany,” said James Hughes, market analyst for AXI Trader.

“German politics aside, the dollar is in trouble across the board with the greenback down against all of its G20 counterparts, with the Euro and Pound both profiting from the negativity.”

He added: “All in all the Euro and Pound have both posted currency positive stories in the last 48 hours, however add this to a continuously weak US dollar, and the outcome seems to only point to a continuation of the current EURUSD and GBPUSD trends.

“However we must be cautious as we move through the week, as a return of macro-economic data could well lead to a shift in focus, and a change in fortunes for the greenback, which is could well be in line for a substantial correction.”

10:40am: Bitcoin steadied, up 0.8% to US$13,728

The price of Bitcoin steadied on Monday, up US$109 or 0.8%, changing hands at US$13,728.

At the current price, Bitcoin remains the most valuable cryptocurrency with a total market worth of US$231bn.

Ethereum, meanwhile, slumped almost US$36 or 2.6% to US$1,330. It is still in second place, at a market capitalisation of US$129bn.

The Ripple cryptocurrency, which is also referred to as XRP, was down 3.6% to US$1.83 per unit.

10:00am: FTSE 100 remains on back foot, trading likely to stay quiet

The FTSE 100 remained on the back foot by mid-morning, down 4 points or 0.045% at 7,775.

Not only was it a quiet start, things aren’t likely to get much busier as the day progresses because Wall Street is closed for the Martin Luther King Day public holiday.

In absence of major trading catalysts, expect more commentary around Carillion’s downfall.

“It appears to be the end of the road for Carillion, one of the UK’s biggest construction companies, as it files for compulsory liquidation having run out of time to put together a restructuring package with its lenders,” said Michael Hewson, analyst at CMC Markets.

“The likelihood of a government bailout would appear to be remote, though the outstanding public sector contracts are set to taken in-house and run by the UK government. In terms of assets Carillion based on its 2016 accounts has tangible plant and machinery of £144m, a fraction of its overall debts, not to mention the £800m pensions liabilities.

“Whether these services will then be tendered out to another provider in order to recoup some costs may well be difficult given the potential political fallout.”

9:40am: GKN and Mitchells & Butlers among Monday’s early movers

Engineer GKN Plc (LON:GKN), up 3.45% to 434.5p, was an trading highlight with investors buoyed by continuing commentary around its £7bn tilt for Melrose.

Pubs group Mitchells & Butlers Plc (LON: MAB) moved into plus territory thanks to a positive Christmas trading update. The share was up around 1.2% to 273p each.

Bookmaker William Hill plc (LON:WMH), meanwhile, edged only slightly higher after its trading update found some favour with investors.

News of Carillion Plc’s (LON:CLLN) seemingly overdue demise - it has now finally entered into administration - came over the weekend, and, in London the share (which, before today, had fallen 92% since July 2017) was suspended from trading ahead of this morning’s open.

8:30am: FTSE 100: Carillion sets the tone for a miserable Monday on the markets

The FTSE 100 opened down 14 points at 7,764.54, but there was no doubt whatsoever of the day’s big story – the compulsory liquidation of government contractor Carillion (LON:CLLN) after last ditch talks failed over the weekend.

Expect a massive political backlash over the implosion of a company that employs 20,000 people and feeds 32,000 school children a day.

Here’s just a taste of it from Lord Adonis, who recently quit as the UK’s infrastructure tsar over the Tory Party’s seeming hard line approach to Brexit.

Elsewhere, the market was pretty subdued with a series of recommendation changes in the mining sector by Investec and Credit Suisse having zero impact.

Similarly, the downgrade of three property stocks by JP Morgan Cazenove failed to hit to really hit home.

On the rise were the precious metals stocks, including Johnson Matthey (LON:JMAT), which is favourite bet on platinum prices in the Footsie. It nudged 2.7% higher.

GKN (LON:GKN) – up 3% - was also riding high again after Friday’s announcement of a bid approach, while G4S (LON:GFS) advanced 2.5% amid hopes it will pick up business from Carillion.

Among the small-caps, the graphene specialist Directa Plus (LON:DCTA) was up 13% after posting an upbeat trading statement.

Proactive news headlines:

Graphene specialist Directa Plus Plc (LON:DCTA) said second-half revenues were double those recorded in the first six months of 2017 and added it was in a “robust” financial position. Chief executive Giulio Cesareo gave an upbeat assessment of prospects, telling investors: “Our commercial engagement with customers has grown and deepened significantly, and we expect to announce further material orders, additional collaborations and partnerships over the coming year.

Harvest Minerals Limited (LON:HMI) is stepping up operations at its Arapua fertiliser project in Brazil with the addition of a new plant and expansion of the sales and marketing team. KPfertil was soft launched last year while Harvest waits for the Brazilian Ministry of Agriculture Livestock and Supply to certify the product as a remineraliser.

Newmont Mining (NYSE:NEM) has walked away from Greatland Gold plc's (LON:GGP) Ernest Giles gold project in Australia, bequeathing Greatland some highly encouraging geological work. A 5 km by 1.5 km anomaly has been identified just 1 km north of previous Greatland drilling, and several other anomalies have also been identified nearby. Greatland will shortly lodge a Programme of Work with the regional government as part of the process of initiating follow-up work.

Bango (AIM: BGO) has hooked up with Amazon to enable customers to sign-up to Amazon Prime in India through resellers that offer product bundles.

André Brown, the chief executive and founder of online merchandising specialist ATTRAQT Group plc (LON:ATQT), has stepped down from his role with immediate effect.

Computer-based drug developer e-Therapeutics PLC (LON:ETX) has signed collaboration deals which will enhance and extend its artificial intelligence (AI) technology capabilities. Both Intellegens and Biorelate have AI tools which, after pilot studies, have been shown to complement ETX’s existing computational network-driven drug discovery (NDD) technology.

Iofina plc (LON:IOF) said its new IO#7 IOsorb plant is nearly complete, while it is exploring options for IO#5, which is currently the plant with the highest production cost in the group.

SDX Energy Inc (LON:SDX, CVE:SDX) has told investors that it has now begun drilling the ONZ-7 development well on the Sebou permit in Morocco. This is the fifth well in an ongoing nine well programme onshore Morocco, and the drilling phase is anticipated to take between ten and fifteen days to complete. Big Pic in November.

U.S. Oil & Gas PLC (USOP) told investors, in a statement after Friday’s close, that it has been green lighted for two new wells at its Nevada oil project. The company said it has been awarded permits to drill the planned Eblana-3 and Eblana-6 wells, meanwhile, a proposed re-entry to the Eblana-1 well is still under review.

Zimbabwe-based gold miner Caledonia Mining Corporation PLC (LON:CMCL TSX:CAL) has racked up another record quarter at the Blanket mine. Production at the 49% owned mine totalled 16,425 ounces of gold in the three months to December, 14% more than the previous quarter and 21% higher than a year ago.

Base Resources Limited (LON:BSE, ASX:BSE) on Monday confirmed that it is has been cleared to acquire the Toliara Sands project, with the proposed transaction becoming unconditional. The deal to acquire an 85% stake in Mauritian subsidiaries of World Titane Holdings, which own the Toliara Sands project, is now expected to be completed next week.

Sapphire sales from the Capricorn mine owned by Richland Resources Ltd (LON:RLD) amounted to US$183,000 in the period from 4 November to the end of the year. That took the total fourth quarter sales figure to just over US$545,000. Separately, Richland's long-standing chief executive Bernard Olivier is to resign, although he will remain on the board until a successor is found.

Bezant  Resources PLC (LON: BZT) has announces that Laurence Read has assumed the role of chief executive officer of the company following the resignation of Dr Bernard Olivier as CEO, both with immediate effect.

Wishbone Gold PLC (LON:WSBN) has announced the appointment of Oliver Poole as consultant to the company. The group said Poole's remit will be to enable Wishbone Gold's subsidiary Black Sand FZE to begin operations in Uganda. Poole was an award-winning foreign correspondent for the Evening Standard and Independent titles and in recent years has consulted for philanthropic and political initiatives.

6.40am: Front foot start predicted

The FTSE 100 is expected to start on the front foot, buoyed by Asia’s main markets and strong end of the week for Wall Street.

The index of blue-chip shares will open 15 points higher at 7793.64, according to the spread betting companies.

On the foreign exchange markets, the pound rose 0.22% to US$1.3758 amid reports the Spain and the Netherlands are attempting to garner support for a soft Brexit deal.

However there’s no doubting the story of the day in the Square Mile – one that’s hogged the headlines for a while – and that’s the last death throes of the fallen outsourcing giant Carillion (LON:CLLN).

According to the BBC, key creditors of the company will meet government officials later Monday in a bid to stave off the business’ collapse.

The Financial Times, meanwhile, said ministers face tough questions over why stricken Carillion was awarded £2bn contracts in the aftermath of a series of damaging profit warnings.

Around the Markets: 

  • Gold was changing hands at US$1,344.2 an ounce, up US$9.30
  • Brent crude broke was US$70 a barrel exactly, up 13 cents

City Headlines:

  • Financial Times
  • Improving the efficiency of traditional vehicle engines is a more effective way of tackling climate change than waiting for electric cars to gain significant market share, Saudi Aramco’s technology chief said on the eve of the Detroit auto show.
  • BNP Paribas aims to capitalise on the disruption of Brexit to gain market share in U.K. corporate and investment banking and has drawn up aggressive plans to attract business from mid-sized British companies.
  • Times
  • BHS may be gone from the UK High Street but its renaissance online appears to be going well with sales soaring in the final quarter of the year.
  • Lord Myners, the former City Minister, has pressed the government to consider introducing a windfall profits tax on director bonuses and profits after Persimmon’s performance was inflated by the government’s Help to Buy scheme.
  • Greece is set to adopt more austerity measures today, clearing the last significant hurdle to receiving €5bn in aid from its eurozone partners.
  • Daily Telegraph
  • NAFTA could collapse within week, ratings agency Fitch warns.
  • Chinese smartphone maker OnePlus breaks billion-dollar sales barrier.
  • Ad agency M&C Saatchi adds media banker Numis founder Lorna Tilbian to its board.
  • Guardian
  • Carillion lenders consider appeal to save firm from collapse.
  • Daily Express
  • Palmer & Harvey former exec urges MPs to quiz directors on collapse.
  • Independent
  • Retail footfall slumped across UK at end of 2017, new data reveals.

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