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FTSE 100 holds onto gains as M&A boosts sentiment

Last updated: 17:55 04 Jun 2018 BST, First published: 06:41 04 Jun 2018 BST

City nightscape
  • FTSE 100 finishes up 39 points at 7,741

  • US goods orders for April fall more than expected

  • Microsoft to acquire GitHub for US$7.5bn in stock

  • Sterling lower; airlines higher

FTSE 100 finished on the front foot as the new week began, with airlines flying higher and as traders got over last week's political worries.

The UK blue-chip index finished over 39 points higher, or 0.51%, to 7,741.

FTSE 250 was also higher, closing more than 125 points higher, at 21,110.

In the currency market, sterling was down 0.48% against the Euro at the time of writing, and down 0.28% against the US dollar.

"The FTSE gapped higher on the open and managed to maintain its gains across the session, as European political woes waned and as M&A activity overshadowed trade war fears," said Fiona Cincotta, market analyst at City Index.

"The FTSE is moving into the close 0.4% higher, in line with its European peers.

"Traders have moved forward from last week’s political turmoil in Italy and Spain, which rocked global markets last week. With the new Italian coalition government now sworn in and Spain’s Socialist leader Pedro Sanchez taking the reins in Madrid, the political environment is relatively calm compared to this time last week."

In Spain, the IBEX 35, the Spanish benchmark,  added 117 points at 9,750.

In other news today, US computer titan Microsoft Corp (NASDAQ:MSFT) agreed to acquire software development platform GitHub for US$7.5bn in company shares.

In a release, Microsoft chief executive Satya Nadell said: "Microsoft is a developer-first company, and by joining forces with GitHub we strengthen our commitment to developer freedom, openness and innovation".

FTSE 100 constituent DS Smith (LON:SMDS) greed to purchase European counterpart Papeles y Cartones de Europa, also known as Europac, for €1.67bn (£1.4bn).

On Footsie, top riser was budget carrier easyJet (LON:EZJ), which added  3.79% to 1,778.5p as Brent crude added 0.12% to US$77.59 a barrel. The top laggard was packaging group Smurfitt Kappa Group (LON: SKG), which tanked 7.16% to  2,880p.

4pm: US goods oders fall more than expected

Orders for US-made goods fell more than expected in April, with declines in demand for transportation equipment and machinery being the key obstacles to growth, although underlying trends suggested strong momentum in the manufacturing sector.

The US’s Commerce Department said factory goods orders for the period decreased 0.8%, but revised up its data for March to show orders rising 1.7% opposed to the 1.6% increase previously forecast.

There was also a drop in orders for computers. But orders for electrical equipment, appliances and components increased 1.8%. There were also increases in orders for fabricated metal products and primary metals.

2.45pm: US stocks open on front foot, Microsoft to acquire GitHub

US stocks opened on a positive note as trade war fears were offset by solid US jobs figures last Friday.

The Dow Jones opened up 119 points to 24,756, while the S&P 500 opened 7 points higher to 2,741 and the Nasdaq opened 22 points higher at 7,576.

In other news, computer giant Microsoft Corp (NASDAQ:MSFT) said it had agreed to acquire software development platform GitHub for US$7.5bn in company stock.

In a release, Microsoft chief executive Satya Nadell said: "Microsoft is a developer-first company, and by joining forces with GitHub we strengthen our commitment to developer freedom, openness and innovation".

Microsoft added that it expected to report financials for GitHub in its "intelligent cloud" segment, with the acquisition to be accretive to adjusted operating income in the 2020 fiscal year and have "minimal dilution of less than 1 percent" to adjusted EPS in the 2019 and 2020 fiscal years.

2.00pm: Standard Chartered makes tender offer on notes

FTSE 100 bank Standard Chartered PLC (LON:STAN) said it has made a tender offer to holders of two sets of notes in the company to “provide liquidity” to noteholders.

The notes are the £900mln 5.125% notes due 2034, the £750mln 4.375% notes due 2038, as well as the £200mln 7.750% notes first callable at January-end 2022.

The bank said the repurchase price would be determined at or around 11am on Tuesday next week.

Shares were up 0.46% at 755.9p.

Meanwhile, German Chancellor Angela Merkel has proposed a eurozone budget for investment in weaker member states, with the proposed goal of improving the lives of their populations and strengthening convergence in the common currency bloc.

In a speech, Merkel said: “That’s why I propose an investment budget with which we could strengthen those who want to be excellent but are still weaker”.

1.20pm: Upbeat start eyed on Wall Street as jobs data spurs investors

US stocks are set to open higher as traders shrugged off fears of a potential trade war in favour of the solid US jobs data released last Friday.

Investors continued to cheer the data, which showed the US economy was in better shape than expected and helped spur a move back into riskier assets such as stocks after political upheaval in Italy last week sparked a flight into safer havens such as bonds.

The optimism over the American data also helped overshadow lingering concerns over global trade as a round of trade talks between the U.S. and China broke down over the weekend with no agreement, indicating a trade war between the world’s two largest economies could be imminent.

Jasper Lawler, head of research at London Capital Group, said: “Markets remain surprisingly sanguine despite trade war fears ramping up…There remains a certain level of optimism that this aggressive posture from Trump is a positioning that will quickly blow over, rather than result in the actual application of U.S. tariffs and the application of threatened retaliatory measures from the targeted countries”.

He added: “With a slowdown in high-impacting economic data this week, trade developments are expected to remain a central topic for traders. Signs of the latest threats being more serious than a negotiating tactic could see traders take risk off the table quickly; however, until then continued trader indifference could be on the cards,”

12.35pm: UK lawmakers: companies should be forced to report climate risk exposure

A report by a cross-party group of UK lawmakers has said large companies, pension funds and other big investors should examine and disclose how climate change could impact their businesses in the future.

Demand for more transparent financial information related to changes in the climate has been driven by concerns from investors that assets are being mispriced when the risk of extreme weather or other disruptions to supply chains from climate change is not factored in.

Think-tank Climate Tracker has warned that trillions of dollars are at risk from so-called stranded assets, including oil and gas reserves, that cannot be extracted if global climate targets are to be met.

Mary Creagh, chair of the UK’s Environment Audit Committee who published the report, said: “Climate change poses financial risks to a range of investments – from food and farming, to infrastructure, construction and insurance liability,”

The report from the committee said that the government should make climate risk reporting mandatory on a “comply or explain” basis by 2022, as the voluntary approach currently in use was ineffective.

12.00pm: High oil prices squeeze airlines as sector profits forecast to be lower

Higher oil prices are having a heavy impact on airline costs as the International Air Transport Association (IATA) forecast that combined profits for 2018 would be 12% lower than it had previously expected in December last year at US$33.8bn.

Fuel costs, which have risen much faster than ticket prices, are posing a particular threat to the industries profitability, with airlines having to lower capacity, raise fares and retire older jets in order to balance the books.

Brent crude prices have risen dramatically over the last year to US$75.7 a barrel on 1 June, up around 50% from a year ago.

“At this point with rising fuel, you control costs, raise prices and you may have some fall off in demand and reduce capacity,” Air New Zealand chief executive Christopher Luxon told Reuters.

IATA also forecast that passenger yields, a proxy for airfares, will rise by 3.2% this year, in the first annual gains since 2011, as airlines look to recoup rising costs.

11.15am: China says door open in principle for US trade talks

China’s Foreign Ministry has said the door is open in principle for the US if it wishes to engage in further trade talks.

The comment comes a day after the government in Beijing warned that any trade and business deals with the US would be void if it decided to implement tariffs on Chinese goods.

Larry Lau, fund manager of the Trium Diversified Macro Fund, commented: "The main aim of import tariffs on steel and aluminium is to support US producers - industries that collectively employ in the order of 200,000 people. However, the real impact will be felt by the US industries that consume these materials, such as automobile, transportation and infrastructure companies; their factor costs could go up and they employ many times more Americans than materials producers.

He added: "Trump's negotiation tactic of ‘push hard and recede back to mutually tolerable ground’, is well known. The announcement of almost immediate tariffs served to shock. To the extent the EU and the others are disinclined to engage in an actual trade war or spend time engaging in ugly disputes via the WTO, one might expect some speedy deal-making behind the scenes."

Elsewhere, AccorHotels is considering obtaining a minority stake in struggling airline Air France KLM to compete with packages offered by rivals such as Booking.com and Expedia.

Accor, Europe’s largest hotels group, has held talks with Air France KLM in the past with a view to developing joint projects, including potentially buying a minority stake in the airline.

In a statement, the company said: “AccorHotels confirms having resumed its reflections on the matter, being at very early stage of assessing the feasibility and potential terms and conditions which will be discussed with Air France KLM in due time,”

10.35am: Eurozone investor sentiment falls on Italy and tariff fears

The new populist government in Italy has dented expectations for the Eurozone’s investors, as Sentix’s index for the region fell to 9.3 from 19.2 in May.

“The new government in Italy is causing great concern about the euro zone among investors,” Manfred Huebner, managing director at Sentix, wrote in a note.

Potential headwinds for Germany following trade tariff action on steel and aluminium imports by the USA also buffeted investor confidence, with Sentix’s index for Germany dropping for the fifth month in a row.

10.00am: UK construction sector growth remains subdued in May

The UK construction sector remained subdued in March as the latest figures from the UK purchasing managers index (PMI) showed no change since April at 52.5.

Commercial activity growth accelerated to a three-month high during the month, however there were softer expansions in residential and civil engineering activity.

Optimism toward future growth also slumped to a seventh month low in the period, linked primarily to political fears and economic uncertainty coupled with an unexpected slowdown in the sector.

Sam Teague, economist at IHS Markit, said: “The May PMI data signalled an unchanged pace of activity growth across the UK’s construction sector since April’s somewhat underwhelming rebound, yet nevertheless indicating a recovery in the second quarter after the contraction seen at the start of the year.

He added: “With new order books deteriorating and cost pressures picking back up, it’s not surprising to see construction firms taking a dimmer view of prospects and pulling-back on hiring, all of which makes for a shaky-looking outlook.”

Duncan Brock, group director at the Chartered Institute of Procurement and Supply, commented: “The two millstones of uncertainty and weak economic growth gave the sector plenty to worry about this month, and whilst activity still grew, the lowest business confidence in seven months suggests the subdued pipeline of new work is having an effect. With a decline in new orders for a fourth time in five months, it was client hesitation and consumer diffidence towards spending that had construction activity stuttering.

He added: “It’s likely that the construction sector’s performance will be a slow and steady crawl through the second quarter, as the spectre of Brexit continues to dominate, and the double pincer movement of few orders, and higher costs, could see the sector stutter further.”

In the currency markets, the pound was little changed against its main rivals following the data, trading at 0.8761 against the euro and 1.3365 against the dollar.

9.00am: FTSE 100 in demand

The Footsie jumped higher in early morning trading, extending Friday’ gains following a robust US jobs report and shrugging aside fears of a looming global trade war.

At around 8.55am, the UK blue chip index was up about 55 points at 7,756 tracking strong pre-weekend gains on Wall Street and rises today in Asia.

Connor Campbell, financial analyst at Spreadex commented: “Carrying over last Friday’s robust relief rally, investors continued to ignore the trade tensions sprouting out of the US in favour of celebrating the improved political situation in the Eurozone.

“A feisty G7 meeting over the weekend, with US Treasury secretary having to fend-off his furious European and Canadian peers as they vented about last week’s tariff announcement from Trump, and news that the US and China made no progress in their latest negotiations, had remarkably little impact on Monday’s trading.

 He added: As for the pound, it continued its glacial recovery against the dollar, adding another 0.2% to hit a 10 day peak of $1.337, while dipping by the same amount against a chirpy euro.

“The focus for the UK is May’s construction PMI; Friday’s manufacturing reading beat expectations, so there will be hopes that the forecast fall from 52.5 to 52.0 can be avoided.”

Merger Monday

There were few real corporate features on a quiet Monday, though packaging firm DS Smith PLC (LON:SMDS) was the best blue-chip performer, up 3.3% at 580.80p after agreeing the €1.67bn takeover of Spanish-listed rival Europac. The acquisition will be financed by a £1bn rights issue to be launched later this month, plus a debt facility of €740mln.

In the FTSE 250, CYBG PLC (LON:CYBG) was a good gainer, up 1.6% at 296.6p after saying it is in discussions with Virgin Money Holdings PLC (LON:VM.) over increasing its all-share merger proposal by around 7%.

It increased its offer to 1.2125 CYBG shares for each Virgin Money share, which would give the target firm’s shareholders a 38% interest in the combined group. Virgin Money share were down 0.03% at 342.9p.

Proactive news headlines:

Seeing Machines Limited (LON:SEE)  has secured a programme design win, working with a major Tier 1 partner, with a global US-headquartered automotive original equipment manufacturer.

Nektan PLC (LON:NKTN) has agreed with its Malta-based gaming partner, Tyche Digital, to deliver its Evolve lite gaming platform to global cryptocurrency online casino operators.

Union Jack Oil PLC (LON:UJO) has acquired a further 12.5% in the PEDL180 and PEDL182 licences in North Lincolnshire, which are home to the Wressle discovery and the Broughton North prospect. The additional stake takes Union Jack’s total interest in the licences to 27.5%.

Sunrise Resources Plc (LON:SRES) has found a second customer for perlite from its CS Project in Nevada. A non-binding memorandum of understanding has been signed with the unnamed company that Sunrise hopes will lead to a definitive purchase and sales agreement for minimum quantities of raw perlite.

North Africa-focused oiler SDX Energy Inc (LON:SDX, CVE:SDX) has spud the SD-4X appraisal well at South Disouq, Egypt The well is the first of two planned appraisal wells in SDX’s 2018 drill campaign on the licence.

BATM Advanced Communications Limited (LON:BVC) has entered into a joint development agreement (JDA) with a leading multinational semiconductor and software design company.

Corero Network Security PLC (LON:CNS) has announced a US$0.7mln order for its SmartWall Threat Defence System technology from an existing digital enterprise customer. Big Pic in March.

ANGLE PLC (LON:AG, OTCQX:ANPCY) said it is making “encouraging progress” enrolling patients to its clinical trial of the company’s liquid biopsy system Parsortix The ANG-002 Food & Drug Administration (FDA) study will focus on metastatic breast cancer.

Custodian REIT PLC (LON:CREI) has announced the acquisition of health and fitness centre in Lincoln, with agreed purchase price of £4.3mln. The UK property investment company has acquired a 77,242sq feet health and business centre, prominently located on the A46 within a leading mixed-use, out-of-town scheme.

Abzena plc (LON:ABZA) described the 12 months ended March as a year of transition. And while ambitious growth targets set out at the start of the period were missed, “significant investment and progress has been made to broaden and integrate the group's offering”, investors were told.

Emerging markets fund APQ Global PLC (LON:APQ) expects its portfolio to outperform the bigger G7 economies over the coming year. APQ increased book value by 4.6% to US$100mln or 128.11c per share over 2017. With a dividend of 5p, total returns were 9.9%.

Sound Energy PLC (LON:SOU) has received the final competent person’s report (CPR) for its A1 prospect at the Tendrara-Lakbir permit, Eastern Morocco.

Mkango Resources Ltd (LON:MKA) has commenced a major drilling programme at the Songwe Hills project in Malawi. The drilling is part of an ongoing feasibility study which is fully funded by partner Talaxis Ltd.

Victoria Oil & Gas plc (LON:VOG) has added 73% to proved gas reserves at Logbaba in Cameroon after adding new appraisal well data and reprocessed seismic. Proved and probable or 2P reserves rose 52% to 309bcf, with the production profile at Logbaba based on that number extended to ten years at 90mln cubic feet per day.

Ariana Resources plc (LON:AAU) booked a post-tax profit of £424,000 for the year to 31 December 2017, as the company’s Red Rabbit or Kiziltepe gold project came into production.

The overall share of the profits due to Ariana from the joint venture that owns Kiziltepe amounted to a handsome £1.83mln, as the mine begins to hit its stride.

Shanta Gold Ltd (LON:SHG) has boosted the resource at its Singida gold project in Tanzania. The overall resource now rings in at 725,000 ounces of gold grading 1.84 grams, with the measured and indicated portion now standing at 381,000 ounces at 2.08 grams per tonne.

Junior explorer Chariot Oil and Gas Limited (LON:CHAR) expects to begin deepwater drilling at its Central Blocks licence offshore Namibia in the fourth quarter of this year. The AIM-quoted company has contracted the Ocean Rig Poseidon drillship to drill one firm well – Prospect S – and one optional well.

AfriTin Mining Limited (LON:ATM) has announced the appointment of Ino Invest as civil works contractor for the construction of Phase 1 civil works required at its Uis Tin Mine in Namibia. The AIM-listed tin miner said the contractor is a local, Namibian company specialising in construction and project management.

Highlands Natural Resources Plc (LON:HNR) has acquired a consolidated package of 2,490 acres of oil and gas leases to the west of Denver, Colorado where the company believes that up to 48 horizontal wells could be drilled.

Galileo Resources PLC (LON:GLR) has outlined a conceptual resource model for the Star zinc project in Zambia, held jointly with BMR. Under the conceptual model, the project looks to contain 485,000 tonnes of zinc at a 15.4% zinc. Further exploration is now getting underway.

Redx Pharma (LON:REDX), the drug discovery and development company focused on cancer and fibrosis, announces that, further to the announcement made on 24 April 2018, Lisa Anson assumed her new role as chief executive officer on 1 June 2018. It added that Iain Ross has reverted to the role of non-executive chairman.

NetScientific PLC (LON:NSCI), the transatlantic healthcare IP commercialisation group, announced that its portfolio company ProAxsis has been granted the Innovative Business of the Year award at the Business Eye First Trust Awards (BEFTAs) for small businesses in Northern Ireland.

Ferrum Crescent Limited (LON:FCR), the LSE, ASX, and JSE-listed European lead-zinc explorer, announced that trading in its ordinary shares will be temporarily suspended on AIM with effect from 7.30am London time on Monday 4 June 2018. The firm said this is due to the divergent treatment of processing changes to the group’s International Securities Identification Number (ISIN) arising from the change in the company's name to Europa Metals Limited, which was approved by shareholders at the general meeting held on 21 May 2018.

6.45am: Positive start predicted

The FTSE 100 looks set to get off to a positive start, taking its cue from Asia's main markets.

The index is of blue-chip stocks will rise 25 points to 7,726.77, according to the spread betting firms, with traders ignoring the potential meltdown that could be caused if US pulls the trigger on aluminum and steel tariffs.

“Is Trump’s assertiveness part of a wider strategy to show he is even handed with both friend and foe, before walking things back later this week, or are we really looking at a full-blown trade war?” asked CMC Markets analyst Michael Hewson, echoing the sentiments of many market watchers.

The G7 meeting of the world’s largest economies in Quebec later this week is likely to provide the backdrop for some last minute horse-trading to avert a crisis.

However, the mainstream international press seem more focused on the absence of Trump’s wife Melania from the trip across the Canadian border..

Back here in the UK, expect a quieter week for scheduled company news with updates from WH Smith (LON:WHS) and AO World (LON:AO.) among the highlights.

Around the Markets:

  • Pound US$1.3369
  • Gold US$1,295.20, down US$4.10 an ounce
  • Brent crude US$76.44, down 35 cents a barrel

City Headlines:

  • Financial Times
  • Unicredit and SocGen may merge
  • BT boss Gavin Patterson faces shareholder backlash
  • Britain hints at staying in VAT area after Brexit
  • EN+ hires Rothschild to sell down Deripaska’s stake
  • Times

  • The shale gas explorer Cuadrilla has reported maiden profit of $5.2 million last year after progress towards fracking in Lancashire triggered payouts from its partner Centrica.
  • BDO, the fifth biggest player in the audit market, is seeking an overhaul of the way in which auditors compete for contracts at Britain’s biggest companies, claiming that cost faced by smaller firms trying to loosen the Big Four’s grip on the audit market is the biggest bar to competition.
  •  
  • Wagamama, the Japanese noodle bar chain chaired by Allan Leighton, has appointed Goldman Sachs to review “strategic growth options” for the business.
  • Telegraph
  • Businesses cheer Sajid Javid’s immigration rethink
  • Clydesdale owner ups its offer for Virgin Money bid
  • Visa says systems now operating at 'full capacity' after crash cripples payments
  • Guardian
  • House of Fraser's future hangs in balance amid CVA battle
  • FCA chief: 'mutual recognition' would suit everyone post-Brexit
  • Amazon delivery firms face legal action over workers' rights

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