- FTSE 100 closes up 38 points at 7,614
- Vodafone jumps on Italian talks
- BP halts Red Ship shipments
4:40pm: FTSE 100 lifted by oil and pharma stocks
The FTSE 100 closed in positive territory boosted by a rising oil and price and gains in pharmaceutical stocks.
At the close, London's blue-chip index was up 38.12 points, 0.5%, at 7,614.48 while the FTSE 250 ended little changed at 19,220.55.
Entain led the risers boosted by the Jefferies upgrade, while Vodafone climbed after Iliad proposed a merger of the two companies Italian operations.
BP advanced, as did the oil price, on news it has stopped shipments through the Red Sea following an escalation of attacks on merchant shipping by Houthi militants with Shell also higher.
Fresnillo closed down 4.8% after the Morgan Stanley (NYSE:MS) downgrade (9.48am update) while housebuilders Berkeley and Barratt Developments were also hit by a broker note - this time from UBS (10.53am update.)
3:54pm: Goldman lowers oil price forecast
Goldman Sachs (NYSE:GS) has lowered its oil price forecast as non-OPEC supply, led by the US, continues to surprise to the upside.
The investment bank has moderated its range for 2024 Brent prices by $10/bbl to $70-$90 "as we now expect only a modest deficit and slightly less elevated long-dated prices."
Goldman said the key reason is that it is raising its 2024 US liquids supply growth forecast to 0.9mb/d (vs. 0.5mb/d) on ongoing gains in drilling speed and well completion intensity, and a falling hurdle rate.
"Given a lower hurdle rate, higher spare capacity, and cost disinflation, we nudge down our 36M Brent forecast, which OPEC does not control, by $2 to $72/bbl."
"We now forecast Brent to rise to $85 by June 2024, and average $81/80 in 2024/2025, $5/6 above current forwards," it said.
The bank sees some upside to forwards because spot prices look low relative to inventories and rates, positioning is depressed, and easing financial conditions support our long-held view that demand will grow solidly in 2024.
Goldman looks for range-bound prices and only moderate price volatility in 2024.
Elevated spare capacity to handle tightening shocks should limit upside price moves, in its opinion.
The OPEC put, strategic China and US restocking, and modest recession risk should limit downside risk to prices, Goldman said.
It doesn't expect Saudi Arabia to "flush" the market in 2024.
"First, we estimate that cuts support Saudi profits as the price boost outweighs the volume hit," and second, "Saudi price war incentives are weaker than in 1985 when its market share had plunged, and then in 2014 when it had less ambitious investments and when excessive borrowing left US shale vulnerable."
Goldman expects full extensions of the OPEC+ cuts announced in April 2023 through 2025.
3:21pm: Entain rises as Jefferies highlights M&A optimism
Entain PLC (LSE:ENT) has risen a further 5.0% after an upgrade by Jefferies to ‘buy from ‘hold.’
The broker said management change and a new activist investor with extensive gambling sector experience signpost a positive share price dynamic.
Last week, Entain CEO Jette Nygaard-Andersen stepped down from her position as CEO while activist investor Corvex Capital disclosed it now owns a 4.4% stake.
Jefferies explained Corvex founder and managing partner Keith Meister sits on the MGM board and Corvex owns a c2% stake in MGM.
The broker says options include the sale of Entain to MGM, the sale of the BetMGM stake, the sale of other assets, in addition to finding a suitable CEO.
It suggested MGM may wish to revisit its strategic desire to own 100% of the BetMGM jv.
Jefferies accepted the prospect of Entain M&A may deter some CEO candidates but it still sees scope “for a highly credible CEO to land at Entain.“
“We therefore take a more constructive approach, upgrading to ‘buy’ with new £12.15 price target.”
2:49pm: US markets push higher once more
Stocks opened higher on Monday as the end of year winning streak continued in New York.
Shortly after the opening bell, the Dow Jones Industrial Average was up 29.47 points, 0.1%, at 37,334.63, the S&P 500 was up 14.29 points, 0.3%, at 4,733.48 and the Nasdaq Composite was up 31.63 points, 0.2%, at 14,845.55.
The bullish market tone came despite Federal Reserve officials pushing back on market expectations of early interest rate cuts in 2024.
In company news, Adobe rose 2.6% after it and design software maker Figma agreed to mutually terminate their merger pact.
US Steel leapt 26% after being bought by Nippon Steel in a $14.1 billion deal while Illumina rose 1.1% after announcing it will sell Grail, the cancer test developer it had acquired in a $8 billion deal in 2021, due to regulatory opposition.
The acquisition had faced stern opposition from competition regulators in the US and the EU.
Elsewhere, oil prices jumped more than 2% as attacks by militants based in Yemen on Red Sea shipping disrupts shipping through the crucial waterway.
BP became the latest company on Monday to pause shipping through the Suez Canal after a series of attacks by Houthi militants on vessels.
2:14pm: Adobe scraps Figma deal after regulatory blocks
Adobe has terminated its proposed $20bn merger with product design software company Figma, following competition probes from EU and UK regulators.
The UK’s Competition and Markets Authority said that combining the two companies would threaten competition in product design, image editing and illustration. Adobe refused to offer solutions that would satisfy the CMA’s concerns last week, arguing that a divestment would be “wholly disproportionate”.
On Monday afternoon, hours after the CMA published Adobe’s response to its request for remedies, the two companies issued a joint statement terminating the merger.
“Adobe and Figma strongly disagree with the recent regulatory findings, but we believe it is in our respective best interests to move forward independently,” said Shantanu Narayen, chair and chief executive of Adobe.
1.30pm: Here’s a quick recap of the top risers and fallers on the market today
Shares in N4 Pharma PLC (AIM:N4P) shot up over 30% after the firm announced the successful oral administration of its Nuvec particle with a DNA plasmid.
Kistos PLC (AIM:KIST) edged higher again as it confirmed the Shetland gas plant that handles production from the Greater Laggan Area of the North Sea has resumed operations. Shares rose 1.5% to 172.5p.
Vodafone PLC has jumped 5.0% after another development in the future of its Italian business.
Keywords Studios PLC (AIM:KWS, OTC:KYYWF) is up over 7% after announcing the £76.5 million acquisition of The Multiplayer Group.
British gas owner Centrica PLC (LSE:CNA) is down 1.0% after Jefferies downgraded the stock.
1:04pm: Centrica earnings momentum slowing, says Jefferies
British gas owner Centrica PLC (LSE:CNA) is down 1.0% after Jefferies downgraded the stock.
It believes that earnings normalisation and uncertainty around business KPIs could be negative overhangs and that the stock is now fairly priced.
“We argue that further visibility is needed on value creation of Centrica’s [balance sheet] to unlock further stock upside.
In Retail, it sees a rolling off of bills along with some churn in customers as competition returns to the market.
In EM&T, while it sees stronger future earnings vs historical levels, it does not expect the same levels of volatility/ earnings as seen in 2022/23.
“With this, we believe that Centrica's earnings momentum has started to slow down,” Jefferies said.
While Centrica did disclose potential capital allocation opportunities, Jefferies believes more clarity is needed on the capex programme for investors to get comfortable with returns.
The broker has moved to ‘hold’ from ‘buy’ with an unchanged price target of 160p.
12:36pm: BP pauses Red Sea shipments after attacks
Oil and gas giant BP PLC (LSE:BP.) said it will pause all shipments through the Red Sea following an escalation of attacks on merchant shipping by Houthi militants.
“In light of the deteriorating security situation for shipping in the Red Sea, BP has decided to temporarily pause all transits through the Red Sea,” the company said in a statement.
“We will keep this precautionary pause under ongoing review, subject to circumstances as they evolve in the region.”
Europe’s headline natural gas price jumped on the news while Brent oil futures also rose.
The world’s largest container shipping companies said over the past several days that they would put shipments through the waterway on hold following the wave of attacks.
Several tanker owners also said they were insisting on options giving them the right to avoid the area.
12:29pm: Games Workshop Warhammer deal still a game changer
Games Workshop remains in positive territory after its licensing deal for Warhammer with Amazon.
Analysts at Peel Hunt think the agreement is a game changer as it will bring Warhammer to the screen for the first time.
Amazon has experience of this genre, with the Lord of the Rings series having over 100 million viewers, it pointed out.
Jefferies said it had "always been confident" a deal would be reached after last year's announcement, although it expects an "extended timeline" before the resulting production hits screens.
"After the 12-month period to agree creative guidelines, the process will include hiring a writer, preparing scripts, finding locations, building sets, filming, production and postproduction," it said.
"In all, we are of the view that it could be 3 years before a first TV series is aired on Amazon," it estimated.
Jefferies reckons that Games Workshop could earn $1 million per episode as the rights-holder, or $10 million assuming a 10-part series.
But AJ Bell's Russ Mould struck a note of caution warning "there is a fine line to tread between sweating the assets and royally mucking up."
"Games Workshop risks long-lasting reputational damage if Amazon makes a mockery of its IP on the screen," he said.
"For every Lord of the Rings blockbuster franchise there are catastrophic flops like the Dolph Lundgren-fronted Masters of the Universe film," Mould pointed out
12:04pm: US stocks seen extending gains
Stocks look set to open higher as investors continue to bet on interest rate cuts in early 2024 despite the Fed’s best efforts to rein in some of the optimism.
In pre-market trading, futures for the Dow Jones Industrial Average were up 0.2%, while those for the S&P 500 were 0.2% higher and contracts for the Nasdaq 100 futures climbed 0.1%.
On Friday, all three major indices closed higher.
The winning streak for the S&P 500 marked its longest string of weekly gains since 2017, the Dow posted an intraday record and the Nasdaq100 had a new closing high.
Henry Allen at Deuutsche Bank noted despite the push back by New York Fed President Williams and Atlanta Fed President Bostic on Friday markets are still pricing in a reasonably aggressive pace of rate cuts taking place next year.
He pointed out there are now more than 150bps of cuts priced in between the January 2024 and January 2025 meetings.
Allen noted that to get cuts that quickly, history suggests you probably need a recession while if the economy does manage to hold up better than expected, then the alternative risk is that markets don’t see the amount of cuts they’re currently pricing in.
How that question resolves itself will be a key issue in 2024 in Reid’s opinion.
Allen explained it’s not the first time that markets have got excited about a dovish pivot.
“We’ve counted six other times before in this cycle where markets saw a noticeable rally, before being disappointed as the Fed stayed hawkish,” he said.
Stocks on the move include US Steel, up more than 23% in pre-market, after the steelmaker agreed to be bought out by Japan’s Nippon Steel for $55 per share in cash.
The deal values US Steel at $14.9 billion in total enterprise value.
11:24am: KPMG predicts another year of sluggish growth in UK
KPMG said it expects another year of sluggish economic growth in the UK in 2024 as high interest rates take their toll on households and businesses.
The accountancy firm predicted GDP will rise by 0.5% in 2024, before climbing by 1.5% in 2025.
It pointed out that the impact of higher interest rates is passing only gradually through the economy.
Around 1.5 million fixed-rate mortgages are set to expire in 2024, compared to 1.6 million in 2023 and 1.2 million in 2022, while corporate insolvencies have also increased since the withdrawal of government support, although the rate seems to have peaked recently.
KPMG felt one of the key questions for 2024 is whether firms seek to continue raising prices further in order to repair margins, or cut back on staff if demand is projected to remain weak in some sectors.
“The potential for both scenarios to unfold concurrently could result in a double blow to household real incomes,” it suggested.
KPMG explained that while mortgage rates on new loans have risen by 370 basis points since the end of 2021, reflecting higher policy rates the effective rate on the stock of mortgages has only increased by around 120 basis points.
This is because a large share of mortgages with repayments fixed up to five years has been insulated from the immediate impact of higher rates.
KPMG estimated the effective rate on mortgage stock is expected to peak at around 4.4% in late-2025.
“This implies that around a half of the direct impact of monetary policy on mortgage holders is still to come, which would put downward pressure on housing activity and consumption,” it said.
On monetary policy, KPMG said it expects the Bank of England to only normalize policy as soon as it is confident that inflation is firmly on target in the medium term, which is unlikely to happen before the latter part of 2024.
10:53am: UBS rejigs builders with Taylor Wimpey upgraded
Housebuilders were in the spotlight at the UBS morning meeting with a number of rating and price target changes.
UBS has upgraded Taylor Wimpey PLC (LSE:TW.) to buy from neutral and increased its price target to 160p from 126p.
“Taylor Wimpey is our most preferred volume UK housebuilder,” the bank said.
UBS said its larger landbank may offer outlet growth support while there is upside risk potential from house price inflation and lower mortgage rates.
But Berkeley Group PLC was downgraded to ‘neutral’ from ‘buy’ although it raised its price target to 5,100p.
“Berkeley has an impressive track record but value is somewhat less compelling,” it added.
Short-term earnings forecasts are largely unchanged but it cut 2026-28 estimates by 8-10% reflecting signalled lower investments.
Barratt Developments was also downgraded to ‘neutral’ from ‘buy.’
“After the recent recovery in the share price and valuation, we think the shares now appropriately reflect a gradual recovery scenario over the coming years,” the broker said.
“We could be overly cautious in our recovery profile if there were meaningful planning reform, releasing land at attractive intake margins. Another area of upside could be the return of house price inflation,” UBS said.
Shares in Taylor Wimpey rose 0.4%, Berkeley fell 1.6% and Barratt Developments eased 1.1%.
10:19am: Vodafone confirms exploring options re Italian arm
Vodafone Group PLC (LSE:VOD) has confirmedi it is exploring options with several parties regarding its Italian business, including a merger or disposal.
The announcement follows today's proposal from Iliad to merge the two group's Italian businesses.
The UK-listed telco said it "is supportive of in-market consolidation in countries where it is not achieving appropriate returns on invested capital."
There can be no certainty that any transaction will ultimately be agreed, it added.
Shares in Vodafone are up 6.8%.
10:14am: Frasers in talks to buy Matchesfashion, Sky
Frasers Group PLC (LSE:FRAS) is in talks to buy Matchesfashion, a luxury clothing retailer, from its private equity owner since 2017, Apax Partners, Sky News reported on Saturday.
Citing "City sources", Sky said Frasers is among a small group of bidders that submitted offers early last week. Frasers would likely pay in excess of GBP50 million for Matchesfashion, whose business has struggled, according to Sky, citing an "insider".
EXCLUSIVE: Mike Ashley's Frasers Group is in talks to buy Matchesfashion, the luxury clothing site, for about £100m in a deal that could mark a big step in the billionaire's bid to move his retail empire upmarket; Next has also been looking at the Apax-owned business. More soon.
— Mark Kleinman (@MarkKleinmanSky) December 16, 2023
Sky said fellow London-listed retailer Next PLC (LSE:NXT) also is said to have expressed an interest in buying Matchesfashion.
9:48am: Fresnillo loses its shine amid Morgan Stanley (NYSE:MS) downgrade
Fresnillo PLC (LSE:FRES) is down more than 8% after Morgan Stanley (NYSE:MS) downgraded to ‘underweight’ from ‘equal weight.’
It thinks that cost pressures are “underappreciated” and expects inflation in Fresnillo's costs to remain sticky into 2024 amid persistent wage pressures, elevated energy costs (due to expiring subsidies), and stronger local FX rates
Although cost optimization can partly offset these headwinds, MS calculates more than 20% downside risks to 2024 consensus EBITDA on spot, after taking these factors into account.
The bank notes consensus still expects absolute costs to decline by 5% in 2024, but it thinks this is “too optimistic” predicting a 2.7% rise.
“For investors seeking exposure to the precious metals complex, we prefer Endeavour Mining [overweright] as we think it carries fewer operating risks, has more upside to 2024 EBITDA consensus on spot prices and a superior spot 2024 FCF yield (+9%)”, the bank said.
9:15am: GSK looks to boost presence in China - FT
GSK PLC (LSE:GSK, NYSE:GSK) is looking to expand its presence i n China, according to the Financial Times.
According to the FT, the drugs maker is on the hunt for deals in China, after GSK rebuilt a "very strong" relationship with the government and local companies since a corruption scandal a decade ago.
Chief Commercial Officer Luke Miels told the FT that the company was working on further deals with Chinese companies after it signed a licensing agreement in October worth up to $1.5 billion for a cancer drug developed by Hansoh Pharmaceutical Group.
Miels said that the country's high standards of chemistry made it a good hunting ground.
"You can find molecules in China and [often] the Chinese companies just want the [domestic] rights so you can negotiate . . . [to] take it globally."
8:52am: FTSE nudges higher as Vodafone jumps
The FTSE 100 has shrugged off its weak open to push higher, now up 13 points at 7,590.
Entain leads the risers, up 4.7%, on the Jefferies upgrade while Vodafone has jumped 4.4% after the Iliad Italian merger proposal.
GSK has risen 0.9% after it said its cancer immuno-therapy Jemperli had shown promise when used in harness with an existing cancer drug, Zejula, when treating advanced or recurrent endometrial forms of the killer disease.
Heading lower are Fresnillo, down 5.4%, after the Morgan Stanley (NYSE:MS) downgraded, while Centrica is down 2.1%, after Jefferies downgraded to ‘hold’ from ‘buy.
Housebuilders are also in focus after a number of changes from UBS.
The Swiss bank has downgraded Berkeley Group and Barratt Developments to ‘neutral’ from ‘buy; but upgraded Taylor Wimpey to ‘buy’ from ‘neutral’.
8:32am: Vodafone jumps after Iliad proposes Italian merger
Vodafone PLC has jumped 4.6% after another development in the future of its Italian business.
Paris-based telecommunications company Iliad is proposing to merge its Italian operations with Vodafone’s Italian arm, which the French company has valued at €10.45 billion.
Under the proposal, Iliad would pay Vodafone €6.5 billion in cash plus an additional €2 billion in a shareholder loan “to ensure long-term alignment”, the company said in a statement on Monday.
Iliad Italia and Vodafone Italia would each own 50%.
The merged business would be expected to generate revenues of c€5.8 billion and EBITDAaL of approximatively €1.6 billion for financial year ending March 2024, the statement said.
8:15am: FTSE edges lower as rally continues to falter
The FTSE 100 edged lower in early trading on Monday as last week’s rally after the US Federal Reserve signalled interest rate cuts in 2024 continued to falter.
At 8:15am, London’s blue-chip index was down 4.86 points, 0.1%, at 7,571.50 while the FTSE 250 was down 90.74 points, 0.5%, at 19,118.23.
On Friday, two Fed officials pushed back on hopes for early reductions to rates in the US, although markets continue to disagree, pricing in 150bps of cuts priced by January 2025.
Jim Reid at Deutsche Bank said how this question resolves itself will “be a key issue in 2024, and it’s not the first time that markets have got excited about a dovish pivot.”
“We’ve counted six other times before in this cycle where markets saw a noticeable rally, before being disappointed as the Fed stayed hawkish.”
Back in London, and Games Workshop rose 3.8% after sealing a deal with Amazon to create a series based on its hit franchise Warhammer, the science-fiction fantasy miniature war game.
Other stocks on the move include Fresnillo which has been downgraded by Morgan Stanley (NYSE:MS) to ‘underweight’ from ‘equal-weight,’ but it’s a better day for Entain, up 3.8%, after being upgraded by Jefferies to ‘buy’ from ‘hold’.
7:52am: Unilever sells Elida Beauty - report
Unilever PLC (LSE:ULVR) ihas sold Elida Beauty, its non-core beauty and personal care division, to US private equity firm Yellow Wood Partners, according to Reuters.
The financial terms of the deal, expected to be completed in mid-2024, were not disclosed.
Elida's portfolio comprises of more than 20 beauty and personal care brands including Q-Tips, Brut, Caress, Timotei and Tigi and the business generated about £800 million in revenue in 2022.
7:38am: Rolls-Royce in talks to build mini-nukes in Ukraine - report
Rolls-Royce Holdings UK is in the news after reports it is in talks with Ukraine’s biggest private power company to build a string of mini nuclear power plants in the country.
The Telegraph said DTEK, which is part of billionaire businessman Rinat Akhmetov’s industrial group, has held talks with the FTSE 100-listed firm about developing small modular reactors (SMRs) at sites currently operated by coal power stations.
Maxim Timchenko, the company’s chief executive, said he expects nuclear power to form an important part of DTEK’s future portfolio as Ukraine is rebuilt and his country switches away from fossil fuels.
DTEK and Rolls are examining whether up to eight existing coal power station sites, two of them currently in territory occupied by Russia, could eventually be converted to house SMRs in the 2030s.
In an interview, Timchenko told The Telegraph: “We are trying to find a way to install these SMRs.
“From our side, we have quite a big capacity of coal-fired power stations and we are in discussions with Rolls-Royce SMR to convert [them].”
7:25am: Games Workshop seals Warhammer deal with Amazon
Games Workshop Group PLC (LSE:GAW) has sealed a deal with Amazon to create a series based on its hit franchise Warhammer, the science-fiction fantasy miniature war game.
The agreement comes a year after the company first announced talks were taking place.
Games Workshop has granted exclusive rights to Amazon in relation to films and television series set within the Warhammer 40,000 universe, together with an option for Amazon to license equivalent rights in the Warhammer Fantasy universe following the release of the initial Warhammer 40,000 production.
Games Workshop said it was making no changes to its forecast for the year ended June 2, 2024.
7:00 am: FTSE 100 expected to start the week on the back foot
The FTSE 100 is expected to open lower when trading starts on Monday.
Spread betting companies are calling London’s lead index down by around 17 points after closing down 72.62 points at 7,576.36 on Friday.
The Bank of Japan began its two-day monetary policy meeting and will announce its decision on Tuesday.
"The US dollar was one of the big losers last week driven lower by expectations that US rates have peaked and are on their way back down, with the Japanese yen one of the biggest gainers," said Michaeal Hewson at CMC Markets.
"This shift in sentiment will no doubt be welcomed by the Bank of Japan and to some extent helps them out with respect to the weakness of the yen...There is now less incentive for them to think about altering their current policy settings, although they might hint at starting to execute some form of shift early next year."
In Asia on Monday, the Nikkei 225 index in Tokyo closed down 0.6%.
In China, the Shanghai Composite was down 0.5%, while the Hang Seng index in Hong Kong was down 1.1%.
On Friday, US markets ended mostly in the green. The Dow Jones Industrial Average rose 0.2%, the S&P 500 ended flat, and the Nasdaq Composite advanced 0.4%.
Back in London, and an update from Hollywood Bowl will provide the early focus as the market winds down ahead of the holiday period.