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Morning Market Pulse - Sains+ASDA raises concerns

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Mike van Dulken and Artjom Hatsaturjants at Accendo Markets, commented to clients this morning:

FTSE 100 Index called to open +10pts at 7310, continuing to knock at the ceiling of a 9-day sideways channel. Bulls need a break above the 7325 channel ceiling. Bears require a breach of rising suport around 7300. Watch levels: Bullish 7325, Bearish 7300

 

Calls for a positive open derive from an upbeat lead- from global markets, investors shrugging off trade war tensions after a more measured Chinese response to Trump’s new tariffs. Traders are taking on a little more risk after NK leader Kim agreed (with SK Leader Moon) to dismantle NK nuclear missile and bomb test sites with international supervision, reducing global security fears.

 

Newspaper Corriere della Sera reports Italian deputy PM Di Maio seeking to boost the budget deficit to 2.5%, below the EU 3% limit, defusing some of the worries over social spending and flouting of Eurozone fiscal rules.

 

GBP trades sideways (vs USD and EUR) in spite positive Brexit headlines, in particular remarks by EU negotiator Barnier that he is ready to improve proposals for the Irish border (the remaining sticking point). Watch for more soundbites from an EU meeting in Salzburg later today (PM May aiming to court counterparts directly) which could move Pound Sterling with a FTSE100 knock-on.

 

In corporate news the UK Competition Markets Authority (CMA) says a Sainsbury-ASDA merger raises sufficient concerns to be referred for a more in-depth phase 2 review; a statement of the issues will be published in coming weeks.

 

GlaxoSmithKline is said (Reuters, FT) to have received bids for its Consumer Health subsidiary in India (Horlicks, Boost) from Nestle, Unilever and Coca-Cola (but not Reckitt Benckiser); its 72.5% stake was worth $4.4bn at yesterday’s close in Bombay.

 

Kingfisher H1 sales -1.1% like-for-like (UK -0.5% o/w B&Q -2.5% (online +8%) Screwfix +4.5%; France -2.4%; Int’l +0.5%); Retail profits -13.5% (-14.3% at constant FX), on-track for strategic milestones but outlook by country is mixed, making transformation more difficult; div flat.

 

Babcock International trading in-line, £32bn order book/pipeline, backs downgraded guidance after July revenue warning. Balfour Beatty sold 50% stake in Fife Hospital for £43m cash, generating £22m profit, with proceeds to pay down debt.

 

Stagecoach regional bus performed well, like-for-like revenue +3.2% YoY (like-for-like vehicle miles -1.4%). London bus rev. -2.2% YoY due to 2017 loss of contracts. North America rev. -3.8%. UK Rail (excl. Virgin Trains East Coast) rev. +2.1%.

 

John Laing Infrastructure recommends 145.5p offer from Jura (Dalmore, Equitix). AVEVA full year outlook remains in line with the board's expectations; sets out medium-term targets. US Futures regulator CFTC fines NEX Group subsidiary ICAP $50m for manipulation of ISDAfix

 

In focus today will by August UK Inflation (9:30am), with the Headline (CPI) rate falling back to 2018’s lows of Apr-Jun (2.4% YoY est. vs. 2.5% prev.) while the Core metric makes a fresh low (1.8% est. vs. 1.9% prev.), both justifying the Bank of England’s latest decision to hold fire on interest rate hikes. Producer Price growth is, likewise, projected weaker in August.

The Retail Price Index (RPI) likely held firm at 3.2% YoY, although monthly price growth may have accelerated (0.6% MoM est. vs. 0.1% prev.). This comes in advance of tomorrow’s UK Aug Retail Sales data, and could offer a helpful preview for investors in FTSE Retailers.

This afternoon, US Housing Starts (1:30pm) are forecast to have accelerated in August, while Building Permits pulled back. As for EIA Oil Inventories (3:30pm) analysts expect another drawdown, albeit smaller, in oil stocks (although last night’s private API report showed an unexpected build), potentially extending Brent Crude’s advance towards $80 again.

 

In terms of speakers, after yesterday’s comments on banking stability and reform, we will hear from ECB President Draghi (2pm, centrist) again at an event entitled "Making Europe's Economic Union work". Elsewhere, BoE Chief Economist Haldane (9am) gives a lecture at the Bank of Estonia’s 100th Anniversary conference.

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