Morning Market Pulse - Does IHG have a sixth sense for M&A?


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


FTSE 100 called to open +30pts at 7165, extending yesterday’s bounce from 7120, within a new narrower up-channel towards last week’s 7185 highs. Bulls need a break above 7185 to overcome September support-turned-resistance and revisit 7200. Bears require a breach of 7150 rising support to endanger the current up channel. Watch levels: Bullish 7185, Bearish 7150


Calls for a positive open come thanks to Wall St and Asia trading higher on remarks from. Trump that he is open to extending the 1 March US-China trade truce deadline, and will likely accept a government funding compromise. Trade talks in Beijing continue, sentiment boosted by the announcement that President Xi himself will sit down with US ministers this week.


USD has snapped an 8-day winning streak on US-China trade optimism, with corresponding GBP strength supported by an ITV report that the UK’s chief Brexit negotiator was overheard suggesting that an Article 50 extension was the alternative to PM May’s deal, rather than a no-deal Brexit. Pound strength, however, is failing to put a dent into FTSE


Oil prices are higher, Brent Crude again testing $63 Dec highs, following a Saudi pledge for deeper production cuts and a surprise API crude oil inventory draw (-1m vs. +2.3m est. vs +2.5m prev.)


Company news this morning FTSE Banks may react to Dutch peer (and ex-RBS subsidiary) ABN AMRO missing Q4 profits expectations.


InterContinental Hotels acquires Six Senses Hotels Resorts Spas (brands, operating companies, not real estate) from Pegasus Capital for $300m cash. Adds 16 luxury hotels and resorts, with another 18 in pipeline and 50 under discussions.


Smurfit Kappa FY revenue +4% (missing +6.5% consensus), underlying revenue +7%, EBITDA +25% (in-line), swings to €404m pre-tax loss after €1.3bn non-cash charge for deconsolidated seized Venezuelan operations, adj. op. profit +35% (in-line), free cash flow +61%, net debt +11%. Input cost recovery at upper end of expectations. FY total dividend +11%. 2019 started positively.


Tullow Oil FY revenue +7.8%, $85m pre-tax profit (vs $175m loss), free cash flow -24%. Capex +88% to $423m, FY’19 capex forecast +34.7% to $570m. Final dividend +20%, expects $100m+ 2019 dividend (extra payouts if strong cash flow). Expects 2019 production up 6-15%.


BHP approves $700m funding to develop Atlantis (44% BHP, 56% BP) Phase 3 project in Gulf of Mexico, 8 new production wells, first production expected 2020 with 38Kbopd. Also approved $256m funding for additional appraisal well 3DEL in Mexico Trion field (60% BHP) planned for H2 2019.


Galliford Try sees FY at upper end of consensus. Cautious about political uncertainty, medium-term macro outlook. H1 pre-exceptional revenues -5% YoY, pre-tax profit +4%, net debt -53% (average net debt now below guidance), div -18%, completions +6.6%, forward sales +8.8%, Order book -3.3%.


Dunelm H1 pre-tax profit of £70m misses £73m consensus (+24.3%, underlying +16.7%), on revenues +1.2% (+6.9% underlying; stores +3.8%, online +35.8%), Free cash flow triples, net debt -45%, div +7.1%, on track for FY estimates, Brexit uncertainty means purchasing incremental stock.


Hochschild Mining suspends operations at Arcata precious-metal mine in Peru (already fully impaired for accounting reasons) due to low silver price and geological conditions. Countrywide expects adjusted EBITDA to have halved for 2018, revenues hit by challenging market.


In focus today will be inflation data from the UK and US which could move GBP and USD.


UK Jan Consumer Price Inflation (CPI: 9:30am) is seen extending a 5-month slowdown, falling to 1.9% YoY from 2.1% in December, while Core holds firm at 1.9%. This would echo yesterday’s warning from Bank of England Governor Carney that inflation was moderating due to lower commodity prices and slower global growth, and only “modest” policy tightening would be required to keep price growth close to the Bank’s 2% target.


US Jan Consumer Price Inflation (CPI: 1:30pm), likewise, should fall, to 1.5% YoY from 1.9%, revisiting levels not seen since Sept 2016, due to the effect of cheaper oil and petrol. The Core metric, which strips out such volatile components, however, is expected more stable at 2.1% (from 2.2%), close to Fed’s 2% target.


In terms of speakers, there are a few Fed members on the roster, including Bostic (12:15pm, non-voter, centrist), Mester (1:50pm, non-voter, hawkish) and Harker (5pm, non-voter, centrist), all discussing monetary policy and economic outlook.

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