News Column

MARKET COMMENT: M&A News Drives FTSE 100 Movers Ahead Of US Data

May 27, 2014

Jon Darby

LONDON (Alliance News) - Stocks are trading higher Tuesday as investors return from a long weekend in the UK in a buying mood following gains made across Europe and Asia on Monday.

By mid-morning Tuesday, the FTSE 100 is up 0.5% at 6,852.40, the FTSE 250 is up 0.9% at 15,840.07, and the AIM All-Share is up 0.6% at 806.11.

After gaining while both the UK and US markets remained closed on Monday, major European markets remain in a tighter range Tuesday, with little in the calendar to drive direction. The French CAC 40 is flat, while the German DAX is up 0.4%.

InterContinental Hotel Group leads the gains in the FTSE 100. According to weekend press reports, the owner of the Crowne Plaza and Holiday Inn chains has rejected a GBP6 billion takeover bid from a US company. The bid was reportedly rejected on the grounds that the offer was too low, leading to speculation that the unnamed interested party may return with a higher offer, sending InterContinental shares up 5.7%.

Takeover news has had the opposite impact on AstraZeneca shares early Tuesday. The UK drugmaker leads the fallers in the blue chip index, down 2.2%, following the confirmation from US rival Pfizer that it will not make an increased takeover offer. According to UK takeover rules that kicked in when Pfizer made its first offer, the US company had until 1700 BST Monday to make a final offer and now than deadline has passed it cannot return with a takeover interest for at least six months. Residual speculation that a last-minute offer might have come through from Pfizer had kept AstraZeneca shares supported last week.

Aveva Group is helping the FTSE 250 outperform the FTSE 100 for the sixth consecutive day. The engineering services and software provider reported a pretax profit of GBP69.0 million, up from GBP63.5 million, as revenue rose to GBP237.3 million from GBP220.2 million. It proposed a total dividend of 27.0 pence, up from 24.0 pence in the previous year, and also paid a special dividend of 147 pence per share to shareholders in August 2013.

Ophir Energy is leading the the mid-cap fallers, down 6.0% after releasing a disappointing update from its Affanga Deep-1 well in the Gnodo Block offshore Gabon. The well encountered thinner-than-expected sandstone sections with poor reservoir characteristics, Ophir said.

AIM-listed Sunkar Resources has lost almost half of its value Tuesday after saying it has raised USD100,000 through a new loan facility. The Kazakhstan-focused miner said that its "financial position has worsened significantly" since its last update on April 2.

The pound has slipped from early highs after data from the British Bankers Association showed fewer UK mortgages were approved in April than expected. The BBA said 42,200 mortgages were approved in the month, down from 45,900 in March and missing economists forecasts of 45,200.

Against the dollar, the pound now trades at USD1.6818 after having reached a high of USD1.6882 in early trade, with commentators citing weekend reports that UK Chancellor of the Exchequer George Osborne will resist calls to rein in the Help to Buy housing scheme. The reports come as pressure mounts on the Bank of England'sPrudential Regulation Authority to take some form of action to stem the rampant UK housing market.

The mismatch in the housing market and the controversial Help to Buy government incentive scheme of what the market expects, what the government wants, and what the regulator advises is likely to become an increasingly fraught issue in the run up to next year's election.

While the new Ukrainian President Petro Poroshenko's weekend victory was widely seen as a positive step for relations between the Ukraine and Russia, skirmishes continue in the east of Ukraine, with a battle for Donetsk airport reportedly now over and the airport in control of the Ukranian military, but at the cost of a number of lives.

Moreover, Ukraine has said Tuesday that Russian energy giant Gazprom owes it 2.2 billion cubic metres of natural gas, worth about USD1 billion following the annexation of the Crimea peninsular. The move comes on the back of Russia's recent demand that Ukraine pay for its gas supply in advance from now in.

A relatively quiet start Tuesday may give way to a busier afternoon, when the US markets also return from a three-day weekend. US durable goods orders are due at 1330 BST and are expected to have softened by 0.5% in April after rising strongly by 2.5% in March.

The US Markit services PMI follows at 1445 BST and is expected to have expanded to 55.6 in May from 55.0 recorded in April. At 1500 BST the US consumer confidence survey from the Conference Board is expected to rise to 83.0 in May from 82.3 in April, while at the same time the Richmond Fed manufacturing index for May is due, followed by the Dallas Fed manufacturing business index for May at 1530 BST.

"US economic news-flow has increasingly improved relative to expectations in early April, suggesting analysts are underestimating the economy’s resilience and opening the door for upside surprises," said currency strategist at DailyFX Ilya Spivak.

Ahead of that, European Central Bank President Mario Draghi will be talking about "Monetary Policy in a changing financial landscape" from the Central Bank of Portugal at 1430 BST. His words will be watched with for any hints of a policy change announcement, expected at the June 6 meeting, particularly in light of weekend European elections that saw a political lurch to the right across the region. Next week's ECB policy meeting is likely to loom large over the markets this week, given Draghi's previous comments that suggested action is likely.

"Investors have almost shut up shop in preparation for what could be an enormously volatile time," said chief market strategist at Alpari James Hughes. "If it is volatility you are after, the meeting on June 6th is what you have been waiting for."

Ahead of Draghi's speech and the US data, futures markets are indicating that Wall Street will follow the City of London by playing catch-up from the long weekend to open broadly higher Tuesday.

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Source: Alliance News

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