- FTSE 100 ends 45 points higher
- Central bankers in focus after Fed
- US blue chips bounce back strongly
The FTSE 100 index closed near its best levels for the day on Monday, bouncing back in tandem with Wall Street which recouped nearly all of the sharp sell-off made on Friday in the wake of last week’s indication from the Federal Reserve that a US interest rate hike could soon be on the cards.
At the close, the UK blue-chip index was 45.14 points, or 0.6% higher at 7,062.61, just below the late session peak of 7,065.05, and well above the morning low of 6,948.63.
On Wall Street by London’s close, the Dow Jones Industrials Average was over 522 points higher at 33,812.64.
Joshua Mahony, senior market analyst at IG commented: “The US open has helped to lift sentiment throughout Europe, as markets fight back despite the ramp-up in fears over a ramp-up in hawkish sentiment throughout central banks. Friday’s sharp declines had resulted in a dramatic 3% decline the Japanese Nikkei overnight, yet Western markets appear to have a different idea as the Dow leads the US and European recovery.”
“Recent declines in the US 10-year yield highlighted growing fears that rampant inflation would soon result in a move to withdraw stimulus before the economic recovery had fully played out. However, today has seen yields rise, with traders instead focusing on the economic resurgence that looks likely irrespective of whether we see a gradual tightening of conditions over the coming years. For traders, we continue to see a focus on central banks, with the Bank of England coming into play on Thursday,” he added.
Mahoney also noted that domestic travel stocks fared well today as UK prime minister Boris Johnson spoke with optimism over the ability to remove all restrictions by the July 19 deadline.
“With Delta Covid cases on the rise of late, there have been significant fears that so-called ‘freedom day’ would be an elusive target that is always just out of reach. However, the vaccination programme has picked up once again, and the government looks likely to focus on a domestic recovery rather than ramping up efforts to reopen borders swiftly. Thus for investors, a domestic focus makes sense given how the continued emergence of new variants will continue to stifle international travel,” the IG analyst concluded.
3.45pm: Late rally brings profit
It has not been a particularly eventful day for the FTSE 100 but it is ending solidly in profit.
London’s index of large-cap shares was up 33 points (0.5%) at 7,050.
“After the Fed’s hawkish turn last week, central banks and their next moves will remain in focus this week. ECB’s Christine Lagarde is due to speak today before the European Parliament Economic and Monetary Affairs Committee. Jerome Powell will testify before Congress tomorrow and the BoE will announce its rate decision on Thursday. This hattrick of Central Banker appearances should provide the market with further clues as to the direction of monetary policy from here. There is a good chance that we will see some choppiness in the markets as the debates surrounding the next moves are priced in,” said Sophie Griffiths at OANDA.
2.45pm: Proactive North America headlines:
AIM ImmunoTech Inc (NYSEAMERICAN:AIM) completes Phase 1 clinical study of its flagship drug Ampligen
CytoDyn Inc (OTCQB:CYDY) pleased with preliminary results from long-haulers coronavirus trial
BioLargo Inc (OTCQB:BLGO) says peer-reviewed scientific paper confirms safety of water treated by its Advanced Oxidation System
Tartisan Nickel Corp (CSE:TN) (OTCPINK:TTSRF) closes second tranche of its C$4.5M flow-through financing
Delta 9 Cannabis Inc (TSE:DN) (OTCQX:DLTNF) launches ‘Joints for Jabs’ vaccination reward program
NEO Battery Materials Ltd (CVE:NBM) (OTCPINK:NBMFF) reports success in integrating silicon into graphite-based anodes
2.40pm: Wall Street opens on a mixed footing
The main indices on Wall Street started Monday’s session on a mixed note as traders seemed unsure of which way to turn following the volatility of the previous week.
Shortly after the opening bell, the Dow Jones Industrial Average was up 0.58% at 33,481 while the S&P 500 climbed 0.31% to 4,179. The Nasdaq was the outlier, falling 0.19% to 14,003.
While the markets were mixed, an early riser was biopharma firm Gilead Sciences Inc (NASDAQ:GILD), which rose 0.4% to US$66.90 following data showing its coronavirus drug Veklury can reduce the risk of patient death.
Back in London, the FTSE 100 was just in the green into late afternoon, rising 5 points to 7,022.
2.25pm: Cryptocurrencies friendless after latest Chinese crackdown
While equity markets have recovered from Friday’s cage-rattling by the Fed, for cryptocurrencies, red is the new black.
Bitcoin has lost one-tenth of its value at US$32,258 while losses on other cryptocurrencies have been even more severe, as China continues to crack down on cryptocurrency speculation.
The People’s Bank of China has told domestic banks and the Alipay unit of Ant Group not to provide services linked to cryptocurrency trading.
“The charts are not very clear this week, but this week’s support levels are $31,500.00 and $30,000.00. If, as I expect, the global buy-everything unwind continues this week, Bitcoin will feel those chill winds as well. I am, of course, a perpetual mega bear anyway, but someone must balance out those experts appearing on tv in tee-shirts, surrounded by pizza boxes and computer monitors shouting, ‘you don’t understand’,” said OANDA’s Jeffrey Halley.
— Binance (@binance) June 21, 2021
Back in the equity markets, the FTSE 100 has edged back into positive territory but only just; it is up 8 points (0.1%) at 7,026.
12.35pm: US stocks to rally
After Friday’s wild ride – more of a plunge ride than a roller-coaster, US markets are expected to claw back some losses today.
Spread betting quotes indicate the Dow Jones will open 174 points higher at 33,464; the S&P 500 14 points firmer at 4,180 and the Nasdaq 100 44 points better at 14,094.
“The combination of a surprisingly-exciting Fed meeting and options expiry on Friday meant that many markets were dramatically shaken out of their complacency, with the Dow, gold and key FX pairs seeing sharp drops,” said Chris Beauchamp at IG.
There is the potential for more Fed-inspired volatility today with Federal Reserve officials Robert Kaplan and James Bullard set to discuss the US economic outlook today.
In the UK, the FTSE 100 was virtually unchanged at 7,018.
11.10am: On the up despite sterling’s rally
Wahey! The FTSE 100 is now in positive territory, despite sterling knocking the dollar for six on foreign exchange markets.
London’s index of heavyweight shares got off to a rocky start, thanks to Federal Reserve official James Bullard saying last week that the US central bank might need to raise interest rates sooner than previously expected.
Even with the pound up by seven-tenths of a cent at US$1.3872, however, the FTSE 100 rallied to show an 18 point (0.2%) gain at 7,033.
“Given Bullard’s Friday comments, tomorrow’s testimony to Congress from Fed chair Jay Powell, coming so soon after last weeks press conference will be much more closely analysed for how he sees the US economy, as he briefs US lawmakers on how he and the Federal Reserve see the US economy, along with the timing of a tapering of bond purchases,” said Michael Hewson at CMC Markets.
James Bullard really did something huh ???????????? https://t.co/4rycDMvH2R
— Thabiso Tshabalala (@Thabiso_XT) June 21, 2021
While private equity’s kicking of Morrison’s tyres has attracted the lion’s share of the market’s attention, engineer Senior PLC (LON:SNR), another company in the sights of private equirty, has risen 11% to 168.6p after LSF XI Investments upped its offer terms.
LSF, which is advised by Lone Star Global Acquisitions, said its fifth and final offer proposal has been pitched at 200p a share.
Senior’s board had previously rejected a 185p a share offer from LSF last week and the market’s reaction suggests the board will reject this offer as well.
10.10am: Investors buy into supermarket stocks
Those of you who believe in the significance of round numbers might be interested to learn the FTSE 100 has made it back above 7,000.
London’s index of leading shares is down 12 points (0.2%) at 7,006, helped by enthusiasm for supermarket shares after it was confirmed over the weekend that Morrison (Wm.) Supermarkets PLC (LON:MRW) has attracted the attention of a private equity group, with investors seemingly expecting a bidding war – possibly involving Amazon.
Morrisons, no longer in the FTSE 100, tops the FTSE 250 risers with a 32% gain at 234.8p, while in the FTSE 100 its groceries delivery partner Ocado Group PLC (LON:OCDO) is top of the tree with a 4.0% gain at 1,956.5p, helped by bullish note from Morgan Stanley.
“Historically the UK supermarket sector has been viewed as a slow-growth, highly competitive market. As such, it wasn’t seen as a natural source of takeover activity.
“Mergers were more plausible, such as we saw with Sainsbury’s trying to marry Asda to gain scale and find a new source of earnings growth but non-trade buyers swooping for deals didn’t seem like an obvious play until we saw the Issa brothers snap up Asda after the Sainsbury’s deal collapsed,” said Russ Mould at AJ Bell.
Morrisons says the private equity firm (which counts Terry Leahy as operating partner) had a number of pre-conditions attached to the offer incl detailed due diligence and debt financing but said shareholders would still get final dividend
— Ashley Armstrong (@AArmstrong_says) June 19, 2021
“Strategically Morrisons has cemented an important relationship as a key supplier and partner to Amazon, and to McColl’s convenience stores. It has also established a successful online delivery service.
“Morrisons’ balance sheet has plenty of asset backing and the valuation was relatively depressed before news of private equity interest,” he added.
“As of the market close on Friday, Morrisons had shareholder equity of £4.2 billion according to the last set of accounts and a market value of £4.3 billion, so it was trading at pretty much one times book value – a good start for any value-oriented investor.
“There was a pension surplus, only £2.3 billion of debt and £1.3 billion of lease liabilities. Add all of those up and the enterprise value for Morrisons was £7.9 billion, yet the firm has £7.4 billion of property and assets on its balance sheet – prime private equity territory. Limited liabilities plus lots of assets offers scope for quickly releasing cash from the business,” Mould said.
In other words, if a bid does materialise, expect the company to be pitched back onto the market in about five years’ time, laden with debt and with a massive hole in its pension pot.
Elsewhere in the FTSE 250, Capita PLC (LON:CPI), the well-known spelling mistake, was 7.8% higher at 40.59p after it said it is on track to deliver revenue growth this year for the first time in six years.
The company said it has agreed to sell its AXELOS business to PeopleCert International in a deal that values the joint venture at £380.0mln on a cash-free, debt-free basis; the selling price values the business at 11.5 times underlying earnings for 2020.
8.25am: Inflation fears resurface
As expected, the FTSE 100 dropped below the 7,000-mark for the first time in over a month amid worries a hike to US interest rates may be more imminent than first thought.
The precipitant was Federal Reserve official James Bullard, who said a rise in borrowing costs could come as earlier as the end of next year.
Most commentators had pencilled in 2023 or even 2024 for the re-evaluation of rates alongside the tapering of monetary support.
Wall Street and Asia’s main markets were rocked with Dow off more than 500 points on Friday and the Nikkei down 950 points Monday.
“There is a groundswell of opinion that the reaction to the comments may have been overdone,” said Richard Hunter, head of markets at Interactive Investor.
“While the inflation debate is set to rumble on, it is the very speed and strength of the recovery following the success of the vaccination programme and extremely accommodative monetary policy from the Fed which has enabled the economy to snap back.
“Inevitably the Fed will be monitoring the situation closely, and considering whether some of its QE [quantitative easing] can now be scaled back as the economy gathers pace.”
Hunter pointed out that investors “will have a further opportunity to assess the situation” when Federal Reserve chair Jerome Powell testifies before Congress on Tuesday.
On the market, the big story was Wm Morrison Supermarkets (LON:MRW), whose share price shot up 30% after it was revealed the Bradford-based grocer knocked back a £5.5bn bid from US private equity group Clayton, Dubilier & Rice.
The retailer’s board unanimously agreed that the deal, pitched at a big premium to Friday’s close, undervalued the business. CDR has until July 17 to pull the pin on a firm offer.
Proactive news headlines
EQTEC PLC (LON:EQT) has achieved financial close on the acquisition and planned recommissioning of the 1MWe EQTEC Italia MDC plant. The recommissioning was announced last month. EQTEC has a 20% equity interest, with its partners having jointly committed to and have now paid an aggregate €2.1mln for an 80% equity interest, with one of the backers, MetalNRG PLC (LON:MNRG), having invested a total of €700,000 for a 26.66% equity interest in the project.
The High Court in New Zealand has found in favour of the plaintiff in a case backed by Litigation Capital Management Limited (LON:LIT), “crystalising” a pay-out of NZD$26.8mln to the company, including the NZD$6.7mln it invested in the action.
Panthera Resources PLC (LON:PAT) has commenced a 150 line kilometres induced polarisation survey at the Kalaka gold project in southern Mali. This survey follows the successful initial 167 line kilometre IP survey conducted in early 2021 in the south of the licence area.
Tiziana Life Sciences PLC (NASDAQ:TLSA, LON:TILS) has appointed a vice-president of regulatory affairs. Dr Kevin Shutz, who has 19 years of pharma industry experience, 14 of them in the regulatory field, will lead clinical trial ‘interactions’ with drug watchdogs in the US, Europe and Asia.
Record PLC (LON), the specialist currency and derivatives manager, is pleased to announce that CEO, Leslie Hill and CFO, Steve Cullen will provide a live presentation relating of the latest annual results via the Investor Meet Company platform on 30 June at 5pm BST for existing and potential shareholders.
6.50 am: It was good while it lasted
Well, it was good while it lasted. After Friday’s triple-digit decline, the FTSE 100 is expected to open the new week below the 7,000-mark with US shift in monetary stance continuing to reverberate through international stock markets.
The worldwide wobble was precipitated by comments on Friday by James Bullard, president of the St Louis Federal Reserve Bank.
Traders are now anticipating rises in interest rates starting late next year, rather 2023 later, while talk has turned to the tapering of the huge support that has allowed stock markets to defy gravity.
The value plays, such as banks, builders and utility firms that are sensitive to the global economic fluctuations, have been hardest hit in the latest bloodletting.
“Federal Reserve official James Bullard became the proverbial bull in a China shop on Friday when he said that the Fed might need to raise rates in late 2022 instead of 2023,” said Jeffrey Halley, market analyst at ONADA.
“That sparked a run for the exit door for equity markets and commodities while the US Dollar powered higher. The US yield curve continued to flatten as long-dated bond yields slumped, notably in the 20-year tenor.
“The major casualty has been the global reflation/cyclical recovery trade. The reaction of markets since the FOMC dot-plotted everybody last week indicates how much cash was in that trade.”
In Asia earlier, Japan was the biggest casualty in the clear-out as the Nikkei 225 dropped 3.6%. Hong Kong’s Hang Seng was off 1.5%, while the Shanghai Composite was barely changed.
Here at home, GlaxoSmithKline’s first-quarter update on Wednesday is eagerly awaited – not for the financial update, but rather for the strategy review that will address some of the criticisms levelled by activist investor Elliott Management.
Also, this week builder Berkeley (LON:BKG) delivers finals, while the Bank of England may add some local context on monetary policy as the Bank of England‘s rate-setters meet to decide UK borrowing costs.
Around the markets
- Pound US$1.3799 (flat)
- Bitcoin US$34,104.17 (-4.5%)
- Gold US$1,770.60 (flat)
- Brent crude US$73.69 (+0.2%)
6.50am: Early Markets – Asia / Australia
Stocks in the Asia-Pacific region fell sharply on Monday with Japan’s Nikkei 225 dipping 4% briefly.
China has kept the one-year Loan Prime Rate (LPR) unchanged at 3.85% while the five-year LPR was also held steady at 4.65%.
The Shanghai Composite slipped 0.10% and Hong Kong’s Hang Seng index declined 1.37%
In Japan, the Nikkei 225 slumped 3.53% while South Korea’s Kospi fell 0.92%.
Shares in Australia fell, with the S&P/ASX 200 trading 1.61% lower.
Proactive Australia news:
Latin Resources Ltd (ASX:LRS) (FRA:XL5) has commenced of the next phase of aircore drilling at its Noombenberry Kaolin-Halloysite Project, where it recently released a 207 million tonne inferred Mineral Resource Estimate (MRE) at the Cloud Nine Deposit.
Zelira Therapeutics Ltd (ASX:ZLD) (OTCMKTS:ZLDAF) (FRA:G1G) is encouraged that the results of a trial in chronic insomnia patients of its proprietary cannabinoid ZLT101 formulation marketed as Zenivol® have been published in the peer-reviewed journal SLEEP®.
Tempus Resources Ltd (ASX:TMR) (CVE:TMRR) (OTCMKTS:TMRFF) (FRA:4W0) is logging and sampling core at the Elizabeth Gold Project in British Columbia, Canada, in preparation for analysis at SGS laboratories in Vancouver, Canada.
BlackEarth Minerals NL (ASX:BEM) has signed an offtake and sales agreement with leading Austria-based graphite processor Grafitbergbau Kaisersberg GmbH to sell up to 2,500 tonnes per annum of expandable graphite worth around US$7.5 million.
Bellevue Gold Ltd (ASX:BGL) has secured a speculative buy rating and a price target of A$1.25 from Canaccord Genuity Ltd in a report released by analyst Tim McCormack and associate analyst Tyson Kestel.
RPM Automotive Group Ltd (ASX:RPM) shares have risen following the acquisition of East Coast Tyre Wholesalers, further expanding its Wheel and Tyre Division and maintaining its sustainable growth strategy.
Kangaroo Island Plantation Timbers Ltd (ASX:KPT) has advised that the takeover bid by Samuel Terry Asset Management Pty Ltd as trustee for Samuel Terry Absolute Return Active Fund (STAM) has been unsuccessful with the offer period now closed.