Market buzz: Tesco-Booker deal voted through, pound clobbered on Brexit
1559: Tesco and Booker Group shareholders have both voted through the supermarket giant's contentious £3.7bn takeover of the country's leading wholesaler.
Now that this last hurdle for the deal has been completed, Booker can be absorbed into Britain's largest grocery group on 5 March, with boss Charles Wilson taking on the role of chief executive of Tesco's retail and wholesale operations in the UK and Ireland.
1530: The pound is down 0.9% against the dollar at 1.3783 and down 0.6% against the euro at 1.1307 amid a new ding-dong in the ongoing Brexit cold war.
The EU released its draft Brexit treaty this morning and despite containing no language that hadn’t already been anticipated, it did weigh on the pound. EU negotiator Michel Barnier also argued that both sides need to "pick up the pace" if a deal is to be struck by the end of the year. Theresa May, who has a big Brexit speech ahead of her on Friday, said in Prime Minister's Questions that she and foreign secretary Boris Johnson "are absolutely committed to ensuring that we deliver no hard border between Northern Ireland and Ireland".
"While this isn’t too significant a move, it does highlight the ongoing sensitivity of the pound to the Brexit talks and the transition period, even when what we’re seeing and hearing isn’t new news," said analyst Craig Erlam at Oanda. "The pound has performed well since late last year when both sides agreed to progress to phase two of negotiations but as recent commentary – including Michel Barnier’s warnings today – indicates, some significant differences still exist and tough negotiations lie ahead. This could leave the pound vulnerable as the deadlines approach, the first of which will be that to agree on transitional arrangements."
1500: Former British prime minister John Major has called for a vote in parliament on whether to hold a second EU referendum. He is the most senior Conservative yet to attack what he called the government’s “unrealistic” Brexit strategy. The pound was not lifted by the news.
"This must be a decisive vote, in which parliament can accept or reject the final outcome or send the negotiators back to seek improvements or order a referendum," he said, according to a copy of the speech emailed in advance. “That is what parliamentary sovereignty means. Noone can truly know what ‘the will of the people’ may then be. So let parliament decide. Or put the issue back to the people," he said.
1437: US stocks are bouncing back (partially) from the prior day's losses on the last day of the month: Dow Jones Industrials: 0.37%, S&P 500: 0.31%, S&P 500: 0.36%.
1312: Here's a selection of some of the broker updates from today.
SocGen nudged up its target price for Sky from 1,250p to 1,330p but the shares to 'hold' from 'buy' after Comcast’s 1,250p proposed bid, at a 16% premium to Fox's offer, "but 21CFcould yet raise its bid".
Liberum moved to 'buy' on Sky, suggesting the Comcast deal will go through "as we do not think Fox (or Disney, who are acquiring the Sky assets as part of their purchase of various Fox assets) will want to get into a bidding war, especially given the complications surrounding Sky News".
SocGen also reiterated its 'buy'on Shire. "We believe Shire's growth potential is mispriced because so many franchises have been prematurely written off," it said, but trimmed its target price to £75 from £80.
JPMorgan Caz remained 'overweight' on WPP and Publicis in a note on ad agencies, which has some read-across value for ITV. Agencies have seen a modest recovery, but have still underperformed by 17% over the past year, with sentiment remaining negative and valuations looking cheap. "Industry growth should accelerate in ‘18 and FMCG spend is beginning to stabilise. Structural concerns are overstated & potential for self-help overlooked, in our view."
WPP was also seen as a 'buy' by Liberum ahead of the company's results on Thursday. "The focus is likely to be on the outlook, and we think WPP is likely to reiterate the message that other agency groups have stated i.e. that 2017 was impacted by cyclical, not structural, factors related to ad hoc project work and that 2018 should be a better year, although it is unlikely to give a specific organic revenue growth range."
Barclays said Inchcape's results reinforce its 'under weight' thesis. "This is a high-quality company that consistently generates mid- to high-teens ROIC. However, it is a low-growth cyclical that we believe is currently at the top of its cycle in most markets. Management istrying to shift the profit pool inorganically to higher-growth markets, but this will take time."
1231: London stocks were still in the red by the midday market report, weighed down by weakness in the mining sector and disappointing earnings from ITV and Taylor Wimpey. The FTSE 100 was down 0.3% to 7,261.60, while the pound was off 0.4% against the dollar at 1.3857 and 0.3% weaker versus 1.1331.
Joshua Mahony, market analyst at IG, said: "A mix of Powell-fuelled US dollar strength and disappointing Chinese PMI surveys have dragged commodity prices lower, with a host of FTSE 100 miners falling sharply in response to the continued deterioration in industrial metals such as copper, and zinc. On a day that will be heavily reliant upon big data, the overnight fall in Chinese manufacturing and services PMI surveys did little to help sentiment, adding to the bearish bias driven by Powell’s hawkish appearance yesterday."
1144: To varying degrees, analysts at Danske Bank and Capital Economics are flagging to clients the importance of tomorrow's private sector-compiled factory sector purchasing managers' index from Caixin in order to confirm today's weak readings from the 'official' PMI.
Danske Bank's forecast is for a "gradually declining" trend in the PMI over the course of 2018. However, they also point to metals prices, which they use as a real-time indicator of activity in China, and which have not warned of a sharp slowdown. "With China consuming 50% of global metals, a sharp change in the trend should have shown up in commodity demand and thus prices," economists at the broker say. They expect to see "some" recovery in the index come March.
Capital Economics on the other hand is rather more cautious, with Julian Evans-Pritchard warning: "Looking ahead, some of the recent weakness in manufacturing may be partially reversed in the next couple of months as disruptions caused by the anti-pollution campaign fade. But any rebound is likely to prove short-lived and we still expect growth to be weaker than generally anticipated this year, with many underestimating the headwinds to the economy from slower credit growth and a cooling property sector."
1123: With Maplin and Toys R Us officially entering administration this morning after a £15m VAT bill on top of another poor Christmas, analyst Neil Wilson at ETX Capital said the retailers' "systemic failure to move with the changes in the retail sector" that were at the heart of the problem. "In both cases the Amazon effect is all too clear to see, but there is more to it than that – there are retailers out there who are adapting and prospering."
In what is a pretty torrid day for UK retail, there are implications for the retail market in general and investors elsewhere are seeing some read-across, with Mothercare shares tumbling 7% as it has a few similarities with Toys R Us, while shares in Debenhams and Marks & Spencer are also lower.
Shares in Sainsbury’s, which investors see as standing to gain from its Argos general merch arm, are up, as are Tesco and Dixons Carphone.
Lower footfall is crippling the retailers that have failed to adapt and failed to convince shoppers that they offer something more than can be bought online, says Wilson, adding: "Ultimately this is a necessary shakeout of some pretty out-dated retailers, which though terrible for those affected by job losses, is likely to mean a leaner, fitter retail market and a more productive use of capital. The question is whether there are more out there that could by the wayside.”
1103: Hong Kong’s economy ended last year on a fairly strong note, supported by buoyant exports. But Capital Economics sees growth slow over the quarters ahead. "The expansionary budget unveiled today will provide some support to the economy this year. But it is unlikely to offset the impact of tighter monetary conditions on domestic demand. The city’s overheated property market also remains a major concern."
Will be of interest to shareholders in the likes of Burberry, HSBC, StanChart.
1051: Miners are a drag on the FTSE 350 this morning. Data releases from China are one likely cause, with manufacturing and non-manufacturing PMIs for February came in lower than expected at 50.3 and 54.5, respectively for the world's second largest economy.
Copper prices are down to $ 6,993 per tonne versus $7,130/t yesterday.
Shares in Rio Tinto are down 2.85%, BHP Billiton -2.45%, Fresnillo -2.40%, Anglo American -2.30%, Antofagasta -2.25%, Glencore -2.17%, Randgold Resources -1.88%, Vedanta -2.46%, Tullow Oil down -2.27%
1044: ITV slumped as the broadcaster said profits fell last year amid a squeeze on advertising sales, with the dividend lifted only 8% as a 'strategic refresh' got underway under new chief executive Carolyn McCall.
Analyst Mike van Dulken at Accendo Markets pointed to several potential reasons for the shares to be down, led by the programming costs being "much higher than consensus, meaning it could overpay for Sports/Drama to compete with pay TV/On-Demand rivals".
1038: Ageing populations may be complicating the escape from low global inflation, says Oxford Economics. "Six decades of cross-country experience reveals older populations to be prone to lower inflation. With advanced economy societies continuing to age, this suggests a downside risk to the long-term outlook for inflation and bond yields."
1035: Three-month LME copper futures are trading lower to $6,993 per metric tonne, versus at $7,130 at the Tuesday close.
0941: Interesting stock tip from Liberum. Asiamet, a copper exploration business with assets both near to production and "globally significant" in scale, is the "best kept secret in copper".
It has 2.9mt of attributable contained copper equivalent resources in the ground across two projects in Indonesia, with exploration ongoing and further resource additions expected in 2018, as is the financing of its initial 25ktpa mine. Analysts' valuation of 20p reflects 100% upside.
0903: The London open market report had the FTSE 100 down 0.5% to 7,246.87 and the 250 down 0.3% at 19,815.44. The pound was flat against the euro at 1.1374 and down 0.2% versus the dollar at 1.3878.
This followed a late selloff on Wall Street as Jerome Powell’s first congressional testimony did little to soothe investors’ worries about inflation. A hawkish tone from the new Federal Reserve chairman signalled that US interest rates were set to continue rising, adding weight to expectations of four rate hikes this year rather than three.
Spreadex analyst Connor Campbell said: "With Jerome Powell’s hawkish appearance in front of Congress on Tuesday dragging the Dow Jones back below 25,500, before sparking losses in Asia, the European indices didn’t stand much chance of avoiding a red start."