LONDON MARKET CLOSE: Strong M&A activity fails to lift stocks

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Stocks in London closed in the red on Thursday, following deep sell-offs in New York on Wednesday as US retailers start to feel the burn from hot inflation.

That selling reached the European consumer sector, with the likes of JD Sports and Next in London and Puma and Adidas in Frankfurt closing lower. M&A action provided respite for some London listings, however.

Over in New York, selling continued on Thursday, with the S&P 500 on the brink of bear market territory.

The FTSE 100 index ended down 135.35 points, or 1.8%, at 7,302.74 on Thursday. The mid-cap FTSE 250 index closed down 260.42 points, or 1.3%, at 19,689.02. The AIM All-Share index lost 5.78 points, or 0.6%, at 947.17.

The Cboe UK 100 index closed down 2.1% at 726.67. The Cboe 250 ended down 1.5% at 17,361.69, and the Cboe Small Companies lost 1.0% at 14,609.74.

In mainland Europe, the CAC 40 in Paris closed down 1.3% while the DAX 40 in Frankfurt ended 0.9% lower on Thursday.

In New York, Target was down 4.1%, Walmart shed 2.0%, though Kohl's was up 1.4%.

Wider markets in New York were mixed. The Dow Jones Industrial Average was 1.0% lower, the S&P 500 was down 0.6%, though the Nasdaq Composite was up 0.3%.

In London, athleisure company JD Sports ended down 2.5%, while high street retailer Next fell 2.9%. In Frankfurt, rival sports apparel firms Adidas and Puma shed 2.3% and 1.7%, respectively.

‘The extent of the impact of inflation on these giants of American retailing has woken investors up, once again, to the huge impact surging prices are having on every facet of the economy,’ AJ Bell analyst Russ Mould commented.

Sterling was quoted at $1.2503 at the time of the London equities close on Thursday, firming against $1.2402 on Wednesday. The euro climbed to $1.0590, from $1.0497. Against the yen, the dollar fell to JP¥127.40 from JP¥128.21.

Expectations of a July rate hike from the European Central Bank have firmed, analysts said, following Thursday's meeting minutes.

Minutes from the meeting held over 13 to 14 April showed the central bank harbours concerns over persisting price pressures. At that meeting, the ECB stood pat on policy but acknowledged strengthening inflation pressures.

Back in London, Royal Mail was rooted the bottom of the FTSE 100 Index, tumbling 12% as it faces inflationary challenges.

In the financial year that ended March 27, the postal service registered an 8.8% drop in pretax profit to £662 million from £726 million.

Looking ahead, Royal Mail noted an ‘uncertain’ outlook, compounded by talks with the Communication Workers Union over pay. It had tabled an offer worth up to a 5.5% raise for CWU grade colleagues, but this was rejected by the union, which has threatened industrial action.

Among the few to finish higher on the FTSE 100 were gold miners Fresnillo and Endeavour, adding 3.2% and 3.3%. The duo tracked bullion prices higher.

An ounce of gold fetched $1,848.44 at the time of the London equities close on Thursday, up from $1,817.50 on Wednesday.

Homeserve topped the mid-cap FTSE 250 index, surging 10% to 1,160.00 pence after agreeing to be taken over in a £4 billion deal.

Hestia Bidco, a subsidiary of Brookfield Infrastructure Partners, has offered 1,200p per share in cash for each Homeserve share.

The Walsall, England-based home repairs company said its directors will unanimously recommend that shareholders back the deal. Homeserve has a market capitalisation of £3.9 billion.

Elsewhere in the M&A space, Ideagen fell 3.1% after a suitor said it does not plan on making a bid for the information management, safety, risk and compliance software provider.

Astorg was named as a potential bidder earlier in May. Ideagen has already agreed to a £1.06 billion takeover offer from private equity firm Hg Pooled Management.

River & Mercantile shares rose 2.9%, while AssetCo fell 1.1%. The UK Financial Conduct Authority approved AssetCo's £99 million takeover of River & Mercantile.

Elsewhere in London, Knights Group jumped 35% after guiding to strong revenue growth and making an acquisition.

The legal and professional services firm expects revenue for the financial year that ended April 30 of around £125.5 million, up 22% on £103.2 million the year before. Underlying pretax profit is seen at a ‘minimum’ of £18.1 million, down from £18.4 million the year before.

Knights also said it has agreed to buy Coffin Mew, an independent law firm in the south east of England, for £11.5 million.

Brent oil was trading at $110.05 a barrel late Thursday, up against $109.83 late Wednesday.

Friday's economic calendar has an interest rate decision from the People's Bank of China overnight, before UK retail sales data at 0700 BST and a flash eurozone consumer confidence report at 1500 BST.

The local corporate calendar has a trading statement from merchant bank Close Brothers and annual results from logistics firm Wincanton.

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