LONDON MARKET OPEN: UK retail sales get Easter boost but gloom remains

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(Alliance News) - An interest rate cut in China to keep economic growth on track and a surprise rise in retail sales in the UK in April were combining to give London stock prices a lift early Friday.

The FTSE 100 index was up 119.15 points, or 1.6%, at 7,421.89 early Friday. The index is almost level for the week so far.

The mid-cap FTSE 250 index was up 271.04 points, or 1.4%, at 19,960.06. The AIM All-Share index was up 11.19 points, or 1.2%, at 958.36.

The Cboe UK 100 index was up 1.8% at 739.69. The Cboe 250 was up 1.7% at 17647.56, and the Cboe Small Companies up 0.3% at 14659.61.

In mainland Europe, the CAC 40 in Paris was up 0.6%, while the DAX 40 in Frankfurt was up 1.1% early Friday.

Lifting the mood at the end of the week was an interest rate cut in China, with hopes that more measures to support the world's second-largest economy through strict Covid lockdowns will be forthcoming.

In Asia on Friday, the Japanese Nikkei 225 index closed up 1.3%. In China, the Shanghai Composite closed up 1.6%, while the Hang Seng index in Hong Kong was up 3.0%. The S&P/ASX 200 in Sydney closed up 1.2%.

The five-year loan prime rate – on which many lenders base their mortgage rates – was trimmed to 4.45% from 4.6%, China's central bank said on Friday.

The reduction in the mortgage reference rate comes as a wave of defaults rips through the country's real estate sector, with developers sagging under massive debts and struggling with a slump in demand.

Beijing's unrelenting approach to Covid-19 outbreaks has snarled supply chains and locked down tens of millions of people, hitting major financial, industrial and tourist hubs.

The haircut to the LPR was greater than the market expected, analysts said, as China's planners try to inject life into a slowing economy.

Miners were amongst those to get a lift, with Anglo American up 2.6%, Glencore up 2.4% and Rio Tinto up 2.2%.

Elsewhere in London, Royal Mail topped the FTSE 100, up 4.7%, as it rebounded from Thursday's 12% drop. The postal operator on Thursday reported a drop in annual profit and warned of a ‘downside risk’ to consensus expectations for the year ahead.

London-listed retailers were mixed following some better-than-expected UK retail sales data. However, consumers confidence remains weak.

Shares in Burberry were down 0.9% in early dealings while JD Sports rose 0.5% and Dunelm was up 0.7%.

UK retail sales volumes rose 1.4% in April on a month before, figures from the Office for National Statistics showed, reversing a month-on-month fall of 1.2% in March. This was driven by food store sales, which rose 2.8%, largely due to higher spending on alcohol, tobacco and confectionery in supermarkets.

Consensus, according to FXStreet, had anticipated a decline of 0.2% in April.

Heather Bovill, deputy director for Surveys & Economic Indicators at the ONS, noted that along with an uplift for supermarkets, off-licenses also reported a boost, ‘possibly due to people staying in more to save money’.

While retail sales picked up in April, she cautioned that the figures ‘still show a continued longer term downward trend’.

Sales in the three-month period to April fell by 0.3% when compared with the previous three months, continuing the downward trend since summer 2021.

‘Retail sales are being squeezed by a combination of low demand, high inflation and rising costs,’ said Helen Dickinson, chief executive of the British Retail Consortium.

‘The fall in demand comes as consumers rein in their discretionary spending following a significant reduction to real incomes for households across the UK. Meanwhile, retailers face higher food and commodity prices, increased shipping and transport costs, and the tightest labour market in decades.’

However economists at Capital Economics were more positive: ‘The unexpectedly strong rise in retail sales in April suggests the cost of living crisis hasn't caused consumer spending to collapse and means the economy may have a little more momentum than we previously thought.

‘It also supports our view that a weaker economy on its own won't solve the issue of sky-high inflation and that the Bank of England will have to raise interest rates further from 1.00% to 3.00%.’

Separately, GfK said its long-running UK consumer confidence monitor dropped by two points to minus 40 in May, the lowest score since records began in 1974.

‘May's result is one point lower than the previous record set in July 2008 when the headline score plunged to -39. This means consumer confidence is now weaker than in the darkest days of the global banking crisis, the impact of Brexit on the economy, or the Covid shutdown,’ said Joe Staton, client strategy director at GfK.

Commented Danni Hewson, financial analyst at AJ Bell: ‘Consumers are terrified about how they'll weather the next few months, every month they are finding that their personal financial situation is deteriorating and most believe the worst is still to come.’

Shares in advertising agency M&C Saatchi soared 36% to 223.62p. Digital marketing services firm Next Fifteen Communications waded into M&C Saatchi's takeover drama by making a £310.1 million cash-and-shares offer.

The company is offering 0.1637 of a Next Fifteen share and 40 pence in cash for each M&C Saatchi share, valuing M&C Saatchi shares at 247.2p each.

This deal represents a 48% premium to M&C Saatchi's closing price of 167.5p on January 4, the last business day before London-listed acquisition vehicle AdvancedAdvT said it has taken a minority stake.

M&C Saatchi was already the target of a hostile takeover attempt by AdvancedAdvT. Under AdvancedAdvT's most recent offer, shareholders in M&C Saatchi will for each share held either receive 2.043 new shares in AdvancedAdvT and 40 pence in cash, or receive 2.530 new AdvancedAdvT shares.

At the time the offer was made, this valued each share of M&C Saatchi at 207.5 pence and £253.6 million in total. However, M&C Saatchi rejected the offer, calling it ‘derisory’.

Instead, the board is recommending Next Fifteen's takeover offer and urged shareholders to take no action in respect of AdvancedAdvT's offer.

AdvancedAdvT, in response to the Next Fifteen offer, said it is ‘considering its options’. The company added that it and Executive Chair Vin Murria together own just over 22% of M&C Saatchi's share capital. Murria also is a director of M&C Saatchi.

Next Fifteen was down 1.6% and AdvancedAdvT was up 9.2%.

While risk sentiment was improved on Friday, the safe-haven dollar still was on the front foot. Sterling was quoted at $1.2484 in morning dealings, dipping from $1.2503 at the London equities close on Thursday.

The euro traded at $1.0576 early Friday, soft against $1.0590 late Thursday. Against the yen, the dollar was quoted at JP¥127.97, up from JP¥127.40.

Gold was priced at $1,844.57 an ounce early Friday in London, down from $1,848.44 late on Thursday. Brent oil was trading at $111.29 a barrel, firming on $110.05 late Thursday.

Friday's economic calendar has a flash eurozone consumer confidence report at 1500 BST.

By Lucy Heming; lucyheming@alliancenews.com

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