LONDON MARKET CLOSE: China easing Covid curbs lifts mood

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European markets were lifted on Monday by news that China is lifting Covid restrictions in Beijing and Shanghai, despite new data showing inflation has reached a historic high in Germany.

Shoppers returned to the malls of Beijing on Sunday as the Chinese capital relaxed pandemic restrictions after declaring a small but persistent Covid-19 outbreak effectively under control.

A partial reopening of stores and offices in Beijing was welcomed by weary residents and struggling shopkeepers eager for life to return to normal. Coupled with a gradual easing of restrictions in Shanghai, it signalled that the worst is over in the twin outbreaks in China's most prominent cities.

Restaurants remain closed in Beijing, except for takeaways and deliveries, and many people in Shanghai can still only go out with special passes and for a limited time period, even as the number of new cases has plummeted.

‘A reopening of key economic hubs in China and suggestions the US Federal Reserve might slow the pace of interest rate hikes are helping to boost sentiment, at least in the short term,’ said AJ Bell's Russ Mould.

The FTSE 100 index closed up 14.60 points, or 0.2%, at 7,600.06. The mid-cap FTSE 250 index closed up 171.45 points, or 0.8%, at 20,543.97. The AIM All-Share index closed up 5.96 points, or 0.6%, at 974.21.

The Cboe UK 100 index closed up 0.1% at 756.91. The Cboe 250 ended up 0.9% at 18,223.46 and the Cboe Small Companies finished 0.6% higher at 14,744.21.

In mainland Europe, the CAC 40 stock index in Paris closed up 0.7%, while the DAX 40 in Frankfurt ended up 0.8%.

In the FTSE 100, International Consolidated Airlines closed up 3.3% after Kepler Cheuvreux upgraded the British Airways parent to 'buy' from 'reduce'.

IAG's rise was in tandem with a broader rally in the travel sector, despite chaos at airports ahead of the UK bank holidays this week. Carnival climbed 3.1%. Tui, Wizz Air and easyJet ended up 5.0%, 2.4%, and 0.8%, respectively.

‘The FTSE 100 built on its progress from last week to trade above the 7,600 mark with British Airways owner International Consolidated Airlines and cruise firm Carnival reflecting the holiday mood as Britons enjoy a half term holiday,’ Mould added.

Airline passengers faced cancelled flights and long queues at UK airports on Monday as millions of people embarked on half-term getaways or trips to coincide with the Platinum Jubilee weekend.

Airports are struggling to cope with the demand for travel amid staff shortages, as easyJet and Tui have cancelled a number of flights this week in an attempt to boost reliability.

Passengers also reported long queues at Heathrow and Birmingham airports. The situation could worsen in the coming days with people jetting off once the four-day bank holiday period begins on Thursday.

In the FTSE 250, Countryside Partnerships ended the best performer, up 19% at 284.00 pence, after the housebuilder turned away the second approach in two months from San Francisco-based investor Inclusive Capital Partners.

In-Cap said the offer - at 295 pence per share - represents a ‘compelling proposition for Countryside shareholders’. Countryside was trading at 290.20p in midday trading, giving it a market cap of about £1.45 billion.

‘The In-Cap team believes that Countryside shareholders deserve the opportunity to decide on the merits of any offer, and that if an approach is made in good faith, the Countryside board should act in the interests of its shareholders by engaging with the potential offeror and not deny its shareholders this opportunity,’ it said.

In-Cap currently owns about 45.8 million Countryside shares, a 9.2% stake.

In response, Countryside confirmed it received two unsolicited conditional proposals from the private equity firm which were rejected and advised shareholders to take no action.

Countryside said the proposals do not ‘reflect the opportunity for shareholder value creation taking into account Countryside's differentiated market position and attractive business model’.

Elsewhere in London, S4 Capital closed up 4.3% after the ad agency said its revenue jumped in the first quarter and was ahead of its guidance to the market.

‘Momentum has been reinforced by two further 'whopper' additions making a total of eight against the target of 20, one through pitch and one through a combination, both of which will be fully effective in 2023,’ S4 explained.

Revenue in the first quarter of 2022 was up 70% on the year before at £206.8 million and up 41% on a like-for-like and pro-forma basis. Gross profit rose 65% to £171.1 million and by 35% on a like-for-like and pro-forma basis. For 2022, S4 maintained its like-for-like gross profit growth guidance of 25%.

The pound was quoted at $1.2640 at the London equities close, up from $1.2612 at the close Monday.

Germany reported another jump in inflation in May as the war in Ukraine continued to push up food and energy prices, heaping pressure on the European Central Bank to speed up interest rate rises.

The euro stood at $1.0780 at the European equities close, up from $1.0705 late Friday.

The annual inflation rate in Europe's largest economy set another historic high in May, preliminary figures from Destatis showed.

On an annual basis, the consumer price index rose by 7.9% in May, accelerating from a 7.4% increase in April. The latest reading beat the market forecast, cited by FXStreet, of 7.6%.

‘Energy prices, in particular, have increased considerably since the war started in Ukraine and have had a considerable impact on the high inflation rate,’ said Destatis.

‘Another factor with an upward effect on prices is interruptions in supply chains caused by the Covid-19 pandemic. An inflation rate similar to that of May 2022 was last recorded in Germany in winter 1973-1974 when mineral oil prices had sharply increased, too, as a consequence of the first oil crisis.’

On a harmonised basis, allowing for EU-wide comparison, annual inflation quickened to 8.7% in May from 7.8% in April.

Against the yen, the dollar was trading at JP¥127.60, up from JP¥127.17 late Friday.

Brent oil was quoted at $120.20 a barrel at the equities close, up sharply from $117.73 at the close Friday.

Gold stood at $1,857.80 an ounce at the London equities close, slightly higher against $1,852.40 late Friday.

The economic events calendar on Tuesday has UK mortgage approvals at 0930 BST and eurozone inflation at 1000 BST.

The UK corporate calendar on Tuesday has annual results from variety store chain B&M European Value Retail and water company Pennon Group.

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