LONDON MARKET OPEN: China easing and M&A give London post-holiday lift

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London returned to trading after its long holiday weekend with some pep, amid better economic news from China and acquisition activity in the FTSE 100.

The large-cap index was up 86.77 points, or 1.1%, at 7,619.77 early Monday. The mid-cap FTSE 250 index was up 265.91 points, or 1.3%, at 20,538.71. The AIM All-Share index was up 6.35 points, or 0.7%, at 978.95.

The Cboe UK 100 index was up 1.2% at 758.74. The Cboe 250 was up 1.3% at 18,196.62, and the Cboe Small Companies was up 0.3% at 14,702.84.

In mainland Europe, the CAC 40 in Paris was up 1.0% and the DAX 40 in Frankfurt was up 0.7%.

In the FTSE 100, Melrose Industries was up 4.1% after the industrial turnaround specialist agreed to sell its Ergotron business to funds managed by Sterling Group for a total of $650 million.

Completion of the sale is expected to occur in the third quarter of 2022 and is conditional upon US antitrust approvals. On or before completion, Melrose will announce how it intends to use the net proceeds, it said.

CRH was up 2.8% after the Irish building materials firm agreed to buy Barrette Outdoor Living, an Ohio-based maker of residential fencing and railing, for an enterprise value of $1.9 billion.

CRH is buying Barrette from TorQuest Partners and Caisse de depot et placement du Quebec. It is paying $1.85 billion in cash, plus taking on $40 million in capitalised lease liabilities.

Barrette, which will be added to CRH's Architectural Products business, reported $79 million in pretax profit in the financial year that ended January 1. CRH said the price it is paying represent a multiple of 10 times earnings before interest, tax, depreciation and amortisation.

Dublin-based CRH noted the acquisition follows the recent divestment of its Building Envelope business and represents a reallocation of capital.

Conversely, Aveva was down 0.6% after Citigroup downgraded the industrial software provider to 'sell' from 'neutral'.

In the FTSE 250, John Wood Group was up 7.0%, after Barclays raised the energy services firm to 'overweight' from 'equal weight'.

Elsewhere, eve Sleep was down 23%. The mattress seller said it is looking for a new owner to take the company private, as it warned that it will miss revenue targets this year.

The company said it needs new funding to push into the ‘wider sleep wellness space’. It is looking for a new owner, or a major new investor, the board said.

‘Having delivered a third consecutive year of growth in revenues and marketing contribution in our core UK & Ireland business in 2021, and cognisant of current trading conditions, the board now wishes to accelerate Eve's push into the wider sleep wellness space,’ eve Sleep said. ‘In order to deliver our objective of creating the first digital sleep wellness retailer, the board considers that Eve would benefit from additional investment.’

eve Sleep said it was in talks with a US investor who was interested - at least for a while - in making a bid to take the company private. But discussions later lapsed, and the investor is no longer interested.

In Asia on Monday, the Japanese Nikkei 225 index closed up 0.6%. In China, the Shanghai Composite ended up 1.3%, while the Hang Seng index in Hong Kong was up 1.6%. The S&P/ASX 200 in Sydney closed down 0.5%. Beijing and Hong Kong reopened after being closed for the Dragon Boat Festival holiday on Friday.

Beijing will gradually lift Covid-19 restrictions this week, city officials said. After some easing in recent days, the Chinese capital - which reported 19 new infections Sunday - announced residents would start returning to work from Monday and schools would reopen from June 13.

From Monday, restaurants will be able to welcome customers again – if they have tested negative in the previous three days – and public transport will operate normally, the city's government said in a statement. In Shanghai, most of the city's 25 million inhabitants have been able to move freely since Wednesday.

On the economic front, service sector companies in China increased prices in May, as cost pressures continued to remain high and backlogs of work grow, due to disruption from the lockdowns imposed by Beijing to combat the spread of Covid-19.

The Caixin general services purchasing managers' index rose to 41.4 points in May from 36.2 in April, a reading that had marked a 26-month low. However, the PMI score remained well below the neutral 50-point mark, indicating that activity continued to shrink last month. Total new business fell for the fourth month in a row, Caixin Insight Group reported.

‘The easing of lockdown measures in China has supported risk sentiment, even though its May services PMI remained well below 50 for a third month,’ commented Lloyds Bank. ‘There has been a mixed market reaction to last Friday’s US jobs data which beat consensus forecasts and reaffirmed the likelihood of significantly further Fed policy tightening in the months ahead.’

The pound was quoted at $1.2535 early Monday, up from $1.2490 at the London equities close on Wednesday last week, before the four-day holiday weekend.

Amid a dearth of major economic data, Lloyds noted, ‘sterling market attention will...centre on speculation about PM Johnson's future’.

A confidence vote in the UK prime minister could be announced this week as allies of Boris Johnson appeared braced for a test of his leadership. A government minister admitted the Conservative party ‘may well’ hold a vote on whether to keep Johnson as leader, but backed him to ‘face down’ the rebels calling for him to quit.

Almost 30 Tory MPs have publicly urged the prime minister to resign amid the fallout from revelations about Downing Street parties held during lockdown. But reports have suggested more MPs privately want him to go and that enough letters demanding a confidence vote have been submitted to trigger such a showdown.

Under Conservative party rules, if 54 letters from MPs are sent to Graham Brady – the chair of the 1922 Committee of backbench Tories – asking for a leadership poll then a vote is called.

The euro was priced at $1.0735, up from $1.0655. Against the Japanese yen, the dollar was trading at JP¥130.50 in London, higher against JP¥129.95.

Brent oil was quoted at $120.24 a barrel on Monday morning, up from $117.23 late Wednesday. Gold stood at $1,853.11 an ounce, higher against $1,843.12.

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