LONDON MARKET OPEN: M&A, not politics, to fore in flat early trade


The pound was lower early Tuesday, but the London stock market wasn't reacting at all to a large rebellion against the UK prime minister by members of his own parliamentary party.

Merger and acquisition activity was attracting more attention from investors, while an interest rate hike by the Australian central bank kept focus on rising inflation and tightening monetary policy around the world.

‘The survival of Boris Johnson in a confidence vote of Conservative MPs is met by a shrug on the markets on Tuesday,’ said AJ Bell investment director Russ Mould, adding that ‘while political turmoil might eventually start to spook investors, for now the focus remains firmly on inflation.’

The FTSE 100 index was down 9.10 points, or 0.1%, at 7,599.12. The mid-cap FTSE 250 index was down 61.78 points, or 0.3%, at 20,444.73. The AIM All-Share index was down 2.19 points, or 0.2%, at 977.41.

The Cboe UK 100 index was down 0.1% at 757.74. The Cboe 250 was down 0.3% at 18,147.62, and the Cboe Small Companies was down 0.2% at 14,765.25.

In mainland Europe, the CAC 40 in Paris was down 0.5% and the DAX 40 in Frankfurt was down 0.6%.

In the FTSE 100, Rio Tinto and Anglo American were the best performers, both up 1.5%, after Jefferies raised the miners to 'buy' from 'hold'.

British Land was up 1.4% after Barclays double-upgraded the property company to 'overweight' from 'underweight'.

At the other end of the large-caps, JD Sports Fashion was the worst performer, down 2.6%. The UK Competition & Markets Authority provisionally found that Elite Sports, JD Sports and Rangers Football Club broke competition laws by fixing the prices of some Rangers-branded products from September 2018 to July 2019.

In response, JD Sports said it intends to recognise a provision of around £2 million in its financial statements for the 52 weeks to January 29, 2022. This represents the best estimate of the liability payable, including associated legal costs, it explained.

In the FTSE 250, Biffa was the standout performer, up 28% at 416.40 pence. The waste management company received a series of ‘unsolicited and indicative’ proposals from private equity firm Energy Capital Partners.

ECP's proposal is for a possible offer at a price of 445 pence per Biffa share in cash, valuing the company at around £1.35 billion. The offer is a 37% premium to Biffa's closing price of 325p on Monday. Biffa said its board has concluded that should a firm offer be made on the same financial terms as the proposal it would be ‘minded to recommend it’ to Biffa shareholders.

Elsewhere, Ted Baker plunged 20% after the fashion retailer was informed by its preferred bidder late Monday that it does not intend to proceed with an offer for the company.

The bidder, whom Ted Baker hasn't named, indicated that its reason for not proceeding was not linked to its due diligence review of the company, Ted Baker explained.

The London-based seller of clothing and accessories said it will now go back and look at other proposals received as part of its formal sale process, but there can be no certainty that an offer will be made.

Ted Baker kicked off a formal sales process in April. At the time, it had said that Sycamore Partners Management LP, the New York-based private equity firm whose approaches had triggered the sales process, was participating. However, Ted Baker later confirmed that Sycamore was no longer participating in the sales process.

In Asia on Tuesday, stocks were mixed. Tokyo's Nikkei 225 index closed up 0.1%. The Shanghai Composite ended up 0.1%, while the Hang Seng index in Hong Kong was down 0.4%. The S&P/ASX 200 in Sydney ended down 1.5%.

Australia's central bank hiked interest rates on Tuesday, warning of more increases ahead as officials try to rein in ‘significantly’ high inflation.

The Reserve Bank of Australia upped its main lending rate by half a percentage point to 0.85%. It also increased the interest rate on exchange settlement balances by 50 basis points to 75 basis points.

Governor Philip Lowe pointed to ‘significant’ inflation rises as the reason behind the bank's move.

Lowe said inflation is expected to increase further in Australia, before slotting back towards the RBA's 2% to 3% target range.

Meanwhile, UK Prime Minister Boris Johnson is set to meet his Cabinet on Tuesday as he seeks to keep his premiership afloat by putting a bruising confidence ballot firmly behind him.

The PM insisted he had secured a ‘decisive’ victory despite 148 of his own MPs voting to oust him on Monday night, arguing the government could now ‘move on’ and focus on what ‘really matters to people’.

Tory MPs voted by 211 to 148 in support of the prime minister on Monday, but the scale of the revolt against his leadership left him wounded.

When Theresa May faced a confidence vote in 2018 she secured the support of 63% of her MPs, but was still forced out within six months.

For Johnson, this was 59%, as 41% of his MPs voted against him, a worse result than May.

The dollar was higher across the board. The pound was quoted at $1.2485 on early Tuesday, down from $1.2528 at the London equities close Monday.

The euro was priced at $1.0678, down from $1.0688. Against the Japanese yen, the dollar was trading at JP¥132.80 in London, up sharply from JP¥131.61.

Brent oil was priced at $120.33 a barrel Tuesday morning, up from $119.27 at the London equities close Monday. Gold stood at $1,844.14 an ounce, unmoved from $1,844.10.

Tuesday's economic calendar has a UK PMI reading at 0930 BST, and eurozone investor confidence at 0930 BST.

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