LONDON MARKET MIDDAY: Shares weaken as M&A activity fails to give lift

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Stock prices were lower globally on Tuesday as concerns about weakening consumer demand and rising interest rates came back into focus, with turmoil in Westminster remaining a side show for investors.

The FTSE 100 index was down 10.30 points, or 0.1%, at 7,597.92 midday Tuesday. The mid-cap FTSE 250 index was down 107.37 points, or 0.5%, at 20,399.43. The AIM All-Share index was down 6.64 points, or 0.7%, at 972.96.

The Cboe UK 100 index was down 0.2% at 756.74. The Cboe 250 was down 0.7% at 18,086.62, and the Cboe Small Companies was down 0.3% at 14,749.25.

In mainland Europe, the CAC 40 in Paris was down 0.7% and the DAX 40 in Frankfurt was down 0.8%.

AJ Bell investment director Russ Mould commented that the survival of Johnson was ‘met by a shrug on the markets’ and even though political turmoil may start to spook investors, for now ‘the focus remains firmly on inflation’.

The PM addressed his Cabinet on Tuesday in a bid to keep his premiership afloat by putting a bruising confidence ballot firmly behind him.

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

He also poured cold water on the prospect of a snap election, saying he was ‘certainly not interested’ in the idea. But while allies of Johnson have insisted his ballot victory should draw a line under the question of his leadership, Labour is moving to apply further pressure on the PM by pushing a Commons vote on standards.

Tory MPs voted by 211 to 148 in support of Johnson 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 his predecessor.

In the FTSE 100, Rio Tinto and Anglo American were up 1.5% and 1.2% respectively 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 3.3%. The sportswear retailer, Rangers Football Club and the latter's branded clothing manufacturer have provisionally been found guilty of price-fixing, the UK's competition watchdog said.

JD Sports said it plans to recognise a £2 million provision in its financial statements for the year ended January 29. The figure is the athletic apparel retailer's ‘best estimate’ for the liabilities involved with the matter, including legal costs.

JD Sports, Rangers and LBJ Sports Apparel, which trades as Elite Sports, broke ‘competition law by fixing’ prices for replica kit of the Scottish football club from September 2018 ‘until at least’ July 2019, the Competition & Markets Authority said.

In the FTSE 250, Biffa was the standout performer, up 27% at 411.60 pence, after the waste management company received a series of ‘unsolicited and indicative’ proposals from private equity firm Energy Capital Partners.

ECP's proposal is in respect of a possible offer at a price of 445p 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.

Turning to current business, Biffa said it continues to trade well, with underlying performance being in line with the board's expectations. Volumes have remained at expected levels, and Biffa continues to mitigate inflationary pressures, it added.

At the other end of the mid-caps, National Express was the worst performer, down 7.0%. The transport operator said its revenue is close to its 2019 pre-pandemic levels, putting it on track to deliver nearly £3 billion annual revenue in 2022.

Further, National Express said it expects to make progress toward its 9% average profit margin target from 2022 to 2027 and to recover to its pre-pandemic margin level of around 10% in the later stages of that period. It reported a pretax loss of £84.9 million in 2021.

National Express also said it has been ‘rigorous’ in its capital allocation, reinvesting free cash flow generation into organic opportunities and expects to resume dividend payments for the 2022 full-year.

Elsewhere, Ted Baker was down 17% 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.

The dollar was higher across the board. The pound was quoted at $1.2515 at midday on Tuesday, down from $1.2528 at the London equities close Monday.

The euro was priced at $1.0680, down slightly from $1.0688. Against the Japanese yen, the dollar was trading at fresh 20-year highs, quoted at JP¥132.80 in London, up sharply from JP¥131.61.

On the economic front, the UK services sector saw its weakest performance for over a year in May as rising inflation dented customer demand, according to S&P Global.

The S&P Global-CIPS UK services purchasing managers' index printed 53.4 points in May, up from the preliminary reading of 51.8, but down sharply from 58.9 in April. The latest reading was the worst final tally since February 2021.

The composite PMI print was 53.1 in May, down sharply from 58.2 in April. Last week, the manufacturing PMI was reported at 54.6 points in May, unchanged from the earlier flash estimate and down from 55.8 in April.

‘The sharp drop in the services PMI in May provides further proof that consumers are tightening their belts amid the decline in real incomes,’ said Gabriella Dickens, senior UK economist at Pantheon Macroeconomics.

Amid the weak consumer demand, firms will have difficulty making big price increases in the months ahead, while a recovery in the UK workforce also should put a lid on wage growth for the rest of 2022, Dickens said. ‘Accordingly, we expect the [Bank of England] to end its tightening cycle once the bank rate has reached 1.50%, much earlier than markets currently expect.’

On the continent, eurozone construction activity declined in May, as demand was hit by disruptions in the supply chain and output suffered from higher raw material prices.

The S&P Global eurozone construction total activity index fell to 49.2 in May from 50.4 in April, signalling a renewed downturn and the sharpest contraction for 15 months.

Brent oil was priced at $119.28 a barrel Tuesday at midday in London, unmoved from $119.27 at the London equities close Monday. Gold stood at $1,848.88 an ounce, higher against $1,844.10.

New York was pointed to a lower open as investors await a key US consumer price index reading, due on Friday.

The Dow Jones Industrial Average was called down 0.5%, S&P 500 down 0.5% and the Nasdaq Composite down 0.7%. The indices had closed up 0.1%, 0.3%, and 0.4% respectively on Monday.

Twitter shares were down 1.8% in pre-market trade in New York after Elon Musk threatened to withdraw his bid to buy the social media platform. Twitter shares have given back all of their April and May spike, trading down 7.3% so far in 2022.

The Tesla founder accused the social media site of failing to provide data on fake accounts. A document filed with securities regulators on Monday charged Twitter of being in ‘clear material breach’ of its ‘obligations under the merger agreement’ due to the lack of information regarding bots. ‘Musk reserves...his right not to consummate the transaction,’ the filing continued.

Tesla shares were down 1.8% in pre-market activity, amid concern that Twitter is distracting Musk's attention from the electric car maker.

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