LONDON MARKET OPEN: Trade Concerns See Stocks Start Week Sharply Lower

LONDON (Alliance News) - Stocks in London opened firmly in the red on Monday with miners ...

Alliance News 2 July, 2018 | 8:49AM
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LONDON (Alliance News) - Stocks in London opened firmly in the red on Monday with miners weighing on the large cap index, while the latest round of aggressive trade rhetoric from the US weighed on investor sentiment.

The FTSE 100 index was down 1.2%, or 93.21 points, at 7,543.72. The mid-cap FTSE 250 index was down 0.8% at or 171.79 points 20,659.18. The AIM All-Share index was down 0.4% or 3.94 at 1,078.51.

The Cboe UK 100 was down 1.6% at 12,781.21, the Cboe UK 250 was down 0.9% at 18,906.64, and the Cboe UK Small Companies was down 1.5% at 13,422.17.

In mainland Europe, the CAC 40 in Paris was down 1.4% while the DAX 30 in Frankfurt was down 1.3%.

Over the weekend, US President Donald Trump lashed out at the European Union, slamming the US trade deficit with the bloc.

"The EU is possibly as bad as China, just smaller," Trump said. "We had a trade deficit with the EU ... on top of that we spend a lot of money on NATO to protect them".

"As has become the pattern of late, the markets sank on Monday morning following the latest weekend tariff talk from Donald Trump, presumably to leave investors scrabbling about for any signs of trade war-avoidance across the rest of the week. Rinse and repeat," said Spreadex analyst Connor Campbell.

On the London Stock Exchange, Micro Focus was the best performer among a handful of blue chip risers up 4.9%. The software company agreed to sell its Linux unit SUSE Business to Blitz 18-679, a subsidiary of Swedish private equity group EQT Partners for USD2.54 billion.

Proceeds from the sale will go towards paying any tax coming from the transaction, repaying part of the group's debt, general corporate purposes and shareholder returns.

The disposal is expected to be completed in the first quarter of 2019.

Conversely, miners among the worst blue chip performers following disappointing manufacturing PMI data from China.

Anglo American was down 3.0%, BHP Billiton down 2.9%, Glencore down 2.9%, Antofagasta down 2.8% and Rio Tinto down 2.5%.

The manufacturing sector in China continued to expand in June, albeit at a slower rate, the latest survey from Caixin revealed with a manufacturing PMI score of 51.0. This is down from 51.1 in May, although it remains above the boom-or-bust line of 50 that separates expansion of contraction.

Individually, production expanded at a faster pace despite a softer rise in total new orders and a further decline in export sales. Staffing levels fell at the quickest rate in nearly a year.

Elsewhere among the large caps supermarket chain Tesco was down 0.3% as it said it is to enter a three-year strategic alliance with French peer Carrefour Group.

Tesco said the partnership will cover the strategic relationship with global suppliers, the joint purchasing of own brand products and goods not for resale. In addition, the alliance will enable both companies to improve quality and choice of products available to its customers and strengthen relationships with suppliers, Tesco added. The alliance is expected to be formally agreed within the next two months.

In the FTSE 250, Vedanta Resources surged 26% at 817.00 pence after the Indian miner said it has agreed terms over an all cash offer from Volcan Investments - an investment vehicle controlled by Vedanta Chairman Anil Agarwal. Volcan holds a 67% stake in Vedanta.

The offer priced at 825 pence per share values Vedanta at GBP2.33 billion and the issued share capital not currently owned by Volcan at GBP778 million. The offer represents a premium of 27.6% to the closing share price of 647.0p on Friday and 13.5% to Vedanta's three-month volume weighted average price of 727 pence.

In addition, the company said Volcan has confirmed to the Independent Committee that Vedanta shareholders will also be entitled to receive the 2018 Dividend due to be paid out in US dollars on August 22. The total offer value in aggregate comprises 856 pence per share, and represents a premium of approximately 32.4% to the closing price of 647 pence per Vedanta share on Friday.

Should the offer be successful, Volcan intends for Vedanta to make an application for the cancellation of the listing of its shares on the London Stock Exchange. This would take effect no earlier than 20 business days after the date on which Volcan has received acceptances.

"The London listing has served us extremely well since that time. However, given the subsequent growth of our underlying businesses and the maturity of the Indian capital markets, together with related feedback from our shareholders and other stakeholders, we have concluded that a separate London listing is no longer necessary to achieve the Vedanta Group's strategic objectives," Agarwal said.

"In taking this important step towards greater group simplification, we wanted to ensure that the independent shareholders of Vedanta Resources were provided with the opportunity to exit on attractive terms, and I believe this possible offer will deliver on that objective," added Agarwal.

Sterling was lower against the dollar quoted at USD1.3173 early Monday ahead of the PMI reading, compared to USD1.3200 at the London equities close on Friday.

Last month UK manufacturing PMI indicated a slight acceleration of activity, rebounding to 54.4, having eased to 53.9 in April. The reading for June is expected to come in at 54.0.

"The pound, meanwhile, has fallen below USD1.32 and is being pulled in opposing directions by expectations of an August rate rise on the one hand and Brexit uncertainties on the other," said analysts at Lloyds.

In domestic political news, Prime Minister Theresa May must deliver the Brexit she promised or risk collapsing the government, a leading Brexiteer has warned ahead of crucial Cabinet talks on the UK’s exit strategy.

Jacob Rees-Mogg said May and her top team must decide at a meeting at Chequers on Friday if they would stand by her pledges or reduce "a once-proud country" to a "tremulous state that sees Brexit as mere damage limitation". It comes as Downing Street was reportedly preparing to discuss a third model for post-Brexit trade with the Cabinet in a bid to overcome disagreement on the issue.

The Japanese Nikkei 225 index closed down 2.2%. In China, the Shanghai Composite closed down 2.2%.

Stock markets in Hong Kong are closed on Monday for the Hong Kong Special Administrative Region Establishment Day holiday.

In early economic news, the manufacturing sector in China continued to expand in June, albeit at a slower rate, the latest survey from Caixin revealed with a manufacturing PMI score of 51.0.

This is down from 51.1 in May, although it remains above the boom-or-bust line of 50 that separates expansion of contraction.

The euro was quoted at USD1.1631, compared to USD1.1670 at the European equities close Friday.

The economic events calendar on Monday has manufacturing PMI data from Italy, France, Germany, eurozone, and US at 0845 BST, 0850 BST, 0855 BST, 0900 BST and 1445 BST. There is also unemployment and producer price readings from the eurozone at 1000 BST.

By Arvind Bhunjun;

Copyright 2018 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article
Security Name Price Change (%) Morningstar
Antofagasta PLC 977.20 GBX 1.98 -
Glencore PLC 318.85 GBX 0.60
Micro Focus International PLC 1,950.50 GBX 2.01 -
Vedanta Resources PLC
Anglo American PLC 2,018.50 GBX 1.27
BHP Billiton PLC 1,796.20 GBX 1.62
Tesco PLC 233.20 GBX -0.55
Rio Tinto PLC 4,282.50 GBX 1.87
About Author Alliance News

Alliance News provides Morningstar with continuously updating coverage of news affecting listed companies.

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