LONDON MARKET MIDDAY: Subdued Start To Week Ahead Of Central Banks

(Alliance News) - The week got off to a muted start on Monday, with investors focused on a ...

Alliance News 17 June, 2019 | 11:56AM
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(Alliance News) - The week got off to a muted start on Monday, with investors focused on a plethora of central bank meetings in the coming days.

The UK's headline stock index was teetering between red and green, with gains for Royal Bank of Scotland largely offset by airlines following a profit warning from German flag carrier Lufthansa.

The FTSE 100 was down 4.06 points, or 0.1%, at 7,341.72 Monday midday. The FTSE 250 was up 50.31 points, or 0.3%, at 19,168.65 while the AIM All-Share was down 0.1% at 936.27.

The Cboe UK 100 index was down 0.1% at 12,451.76. The Cboe UK 250 was up 0.3% at 17,196.30 with the Cboe UK Small Companies down 0.1% at 11,660.03.

In mainland Europe, the CAC 40 in Paris and DAX 30 in Frankfurt were up 0.2% and 0.1% respectively in afternoon trade.

"European markets are largely treading water this morning, as an indecisive Asian session gives way to a similarly unconvincing start to the week for UK and eurozone markets," said Joshua Mahony, senior market analyst at IG.

"The week will be dominated by central banks, with the RBA, BoJ, Fed, and BoE all providing their latest monetary policy decisions in a period where markets are seeing a notable shift towards more dovish standing," he added.

In the US, stocks are pointed to start the week on a positive note, with the Dow Jones and S&P 500 both seen up 0.1% and the Nasdaq called to gain 0.2%.

While the economic events calendar is quiet at the start of the week, things will pick up as the in the coming days with the Federal Open Market Committee beginning its two-day monetary policy meeting on Tuesday, announcing its decision on Wednesday.

"We will be watching out for whether the Fed decides to cut rates as a key driver of market sentiment, yet Friday's rebound for the dollar highlights the feeling that this is likely to be a wait-and-see event given the release of Q2 GDP next month," said Mahony.

Following the Fed, the Bank of England releases its own interest rate decision on Thursday.

Ahead of this, the pound was experiencing a soft start to the week, quoted at USD1.2587 versus USD1.2604 late Friday.

Boris Johnson's Tory leadership bid has received a new boost with the backing of Health Secretary Matt Hancock who pulled out of the contest last week.

Despite having ruled out a no-deal Brexit during his campaign, in contrast to Johnson, he said the former foreign secretary was now the best candidate to re-unite the fractured Conservative Party. His endorsement came after the clear frontrunner was criticised for failing to appear in the first of the televised leadership debates staged by Channel 4 on Sunday evening.

Johnson, who has been under fire over his reluctance to face media scrutiny, is likely to face further criticism after refusing to take part in a hustings on Monday organised by political journalists at Westminster.

However, Johnson has said he will take part in a BBC debate on Tuesday, after the second round of voting, when the field of candidates will have been whittled down further.

In London, Royal Bank of Scotland gained 2.1% to be the top performer in the FTSE 100.

The UK state-backed lender said the completion of a merger between two Saudi Arabia based banks - Alawwal bank and Saudi British Bank - will lead to a "positive and material financial impact".

Saudi British Bank in October 2018 finalised an agreement to buy Alawwal Bank for USD5 billion, creating the kingdom's third-largest lender with USD71 billion in assets.

RBS, through its Dutch-domiciled investment bank NatWest Markets, was part of a consortium that held an aggregate 40% equity stake in Alawwal bank. The interest of RBS was equivalent to a 15.3% shareholding in Alawwal bank.

In total, RBS will record a GBP700 million profit attributable to shareholders as a result of the Saudi bank combination.

Meanwhile, airlines were among the fallers after a profit warning from Germany's Lufthansa.

Lufthansa, shares down 12% in Frankfurt, blamed "price deterioration in Europe" caused by market-wide overcapacity and "aggressively growing low cost competitors".

The German airline said it now expects adjusted earnings before interest and taxes of EUR2.0 billion to EUR2.4 billion in 2019, on the basis of low-single-digit revenue growth. In 2018, Lufthansa reported adjusted Ebit of EUR2.8 billion, which in turn was down from EUR3.0 billion in 2017.

Following this disappointing update from the German flag carrier, budget airline easyJet was down 5.3% and British Airways owner International Consolidated Airlines down 2.9%. Ryanair shares sank 6.3%.

Also among Monday's losers, Lucky Strike cigarette maker British American Tobacco shed 1.8% after Morgan Stanley cut the stock to Underweight from Equal Weight.

The FTSE 250, meanwhile, was kept float by gains for Babcock International and Hammerson.

Defence firm Babcock rose 4.6% after confirming it rejected a takeover approach from outsourcing peer Serco Group in January.

The proposal was unsolicited and "highly preliminary", Babcock said, and involved an all-share merger. No further proposal has been received since January.

Serco shares were up 0.2% at midday.

Hammerson advanced 3.5% after Peel Hunt raised the owner of Birmingham's Bullring shopping centre to Add from Hold.

Firmly at the bottom of the index was Kier, sinking 12% after axing its dividend and putting several businesses up for sale in order to rein in debt.

The construction company has put Kier Living, its housebuilding business, up for sale as well as Kier Property. Kier also will be quitting the Management and Environmental Services businesses.

Further, Kier has suspended dividend payments for its year ending June, and the following financial year. This comes after Kier slashed its first half dividend 79% to 4.9 pence a share.

"[CEO Andrew Davies] is taking drastic action in an attempt to avoid Kier suffering a similar fate to its doomed peer Carillion. Jobs are being slashed, the housebuilding unit is being sold and the company is prioritising cash flow," commented Russ Mould at AJ Bell.

"These all seem like sensible steps but delivering on this plan will not be easy," he added. "The turnaround programme delivered by Leo Quinn at rival group Balfour Beatty offers Kier something of a template."

On London's junior AIM market, Staffline tumbled 37% as it skipped its annual dividend and set out plans for a GBP30 million share placing, as well as almost doubling its provision for liabilities associated with minimum wage regulations.

Staffline has made a final update to its national minimum wage compliance liabilities, raising the total amount to GBP15.1 million from GBP7.9 million including GBP500,000 of adviser costs, all of which is expected to be a cash cost in 2019.

In a bid to reduce its leverage at the end of 2019, Staffline is planning a GBP30 million share placing in order to cut its ratio of net debt to underlying earnings before interest, depreciation, taxation, and amortisation to below two times.

Staffline said it will not be recommending a final dividend for 2018 but did reiterate its guidance for an underlying 2018 performance "in line with expectations". Staffline has yet to publish its 2018 results due to an extensive audit but now expects to do next week.

By Lucy Heming; lucyheming@alliancenews.com

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Securities Mentioned in Article
Security Name Price Change (%) Morningstar Rating
Staffline Group PLC 130.99 GBX 0.76 -
Hammerson PLC 271.10 GBX -1.27 -
Kier Group PLC 76.79 GBX -4.13 -
Ryanair Holdings PLC 10.03 EUR -0.74 -
Babcock International Group PLC 439.91 GBX 0.60 -
British American Tobacco PLC 3,074.45 GBX -0.97
easyJet PLC 1,087.00 GBX 1.02 -
The Royal Bank of Scotland Group PLC 228.00 GBX -1.17
Serco Group PLC 143.10 GBX 0.49 -
International Consolidated Airlines Group SA 450.74 GBX -1.15 -
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