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LONDON MARKET CLOSE: Stocks Higher As China Extends Trade Olive Branch

(Alliance News) - Stocks in London joined in a global rally on Wednesday as investors cheered an ...

Alliance News 11 September, 2019 | 4:54PM
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(Alliance News) - Stocks in London joined in a global rally on Wednesday as investors cheered an easing of trade friction between the US and China.

China on Wednesday said it would spare a number of US products from punitive tariffs in what is seen as an olive branch by Beijing in the protracted trade war ahead of high-level talks next month. However, Beijing did not spare high-profile US products like soybeans and pork.

Trade negotiators have said they will meet in Washington in early October, raising hopes for an easing of tensions between the world's two biggest economies.

The FTSE 100 index closed up 70.08 points, or 1.0%, at 7,338.03. The internationally exposed index hit an intraday high of 7,346.71 in early trade - its highest level in five weeks.

The FTSE 250 ended up 243.30 points, or 1.2%, at 19,982.16, and the AIM All-Share closed up 4.87 points, or 0.6%, at 880.27.

The Cboe UK 100 ended up 1.0% at 12,442.12, the Cboe UK 250 closed up 1.5% at 17,863.37, and the Cboe Small Companies ended up 0.6% at 10,915.45.

Stocks in New York were higher at the London equities close, with the DJIA up 0.1%, the S&P 500 index up 0.2% and the Nasdaq Composite up 0.6%.

In Paris the CAC 40 ended up 0.4%, while the DAX 30 in Frankfurt ended up 0.7%.

"Stocks were in positive territory heading into the close as a mixture of optimism in relation to the US-China trade situation, and the high hopes for tomorrow's European Central Bank (ECB) meeting have boosted sentiment. China said it will not impose additional tariffs on 16 US products, and this conciliatory move should help the trading relationship between Washington DC and Beijing," said CMC Markets analyst David Madden.

In the FTSE 100, London Stock Exchange Group ended the best performer, up 5.9% at 7206.00p

amid hopes of a mega-merger between the London exchange operator and its Hong Kong rival.

LSEG said it will consider a merger offer made by Hong Kong Exchanges & Clearing made earlier on Wednesday. In response to the buyout offer, LSEG said the proposal was "unsolicited, preliminary, and highly conditional", but it will look into it and make a further announcement "in due course".

HKEX has offered 2,045 pence in cash and 2.495 new HKEX shares for each LSEG share, valuing LSEG at GBP29.6 billion. It gives an enterprise value, which includes debt, of GBP31.6 billion. This price, HKEX said, is a 23% premium to LSEG's 6,804.00p closing price in London on Tuesday.

In August, LSEG sealed its agreement to buy financial markets data provider Refinitiv Holdings in an all-stock transaction for a total enterprise value of USD27 billion.

"There's not a mammoth premium here and do you as a LSE shareholder now fancy ditching your LSE stock in favour of a Hong Kong listed share (just 41% of the new company to boot) which at any moment could be appropriated by Beijing should they so desire? No thanks. Secondly, LSE is all-in on the Refinitiv deal so why would they pull out now for such a gamble? It doesn't make sense. I guess the question now is whether this approach forces others to join the party and spark a bidding war. Not everyone is so warm to the Refinitiv deal as the stock price adjustment suggests - a better premium from say a (US) rival could look appealing to shareholders," Markets.com analyst Neil Wilson commented.

HKEX said LSEG's current management would continue to run the business, and HKEX has begun talking with all relevant regulators. HKEX would carry out a secondary listing on the London Stock Exchange as part of the deal.

At the other end of the large cap index, Royal Dutch Shell 'A' and 'B' shares both closed down 0.9% after HSBC cut the oil major to Hold from Buy.

The pound was quoted at USD1.2333 at the London equities close, lower than USD1.2350 at the close Tuesday.

On the political front, UK Prime Minister Boris Johnson was facing furious demands for the immediate recall of MPs to Westminster after the suspension of Parliament was ruled unlawful by Scotland's highest civil court.

In a dramatic judgment, the Court of Session in Edinburgh found ministers had stopped MPs from sitting for the "improper purpose of stymying Parliament".

It said advice given by ministers to the Queen which led to the five-week prorogation was therefore "unlawful and is thus null and of no effect".

The government immediately announced it was lodging an appeal against the ruling with the Supreme Court, with a hearing set for Tuesday.

However, opposition MPs said the prorogation should be set aside without delay so ministers could be held to account for their Brexit plans in the Commons.

The euro stood at USD1.0985 at the European equities close, down from USD1.1045 late Tuesday, ahead of the European Central Bank's interest rate decision on Thursday, with investors anticipating a new round of monetary stimulus.

With the economy stuttering, attention has turned increasingly to central banks as investors look for more stimulus.

Earlier this week, data showed that the eurozone's growth rate halved in the second quarter of this year.

On Thursday, the ECB holds one of its most anticipated gatherings and hopes are for a series of fresh measures including a possible interest rate cut, fresh bond-buying quantitative easing or other loosening tools.

"Many market players are skeptical that any form of monetary stimulus would be of benefit to the region as the eurozone does not suffer from the availability of credit or liquidity but rather demand. In fact, some the analysts have pointed out the paradox of easing could actually exacerbate the slowdown in growth as it would make EU rates even lower and thus make saving much more difficult," said BK Asset management's Boris Schlossberg.

"In the eurozone, unlike in the US, savers traditionally allocate the vast majority of their funds to fixed income instruments rather than equities. With rates already negative across the region, saving becomes even more difficult, requiring more and more capital thus dampening demand. More QE, therefore, creates a vicious rather a virtuous cycle with respect to growth and not only becomes ineffective but rather counterproductive," he added.

The ECB will announce its interest rate decision on Thursday at 1245 BST. This will be followed by President Mario Draghi's penultimate press conference as ECB chief at 1330 BST.

Brent oil was quoted at USD62.75 a barrel at the London equities close, down from USD63.51 at the close Tuesday.

The Organisation of the Petroleum Exporting Countries urged continued production restraint, saying output gains are still expected to outpace growth in demand for oil.

With OPEC and its allies set to meet on Thursday to consider fresh reductions, the monthly report argued that oil market needs stability.

While world oil demand is forecast to increase around 1 million barrels per day in both 2019 and 2020, the cartel said: "Nevertheless, this is expected to be outpaced by the strong growth in non-OPEC supply."

OPEC expects non-OPEC production to rise by nearly 2 million barrels per day this year and 2.25 million barrels per day next year, largely due to gains in the US.

Gold was quoted at USD1,491.40 an ounce at the London equities close, lower than USD1,496.83 late Tuesday.

The economic events calendar on Thursday has Germany inflation readings at 0700 BST, eurozone industrial production at 1000 BST and US inflation figures at 1330 BST.

The UK corporate calendar on Thursday has interim results from supermarket chain WM Morrison Supermarkets and from oil and gas firm Energean Oil & Gas. There is also a trading statement from self storage provider Safestore Holdings.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

London Close is available to subscribers as an email newsletter. Contact info@alliancenews.com

Copyright 2019 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Rating
Royal Dutch Shell PLC B 2,334.62 GBX 2.42
London Stock Exchange Group PLC 7,346.00 GBX -2.24
Royal Dutch Shell PLC Class A 26.40 EUR 2.62 -
Hong Kong Exchanges and Clearing Ltd 235.00 HKD -2.41

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