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ADVFN Morning London Market Report: Monday 17 June 2019

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London open: Stocks steady but airlines hit by Lufthansa profit warning

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London stocks were steady in early trade on Monday, with airlines under the cosh after a profit warning from Lufthansa.

At 0830 BST, the FTSE 100 was flat at 7,344.88, while the pound was down 0.1% against the dollar and the euro at 1.2579 and 1.1222, respectively.

Neil Wilson, chief market analyst at Markets.com said: “The S&P 500 closed a shade lower on Friday. Asian shares a bit wobbly overnight. Gains may be hard to sustain with the Fed in focus and no clear signs of progress on trade. Investors may take a bit of risk off the table in the next couple of days.

“US commerce secretary Wilbur Ross has poured cold water on any hopes that we might get a trade deal from the G20 meeting and said the US is ready to increase tariffs on China if necessary.

“All eyes are of course on the Fed meeting this week. It’s hard to recall a time we headed into an FOMC meeting with so much at stake and with so much uncertainty about what might be agreed. This means the potential volatility around the event is likely to be substantially higher than at most recent FOMC meetings. Traders may start to show some nervousness ahead of the Fed meeting if they think it won’t be accommodative as hoped.”

Policy announcements are also due from the Bank of England and the Bank of Japan, both of which are expected to stand pat.

“We could though see some hawks on the MPC vote for a rate hike to signal their intent, as it appears waiting for Brexit clarity could take a while longer than policymakers had anticipated,” Wilson said.

In equity markets, RBS was in the green as it said the completion of a merger between Alawwal bank and Saudi British Bank would boost its capital.

Babcock rose after confirming it had rejected in January a “highly preliminary” takeover approach from outsourcer rival Serco – a combination that would create a £4bn defence giant.

RBC Capital Markets said there is some merit in a merger. “Babcock, in our view, needs a new management team to restore credibility, there would be decent synergies given the overlap and Serco’s platform can take more revenue, although it would increase its exposure to the UK.

“However, given the impending change in Chairman at Babcock and the fact that Serco has just done a US deal and raised money – the timing may now have passed, although the fact that all this has been leaked now, may suggest that interested parties wanted to bring the approach to Babcock’s beleaguered shareholders’ attention.”

Construction group Kier advanced after saying it will cut about 1,200 jobs as it looks to reduce debt and deliver annual cost savings of around £55m from 2021.

On the downside, airlines were the worst performers, with EasyJet, International Consolidated Airlines Group and Wizz Air all lower after Lufthansa downgraded its 2019 profit forecast on the back of market-wide overcapacities and growing competition from low-cost carriers.

AstraZeneca ticked lower even after a trial showed that its Calquence drug “significantly” prolonged the time patients lived without disease progression in chronic lymphocytic leukaemia.

British American Tobacco was knocked lower by a downgrade to ‘underweight’ at Morgan Stanley.

Centrica was initiated at ‘underperform’ at Macquarie, while National Grid was started at ‘outperform’, along with Pennon, Severn Trent and United Utilities. Drax was initiated at ‘neutral’ by Macquarie.

Elsewhere, Hammerson was lifted to ‘add’ at Peel Hunt, while Shaftesbury was upgraded to ‘hold’ and JPJ Group was boosted to ‘buy’.

 

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