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ADVFN Morning London Market Report: Wednesday 25 April 2018

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London open: Stocks drop after Wall St selloff; Shire and Whitbread buck trend

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London stocks fell in early trade on Wednesday, taking their cue from a tech-led selloff on Wall Street, although Shire and Whitbread bucked the trend.

At 0830 BST, the FTSE 100 was down 0.6% to 7,380.64, despite the pound falling 0.3% versus the dollar to 1.3937 but staying flat against the euro at 1.1430.

CMC Markets analyst Michael Hewson said the declines on Wall Street appeared to have been prompted by some concern about the growth in capital spending at Google parent Alphabet, with $7.3bn shelled out in the first quarter alone, which is well in excess of the same period a year ago.

“However it is an age-old adage that if you don’t invest in your infrastructure in the short term you pay the penalty eventually in the long term,” said Hewson. “Sensible investors will generally tolerate higher capex if it helps keep the business sustainable in the face of higher traffic while increasing resilience. The problem comes with a valuation that could be conceivably fully valued already, which seems to be the case here.”

Hewson added: “We have seen some decent gains in European markets over the last four weeks, however with bond yields in the US suddenly spiking higher in the last few days investors appear to be taking the opportunity to take some profits on some of these gains.”

In corporate news, specialty chemicals group Croda International was the worst performer despite saying it was on track to meet expectations for the year and posting a 4% rise in core sales for the first quarter.

CRH was a little weaker after the building materials group reported a drop in first-quarter sales and announced plans for a €1bn share buyback.

Lloyds Banking Group slipped despite posting a 23% increase in first-quarter profit, with analyst pointing to a worrying rise in impairment provisions.

British American Tobacco slipped as it warned of forex headwinds of 7% if rates stay at current levels.

Metro Bank was under the cosh even as it posted a 41% jump in first-quarter deposit growth as lending and customer numbers grew.

Fresnillo and Antofagasta were both in the red as they released first-quarter production reports.

On the upside, Shire rose after its directors said they would be willing to recommend the latest takeover proposal from Takeda Pharmaceutical that was pitched at roughly £49 per share, subject to further conditions. The UK Takeover Panel has given the two companies a new deadline of 1700 BST on 8 May to conclude talks.

Whitbread gained only slightly after announcing plans to spin off its Costa coffee chain into a separate listed business within the next two years following activist pressure. The company, which also released its preliminary results, said the demerger would be pursued “as fast as practical and appropriate to optimise value for shareholders”.

Persimmon edged up after saying it was trading well this year after customer enquiries and sales of its houses increased. The housebuilder said enquiries were up 13% from a year earlier and that forward sales revenue had risen 8% to £2.76bn.

Fenner ticked up as it reported a jump in interim pre-tax profit and revenue and said its acquisition by Michelin should take effect on 31 May.

On the broker note front, Prudential was cut to ‘neutral’ at Citi and Intertek was downgraded to ‘underperform’ at Credit Suisse.

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