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London open: FTSE 100 up as reporting season kicks off
London’s blue chip stocks opened higher on Tuesday as reporting season kicked into gear to override a lower US close overnight and a mixed Asian session.
After half an hour’s trading, the FTSE 100 was 0.29% higher at 6,729.66, driven up by news-led risers including GKN, BT Group and Mondi outweighing a new retreat by the housebuilding sector.
The subsidence by builders mixed with poor results from Drax and Victrex to send the more UK-focused FTSE 250 down 0.4% to 17,022.83.
Sterling was on the way back down after Bank of England policymaker Martin Weale insinuated his economic outlook for the UK had changed, adding to the near-certainty that the central bank will introduce a stimulus package in next month’s meeting to counteract poor growth expectations.
The pound was down 0.5% against the dollar at 1.3079 and the same against the euro at 1.1889.
Traders are also focused on the Bank of Japan (BoJ) and US Federal Reserve’s meetings this week, with growing concerns that the BoJ might disappoint on Friday, not delivering quite as much stimulus as markets have been gearing up for, while analyst Michael Hewson at CMC Markets said expectations for the Fed were that perhaps this week’s rate meeting “could well come across as slightly more hawkish than markets were pricing a week ago”.
Recent data appeared to suggest that the balance of probabilities for a move by the end of the year has shifted somewhat towards the upside, suggesting markets could be becoming complacent about it.
“As such the risk of a hawkish surprise tomorrow appears to be helping put a short – term top on both US equity markets, as well as on commodity prices for the moment, and ahead of Friday’s Bank of Japan meeting,” Hewson said.
On the data front on Tuesday, BBA loans for house purchases data are due at 0930 BST. In the US, S&P/Case-Shiller home prices are at 1400 BST and Markit services PMI is at 1445 BST.
In corporate news, SABMiller fizzed up the leaderboard as it has received a new, final takeover offer of 4,500p from Anheuser-Busch InBev after the collapse of the pound and pressure from a group of new activist shareholders. AB InBev came back to the table with a £79bn all-cash offer and a partial share alternative, available for approximately 41% of the FTSE 100 company’s shares, consisting of 0.483969 unlisted shares and 465.88 in cash for each SABMiller share. ABI had previously offered 4,400p.
BT Group was the top riser as regulator Ofcom report confirmed the positive news that the company will not have to completely chop off its Openreach infrastructure arm, though it will have to become a distinct company with its own board, own staff and separate branding to give it independence from the larger group. As a legally separate company within BT Group, with its own ‘articles of association’ and a majority of independent directors who are not appointed by or connected to BT, the company would be obliged to consult formally with customers such as Sky and TalkTalk on large-scale investments.
Also near the top of the FTSE 100 risers was engineer GKN despite it reporting a drop in first-half pre-tax profit and saying it expects to book a charge in the second half of the year as it looks to cut costs. For the six months ended 30 June, pre-tax profit fell 14% to £182m on sales of £4.24bn, up 17% from the same period last year. Earnings per share fell 4% to 9.5p but the company lifted its interim dividend to 2.95p per share from 2.90p. Chief executive Nigel Stein said: “This is a good set of first half results with GKN continuing to make underlying progress in line with our expectations. Each division has continued to deliver against our strategy.”
Mondi Group also gave its shares a lift as it updated the market on its half-year earnings expectations. The FTSE 100 firm said it anticipates basic underlying earnings per share of 73 to 77 euro cents, up from 67.8 cents a year ago, and basic earnings per share of the same 73 to 77 cent range, well up from 60.3 cents last year. Mondi said basic headline earnings per share should also fall within the same range, compared with 60.1 cents in the comparative period.
Among Tuesday’s fallers BP reported an unchanged dividend as it reduced the level of statutory losses for the first six months of the year and said it was drawing a line under the liabilities for the Deepwater Horizon oil disaster at $61.6bn. An underlying replacement cost profit of $720m in the three moths to the end of June was down 45% from the same period last year, while at the reported level the loss before tax of $3.38bn for the second quarter was less than half its comparative from 2015 and the $4.24bn loss for the first half of the year was an improvement from $6.34bn last year.
