• FTSE 100 closes higher
  • Aerospace stocks back in fashion
  • Wall Street closed for July 4 holiday

5pm: FTSE closes ahead

FTSE 100 index closed higher on Monday as traders were buoyed by the prospect of an easing of UK coronavirus (COVID-19) restrictions, while Wall Street remained closed for the July 4 holiday.

At the close, the UK blue-chip index was up over 41 points, or 0.59%, at 7,164, well above the session low of 7,111 and just below the peak of 7,168.

“US traders might be on holiday but that hasn’t stopped European markets from advancing, and the FTSE 100 in particular has enjoyed a good, solid day of trading that has seen it add 40 points to the score,” noted Chris Beauchamp, chief market analyst at online trading group IG, who pointed to hopes of a ‘post-Covid’ world.

“Positive noises about ‘freedom day’ on 19 July and an end to many of the restrictions of the past year has lent an air of ‘cyclical rebound’ to today’s trading; names like IAG, Barclays and Antofagasta populate the top end of the leaderboard, on hopes that a return to normality will be the dominant theme from the second half of July as the UK puts the worst behind it,” he said.

Top gainer on Footsie was International Consolidated Airlines Group (LON:lAG), which flew 4.92% higher, at 188.98p.

3.20pm: US market hoiday

The afternoon session has not seen much movement in London, partly because US markets are on holiday.

The FTSE 100 was up 40 points (0.6%) at 7,164.

Aerospace-related stocks are back in favour with British Airways owner International Consolidated Airlines SA (LON:IAG) up 5.9% at 190.68p and aeroplane engines maker Rolls-Royce Holdings PLC (LON:RR.) 2.3% firmer at 104.94p.

“Sentiment towards risk remains positive as we enter the second half of the year after a positive end to Q2. The S&P 500 and other US indices hit repeated new all-time highs, with investors happy to buy every dip in the markets. The acceleration of Covid vaccinations around the world, together with ongoing central bank stimulus, is helping to fuel strong growth,” said Fawad Razaqzada at ThinkMarkets.

“At the start of this week, it looks like the bulls are back in control as they focus more on the success story of vaccinations than concerns over delta,” he added.

Among the mid-caps, Ultra Electronics Holdings PLC (LON:ULE) was 3.5% heavier at 2,382p after its half-year trading statement in which it revealed it is trading ahead of its expectations.

“June’s flurry of statements and counter-statements from Cobham and Ultra Electronics left investors none the wiser as to whether the firms had come close to combining two business units or not but what is clear after its latest trading statement that Ultra feels it is thriving as a stand-alone business,” said AJ Bell investment director Russ Mould.

“Chief executive Simon Pryce gets firmly on the front foot by flagging how first-half trading is better than expected, thanks to the benefits of cost and efficiency programmes, strong business flow in certain key divisions and a decrease in expenses related to COVID-19,” Mould continued.

“Ultra’s order book, sales and profits went nowhere fast for most of the last decade, but the new programme seems to have given the company fresh momentum. That may catch the eye of potential buyers,” Mould observed.

1.15pm:US markets closed today

In case you are wondering where the US market preview is, the US is celebrating 4 July today even though it is 5 July.

We’ll forgive them, however, because they only get about three holidays each year in the land of the free and home of the brave.

The lack of US activity does mean that the London equity market is somewhat torpid.

Banks are in demand, with Barclays PLC (LON:BARC), Lloyds Banking Group PLC (LON:LLOY) and HSBC Holdings PLC (LON:HSBA) up by more than 1.8% and driving the FTSE 100 35 points higher to 7.158.

Bid stock Morrisons tops the FTSE 250 but GCP Student Living PLC (LON:DIGS) is in the silver medal position after it revealed it has been in bid talks.

The shares rose 9.9% to 186p after the company confirmed weekend press speculation that it has received a series of non-binding proposals for the entire issued share capital of the company, other than the shares held by funds managed by APG Asset Management.

The approach has come from a consortium led by Scape Living PLC and iQSA Holdco Limited, who between them control around 11.1% of the real estate investment trust (REIT) that is focused on student accommodation in and around London.

The REIT’s board let slip that after discussions with an independent consultant, it is anticipating a material increase in the quarter-end valuation of its properties.

11.40am: OPEC+ wrangling continues

Attention is on the OPEC+ meeting today as the United Arab Emirates (UAE), Russia and Saudi Arabia remain at loggerheads.

“It makes sense to all members in OPEC+ to increase oil production by 400 k bl/day [400,000 barrels a day] from August to December 2021 and in total by 2mln bl/day. What is creating a problem is that Russia and Saudi Arabia have tied this increase in production to also include an extension of the current deal ‘as it is’ so that it ends in December 2022 rather than in April 2022,” said Bjarne Schieldrop, the chief commodities analyst at SEB, the Nordic corporate bank.

“This is unacceptable for the UAE. The country has invested billions in new capacity over recent years and wants to produce more oil. Its current baseline is 3.2mln bl/day while it has a capacity of 3.9mln bl/day. The UAE will naturally look forward to April 2022 for when it can start to use its full production capacity of 3.9 m bl/day and start to reap the harvest from its multi-billion-dollar investments,” Schieldrop continued.

Schieldrop believes that, with the oil price at $76 a barrel, a deal is the most likely outcome.

The price of Brent crude for September delivery was US$76.29, up 12 cents.

Meanwhile, it is Purchasing Managers’ Index (PMI) day all over the world, with China starting the ball rolling this morning.

“The China Caixin services PMI revealed the sector grew at its slowest pace in 14 months in June. The PMI printed at 50.3, well down from 55.1 in May and far from the expected 55.7. The weak print comes following Thursday’s manufacturing equivalent, which also revealed that growth was slowing.

“The latest PMI data from China reveals economic recovery from Covid in the world’s second-largest economy is starting to wane. This was in stark contrast to the Eurozone PMI reading. The composite PMI gauge for the Eurozone revealed that business activity soared in June as lockdown restrictions in the region were lifted,” noted Sophie Griffiths at OANDA.

As for the UK, “the services PMI came in at 62.4 in June, a little lower than May’s 24-year high but still signalling an exceptionally strong pace of activity growth,” reported Martin Beck, the senior economic advisor to the EY ITEM Club.

“The slight deceleration is likely to reflect the fact there was no relaxation of COVID-19 restrictions in June but equally, it is clear that the four-week delay to the full removal of restrictions has not thrown the recovery off track. Firms reported very strong growth in orders, which came exclusively from the domestic market, and a rapid pace of job creation,” EY ITEM Club.

The FTSE 100 was up 16 points (0.2%) at 7,139.

10.30am: Car registrations rise year-on-year

Private new car registrations totalled 88,700 in June, up from 72,800 the year before but less than the pre-pandemic 2019 June total of 90,100.

Total registrations—including business and fleet sales— totalled 186,100 in June, which was also above June 2020’s 145,400 reading but below June 2019’s 223,400.

“Private car registrations continued to recover in June, though they still were 1.6% below their June 2019 level, due to slightly sub-par consumer confidence and shutdowns at car plants. Meanwhile, the rebound in demand appears to have hit a ceiling for now. Google Trends data show that the number of people searching online for one of the top five bestselling cars edged down throughout June, ending the month around 12% below its 2016-to-2019 average level and while GfK’s major purchases balance rose to -5 in June, from -7 in May, it still fell short of its 2019 average of +2,”2 said Samuel Tombs at Pantheon Macroeconomics.

Source: Pantheon Macroeconomics

“In addition, car plant shutdowns caused by component shortages will limit the potential number of new registrations in the coming months. Further ahead, though, the outlook is brighter. The lockdowns, in aggregate, have enabled households to accumulate “excess savings” equal to 8% of GDP [gross domestic product]; some of the money likely will be splurged on a new vehicle in time. In addition, some consumers may be waiting for cheaper electric models to be released by major manufacturers before upgrading. As such, we expect car registrations to return to their pre-Covid levels in 2022,” Tombs said.

The registrations data did not change the speedometer much for the car dealerships shares. Pendragon PLC (LON:PDG) was unchanged at 18.5p but Vertu Motors PLC (LON:VTU) advanced 1.4% to 44.9p.

The FTSE 100 was 9 points (0.1%) firmer at 7,132.

9.35am: Services PMI for June revised higher

The Markit/CIPS services Purchasing Managers’ Index (PMI) fell to 62.4 in June from 62.9 in May but was ahead of the consensus forecast and a revision to the flash estimate of 61.7.

The composite PMI fell to 62.2, from 62.9, and also topped the consensus and the flash estimate, 61.7.

The survey covered the period between 11 June and 28 June.

The FTSE 100 was up 11 points (0.2%) at 7,134, thanks largely to gains for the supermarket shares after Wm Morrison Supermarkets PLC (LON:MRW) agreed to a takeover offer over the weekend from a consortium backed by Japanese giant SoftBank.

Tesco PLC (LON:TSCO) advanced 1.4% to 227.7p and J Sainsbury PLC (LON:SBRY) jumped 1.9% to 277.2p.

8.40am: Supermarket sweep

The FTSE 100 made a subdued start on what is likely to be a quiet day for traders.

Asia’s main markets provided mixed messages earlier, while the US is taking an Independence Day break.

Here in the UK, we are likely to hear more on the emergence from lockdown strictures on July 19 and the idea that Britons will now have to live with Covid rather than hiding from it.

The business headlines, meanwhile, are likely to be dominated by the agreed Fortress bid for Wm Morrisons (LON:MRW), which values the grocer at £6.3bn.

The share price, up 11% at 267p (and well above the Fortress deal terms), ascribes a high likelihood to a counter-offer for the Bradford-based food retailer.    

“As an investment destination, the UK is attracting increased interest from overseas and the latest twist in the Morrisons bidding war has upped the ante,” said Richard Hunter, head of markets at Interactive Investor.

“Having rejected an initial 230p per share bid from Clayton Dubilier & Rice, the board has now accepted a 254p bid from Fortress, apparently on the basis of business continuity as well as price.

“It is perfectly feasible, however, that this is not yet the end game.

“UK supermarkets, in general, are cash-generating engines, whose share price gains have been capped by the costs of the pandemic, despite increased sales, making them more attractive on valuation metrics.

“In addition, Morrisons largely owns its freehold estate, adding another sweetener to any potential purchase.”

Higher metals prices pushed shares in Chilean copper producer Antofagasta (LON:ANTO) 2% higher in the early exchanges, while Rio Tinto (LON:RIO) rose 1.3%.

Engineer IMI PLC (LON:IMI) was off 2.5% after Goldman Sachs cut its recommendation from ‘buy’ to ‘neutral’.

6.50 am: Subdued start predicted 

It looks set to be a quiet day for UK traders with the US shut for the Independence Day holiday and Asia’s mixed performance providing little in the way of direction.

Broadly sentiment continues to be driven by twin fears: the impact of the Covid delta variant and rising inflationary pressures.

Away from the equity markets, crude prices edged lower after the United Arab Emirates rejected Saudi Arabian demands to keep a lid on production.

The former is looking to increase output, setting up a potential showdown at the oil cartel’s next major meeting.

Here at home, the end to lockdown restrictions looks likely to occur without further delay on July 19 if the headlines and leaks are to be believed.

The focus will be on the individual exercising common sense rather than centrally rules on mask-wearing and the like, we are told.

The weekend’s business headlines were dominated by Saturday’s revelation that Wm Morrison Supermarkets (LON:MRW) had agreed to be taken over by private equity group Fortress for £6.3bn.

This week we should see whether spurned suitor Clayton, Dubilier and Rice (CD&R) comes back with a better offer for the grocer.

One report suggests that Apollo Global Management could also make a tilt.

Fortress is offering 252p a share in cash plus the declared 2p dividend – well above the 239.8p at which the stock closed on Friday.

If the price pushes above 254p we can assume the bid interest is real.

As the Guardian pointed out in its summation of the weekend’s activities: “Despite all the interested parties remaining tight-lipped on Sunday, CD&R, which has the former boss of Tesco, Sir Terry Leahy, as a senior adviser, was said by insiders to have “plenty more petrol in the tank”.

“It believes that some on the Morrisons board would be more amenable to an increased offer.”

Under UK stock market rules, the rival US investment firm has until July 17 to either make a firm offer or walk away.

Looking ahead, it is all about the food retail sector this week with updates from Sainsbury (LON:SBRY) and delivery and technology specialist Ocado (LON:OCDO).

We also have results from Persimmon (LON:PSN) and Vistry (LON:VTY) that will provide an update on the health of the UK housing market, while on Friday the latest gross domestic product (GDP) number will reveal how quickly the nation is recovering from Covid.

Around the markets

  • Pound US$1.3824 (flat)
  • Bitcoin US$34,175.22 (-1.84%)
  • Gold US$1,787.60 (+0.24%)
  • Brent crude US$76.06 (-0.14%)

6.50am: Early Markets – Asia / Australia

Stocks in the Asia-Pacific region were mostly lower on Monday as China’s services sector activity showed growth slowing sharply in June to a 14-month low.

The Caixin/Markit services Purchasing Managers’ Index for June came in at 50.3 — a significant decline from May’s reading of 55.1.

The Shanghai Composite in China dipped 0.07% and Hong Kong’s Hang Seng index slipped 0.71%

In Japan, the Nikkei 225 fell 0.63% while South Korea’s Kospi rose 0.32%.

Shares in Australia gained, with the S&P/ASX 200 trading 0.06% higher.