16th Sep 2015 15:58
LONDON (Alliance News) - Bid fever ensured UK stocks ended in the green Wednesday, while Wall Street was less positive despite a weak US inflation report that supported the view that the US Federal Reserve will not raise interest rates on Thursday.
Shares in SABMiller raced to the top of the FTSE 100 after saying that rival brewer Anheuser-Busch InBev intends to make a proposal to acquire it.
The FTSE 100 index ended up 1.5% at 6,229.21, the FTSE 250 closed up 0.6% at 17,061.97 and the AIM All-Share finished up 0.2% at 738.18. In Europe, the CAC 40 index in Paris and the DAX 30 in Frankfurt ended up 1.8% and 0.5%, respectively.
On Wall Street at the London close, the Dow Jones Industrial Average and the S&P 500 were both up 0.6%, while the Nasdaq Composite was up 0.3%.
"Despite a worse-than-expected inflation figure, something that casts more doubt on the chances of the Fed raising rates tomorrow, the Dow Jones failed to attract investors this afternoon," said Spreadex analyst Connor Campbell.
The US Labor Department said its consumer price index edged down by 0.1% in August month-on-month after inching up by 0.1% in July. Economists had expected prices to come in flat. Annual inflation was unchanged at 0.2%.
The modest month-on-month drop in consumer prices was primarily due to the decrease in energy prices, which tumbled by 2.0% in August. Gasoline prices led the way lower, plunging by 4.1% during the month, while the other energy indexes were mixed.
Excluding the steep drop in energy prices as well as a modest increase in food prices, the core consumer price index crept up by 0.1% in August. The modest increase in core prices matched the uptick seen in the previous month as well as economists' consensus estimates.
The soft market reaction to the worse-than-expected inflation data was not as strong as the one seen on Wednesday, after weak retail sales data also had cooled expectations of a September rate hike.
The two-day meeting of the Federal Open Market Committee started Wednesday, with the release of its long-awaited monetary policy decision expected on Thursday at 1900 BST. Just one day prior, analysts still split over whether the Fed will raise interest rates this month or later in the year.
Societe Generale analyst Aneta Markowska said the broker's baseline scenario is that "the Fed will deliver a rate hike but package it in a dovish message".
"However, if there is no hike, we would expect the accompanying message to be somewhat hawkish, implying a strong possibility of an October 'lift-off'", said Markowska. "Hike or no hike, do not expect a dovish outcome."
Meanwhile, Chris Beauchamp, senior market analyst at IG, said the "Fed rate move is still too close to call."
Meanwhile, crude oil prices rose sharply after data from the US Energy Information Administration showed that crude stockpiles in the US decreased sharply in the week ended September 11. The report said US crude oil inventories dropped by 2.1 million barrels last week, with economists expecting an increase of 2.5 million barrels.
At the London close, Brent oil prices stood at USD49.72, having traded at USD48.65 prior to the oil stocks data, while West Texas Intermediate was at USD46.89, standing at USD45.57 before.
Outside the US, the pound rose sharply after data from the Office for National Statistics showed that UK wage growth hit a six-year high and the UK unemployment rate declined in three months to July, signalling a build up of inflationary pressures, underpinned by household income.
In the three months to July, the ILO jobless rate came in at 5.5%, the lowest since 2008, compared to 5.6% in three months to June. It was expected to remain at 5.6%. Pay excluding bonuses increased 2.9% for the three months to July, which was the fastest growth since early 2009 for the same period. Total pay including bonuses also advanced 2.9%, in line with expectations.
However, the number of people claiming jobseekers' allowances rose by 1,200 in August from July, confounding expectations for a decline of 5,000.
"Assuming, as we do, that jobless claims numbers return to a healthier declining trend in the next release (for September), the Monetary Policy Committee is likely to take comfort from strengthening developments in the labour market," said analysts at Nomura. "These are providing mounting evidence that [UK] interest rates are excessively low relative to what the domestic economy needs."
The broker expects the Bank of England to lift UK interest rates in February 2016.
The pound rose after the data release, with sterling standing at the London close at USD1.5506, after standing at USD1.5339 prior.
On the London Stock Exchange, SABMiller was by far the best performer in the FTSE 100, up 23%, adding about GBP10 billion to its market capitalisation.
The oft-cited bid target confirmed Wednesday that it has been approached by rival Anheuser-Busch InBev about a possible takeover, a mega deal that would create by far the world's largest brewer, with a market capitalisation of around USD275 billion, or GBP175 billion.
That would make combined entity the sixth largest company in the world by market cap. The London-listed beer company announced the approach, which would be one of the largest acquisitions of all time, and AB InBev then quickly confirmed it.
In accordance with the UK Takeover Code, AB InBev has until October 14 to make a firm offer for SABMiller.
The M&A enthusiasm spilled over to other London-listed drinks companies. Diageo ended up 2.0%, Coca-Cola HBC up 1.6% and Britvic up 1.1%. Anglo-South African SABMiller is a major player in the Coca-Cola bottling business. Last November, SABMiller struck a deal to combine its operations in southern and eastern Africa with the soft drinks giant, creating a business which accounts for around 40% of all Coca-Cola drinks volumes in Africa.
Elsewhere amongst UK equities, Glencore eventually ended in the green after drifting between gains and losses throughout the session.
The miner said it has raised USD2.50 billion by placing a shares equalling 10% of its existing total, as part of the company's major plans to reduce its substantial debt pile. Glencore had late Tuesday announced its intention to raise USD2.50 billion, or USD1.60 billion through the placing of 1.31 billion shares. On Wednesday, Glencore confirmed the price per share was 125.0 pence.
Shares in the miner ended up 3.7% at 132.77p, close to its session high of 135.90p.
Reckitt Benckiser shares ended up 2.9%, after being upgraded from Exane BNP to Outperform from Underperform.
Anglo-South African paper and packaging company Mondi led the blue-chip losers, down 4.3%, after being cut to Sell from Neutral by Goldman Sachs.
Inmarsat closed down 1.9% after Berenberg downgraded it to Sell from Hold. The bank said the satellite communications company appears to be facing considerable competition and regulatory obstacles which its current share price does not reflect.
Entertainment One ended amongst the best mid-cap performers after Marwyn Value Investors said it has struck a deal with Canada Pension Plan Investment Board to sell its remaining stake in the media company. Marwyn will sell its 17.9% stake in Entertainment One for GBP142.4 million via the Marwyn Value Investors LP fund, in a disposal that will raise GBP103.4 million for the investor. The 52.9 million shares were sold at 269.00 pence per share.
Entertainment One shares were up 6.2% at 285.70 pence following the news, while Marwyn Value Investors was up 1.8% at 217.75p.
In the UK corporate calendar Thursday, Merlin Entertainments issues an interim management statement, Just Retirement Group releases full-year results and Premier Farnell publishes half-year results. Investec issues a pre-close trading statement, Kier Group releases full-year results, while Elecosoft, Safestyle UK and French Connection publish half-year results. Brooks Macdonald and Town Centre Securities release full-year results.
In the economic calendar Thursday, UK retail sales are due at 0930 BST, while eurozone construction output is expected at 1000 BST. In the US, before the Fed monetary policy decision, due at 1900 BST, there are initial and continuing jobless claims due at 1330 BST, while the Philadelphia Fed Manufacturing survey is due at 1500 BST.
By Daniel Ruiz; [email protected]
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BritvicInmarsatEntertainment OneRB..LDiageoCoca-Cola HBCMarwyn Val.GlencoreMondiSAB.L