17th Jan 2022 17:04
(Alliance News) - Stocks in London ended higher on Monday on M&A activity and as China's central bank cut the borrowing costs of its medium-term loans as economic growth slowed.
China's pandemic-defying economic growth slowed in the final months of 2021, official data showed in a worrying signal for the global economy.
Economic growth in the fourth quarter was the slowest in more than a year, at 4.0%, down from 4.9% from in the third quarter, but beating FXStreet expectations of 3.6%.
The People's Bank of China on Monday slashed the borrowing costs of its medium-term loans for the first time since April 2020 as policymakers sought to cushion a slowdown in the economy.
The PBoC said it was lowering the interest rate on CNY700 billion worth of one-year medium-term lending facility loans to some financial institutions by 10 basis points to 2.85% from 2.95% in previous operations.
The FTSE 100 index closed up 68.28 points, or 0.9%, at 7,611.23. The mid-cap FTSE 250 index ended up 128.29 points, or 0.6%, at 22,871.64. The AIM All-Share index finished 6.21 points higher, or 0.5%, at 1,166.08.
The Cboe UK 100 index ended up 0.9% at 755.40. The Cboe 250 closed up 0.8% at 20,498.00 and the Cboe Small Companies rose 0.7% at 15,837.50.
The CAC 40 stock index in Paris closed up 0.8%, while the DAX 40 in Frankfurt ended 0.3% higher.
"It's been a quiet but positive start to the week for markets in Europe, after Asia markets largely got the week off to a positive start, after the People's Bank of China unexpectedly eased monetary policy," CMC Markets analyst Michael Hewson said.
"The FTSE 100, has had another good day, moving above the 7,600 level, to another post lockdown high, helped largely by M&A activity with the weekend news of Unilever's bid for GlaxoSmithKline's consumer goods business, reinforcing the truth that a lot of companies on the UK's benchmark index are seriously undervalued," Hewson added.
In the FTSE 100, Taylor Wimpey was the best blue-chip performer, up 4.2%, after the housebuilder backed market forecasts for 2021 in a year which saw strong demand for its homes.
Total UK home completions rose by 47% to 14,087 in 2021, and the net private reservation rate was 0.91 homes per outlet per week, up from the previous year's 0.76. Demand was underpinned by low interest rates and good mortgage availability, while house price inflation fully offset cost pressures.
The business "performed very well" and Taylor Wimpey expects to report 2021 results in line with expectations, with significant improvement in operating margin. The current year has started well, with forward indicators positive despite wider economic uncertainty.
Admiral was just behind, up 4.2%, after HSBC raised the insurer to Hold from Reduce.
Antofagasta ended the third best performer, up 4.2%, after UBS upgraded the Chilean copper miner to Neutral from Sell.
GlaxoSmithKline closed up 4.1% after Unilever confirmed its takeover approach for GSK Consumer Healthcare and set out the strategic rationale for the move, saying it plans to push further into health, beauty and hygiene.
These categories offer "higher rates of sustainable market growth," Unilever said, adding that it plans to make major acquisitions alongside the divestment of lower growth brands.
Over the weekend, GlaxoSmithKline confirmed it received and rejected three unsolicited and non-binding bids for the GSK Consumer Healthcare business from Unilever.
The latest offer was made on December 20 and had a total acquisition value of GBP50 billion, comprising GBP41.7 billion in cash and GBP8.3 billion in Unilever shares. The offer was rejected by Glaxo on the grounds that it undervalued the business.
Reckitt Benckiser, maker of Nurofen painkillers, was up 3.3% in a positive M&A read-across.
Analysts said Glaxo is thought to be holding out for GBP60 billion for the consumer health arm, which it owns alongside Pfizer. It had planned to spin off the division as a separately listed company.
"GlaxoSmithKline's share price has jumped on the news as Unilever's actions effectively fire the starting gun for a bid war for the consumer goods unit. Nestle could be interested, so too private equity," said AJ Bell's Russ Mould. "This really is a Marmite situation for GlaxoSmithKline's shareholders - they're either hoping for a quick return now through a sale or better returns in the future through the planned demerger."
Unilever ended the worst blue-chip performer, down 7.0%, amid fears of elevated debt levels, an equity raise and costs associated with making the acquisition.
In addition, Barclays downgraded the Dove soap maker to Equal Weight from Overweight.
"If the acquisition was financed with 80% debt and 20% equity it would be concerning as the company's debt pile would begin to stack high. In the short term, the acquisition would be far less enhancing to the value of the business than a share buyback of a similar scale. Unilever could control this debt by following through with a subsequent sale of its remaining food businesses. This would be good strategically but materially dilutive," said Chris Beckett, head of equity research at Quilter Cheviot.
On AIM, BlueRock Diamonds gained 47% after the miner reported positive results from the final quarter, and maintained guidance for the year ahead.
The Reading, England-based diamond producer reported revenue more than doubled year-on-year, up to USD10.8 million for 2021 from USD4.8 million in 2020. This meets the previous guidance range of USD8.8 million to USD11.6 million.
Looking ahead to 2022, BlueRock expects first-quarter production to be "materially higher" than 2021 which saw 86,005 tonnes sorted, having the capacity to ramp up production when permitted by the weather, as well as existing crushed ore inventory.
The dollar was higher across the board. The pound was quoted at USD1.3650 at the London equities close, down from USD1.3675 at the close Friday, having risen 3.2% against the greenback over the past month.
Analysts at FXPro explained: "After nearly a month of strengthening against the dollar, the British pound is encountering strong resistance. Speculative interest in the British currency is shrinking as more hawkish Federal Reserve rhetoric is being put into the GBPUSD quotes in recent weeks as the Bank of England is no longer looking so hawkish...The pause in the pound's rise is seen as a desire by market forces to look around and assess further prospects."
The euro stood at USD1.1405 at the European equities close, lower against USD1.1423. Against the yen, the dollar was trading at JPY114.60, up sharply from JPY113.82.
US financial markets were closed on Monday for Martin Luther King Jr day.
Brent oil was quoted at USD86.01 a barrel at the equities close, up from USD85.56 at the close Friday.
Gold stood at USD1,818.80 an ounce at the London equities close, little changed against USD1,818.19 late Friday.
The economic events calendar on Tuesday has the Bank of Japan interest rate decision overnight, UK unemployment data at 0700 GMT and Germany ZEW survey at 1000 GMT.
The UK corporate calendar on Tuesday has trading statements from gambling firm 888 Holdings, recruiter Hays, defence contractor QinetiQ and beauty products retailer THG.
By Arvind Bhunjun; [email protected]
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