20th Jan 2020 16:50
(Alliance News) - Trade in London was subdued at the start of the week with markets in the US closed for Martin Luther King day and the International Monetary Fund cutting its growth forecasts.
BAE Systems and housebuilders were the standout blue-chip performers on Monday, while Fevertree Drinks weighed on London's AIM market following a profit warning.
The FTSE 100 index closed down 23.12 points, or 0.3%, at 7,651.44. The FTSE 250 ended down 39.04 points, or 0.2%, at 21,847.04, and the AIM All-Share closed down 11.45 points, or 1.2%, at 963.40.
The Cboe UK 100 ended down 0.3% at 12,960.97, the Cboe UK 250 closed down 0.2% at 19,697.84, and the Cboe Small Companies ended down 0.3% at 12,459.76.
In European equities on Monday, the CAC 40 in Paris ended down 0.4%, while the DAX 30 in Frankfurt ended up 0.2%.
"Without the Dow Jones for guidance – the US tends to dictate the pace of trading when region-specific news is lacking – the European indices drifted their way through Monday's session, not helped by the IMF cutting growth forecasts in Davos," said Connor Campbell at Spreadex.
In the latest update to its World Economic Outlook, the International Monetary Fund cut the global growth estimate for 2020 by one tenth compared to the prior report released in October, dropping it to 3.3%. It also lowered the 2021 forecast by a bit more to 3.4%.
The relationship between China and the US, the world's dominant economic powers, is still troubled by "unresolved disputes" which continue to be a factor.
US President Donald Trump signed a deal with China last week that ends the escalation but leaves in place tariffs on two thirds of the goods imported from the Asian economic power.
The trade truce led to an upgrade of China's growth forecast to 6.0% in 2020, with a slight slowdown to 5.8% projected for next year. Meanwhile, the IMF trimmed US growth just a tenth to 1.6% this year, with a repeat expected in 2021.
"Though investors didn't react strongly to [the IMF] update, it also served to prevent any real turnaround," said Campbell.
Amid broad-based losses in the FTSE 100, BAE Systems closed up 3.7% after the defence contractor announced two acquisitions in the US, purchasing the military global positioning system from a United Technologies unit and Raytheon's Airborne Tactical Radios business.
The Farnborough-based aerospace firm is acquiring a military GPS business from Collins Aerospace - a unit of US aircraft manufacturer United Technologies - for USD1.93 billion in cash. BAE is also buying US defence contractor Raytheon's Airborne Tactical Radios business for USD275 million in cash. These deals are subject to the closure of the merger between Raytheon and United Technologies.
Housebuilders such as Barratt Developments, Berkeley Group and Persimmon ended up 2.1%, 1.9% and 1.9% respectively, after Rightmove reported a surge in house prices in December.
Prices increased 2.3% in December, which Rightmove said is the largest monthly rise it has ever recorded at that time of year. Nearly 65,000 properties were marketed between December 8 and January 11, with sellers feeling a "surge of optimism", said Rightmove.
"Despite questions over the wider recovery, the housing market clearly had pent up demand that has been released on the resolution of the election and Brexit deadlock. With the pound expected to rise over the coming years, we will be keeping a close eye out for the premium central London demand as a gauge of foreign investment," said Joshua Mahony, senior market analyst at IG.
Capita in the FTSE 250 ended down 4.4% after UBS cut the outsourcer to Sell from Neutral.
intu Properties closed down 3.2% after confirming it is considering an equity raise at the end of February.
The possible share offer is part of the London and Johannesburg-listed shopping centre owner's strategy to fix its balance sheet. Intu said it is currently in discussions with shareholders and potential new investors for the fundraise.
The Sunday Times reported that Intu was looking to raise around GBP1 billion in cash through an equity raise.
On London's junior AIM market, Fevertree Drinks tumbled 27% on a profit warning.
For 2019, the premium tonic water maker expects total revenue of GBP260.5 million, which would represent a 9.7% increase on the GBP237.4 million generated in 2018.
Fevertree, in spite of the "soft" trading, said it continued to invest in the business. As a result, its margins will end 2019 behind expectations.
The company expects earnings to fall by about 5% from 2018. Fevertree reported adjusted earnings before interest, tax, depreciation and amortisation of GBP78.6 million in 2018.
RBC Capital Markets said Fevertree's investment case has changed "materially" following Monday's update.
"The decision to lower prices in the US might make sense in terms of making Fever-Tree available to a wider market but we are confused why management expects this to result in a lowering of
growth expectations for 2020 with no increase in previous expectations thereafter," RBC commented.
In Forex on Monday, the pound was quoted at USD1.2998 at the London equities close Monday, compared to USD1.3030 at the close on Friday.
The euro stood at USD1.1083 at the European equities close Monday, against USD1.1094 at the same time on Friday. Against the yen, the dollar was trading at JPY110.15 compared to JPY110.17 late Friday.
"It has been a dull day on the markets today and the currency markets are no exception. The fact that many US traders are on holidays has encouraged others to wait on the sidelines. Even with the US on holidays, it has been a slow news day here in Europe...EUR/USD as well as GBP/USD haven't moved much today," said David Madden at CMC Markets.
Among commodities, Brent oil was quoted at USD65.18 a barrel at the London equities close Monday from USD64.74 late Friday.
"The fact there are output issues in two oil producers has been a double whammy for the energy market, but then again oil dealers have seen huge volatility in recent weeks, and if anything, today's upward move is relatively small when compared with the moves witnessed during the Iranian tensions," said Madden.
Gold was quoted at USD1,560.87 an ounce at the London equities close Monday versus USD1,556.62 at the close on Friday.
In the economic calendar on Tuesday there is a Bank of Japan interest rate decision at 0300 GMT and UK unemployment and wage growth at 0930 GMT. Later in the morning is the ZEW survey of economic sentiment for Germany and the eurozone at 1000 GMT.
In addition, the World Economic Forum gets underway in Davos, Switzerland on Tuesday.
In the UK corporate calendar on Tuesday, there are interim results from online trading platform IG Group, first quarter results from airline easyJet and trading statements from electricals retailer Dixons Carphone and food and drink travel concessions firm SSP.
By Lucy Heming; [email protected]
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