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LONDON MARKET OPEN: Smurfit Kappa agrees merger with WestRock

12th Sep 2023 08:57

(Alliance News) - Stock prices in London opened higher on Tuesday, after new data showed signs of softening in the UK labour market, which might impact the Bank of England's interest rate decision next week.

The FTSE 100 index opened up 32.68 points, 0.4%, at 7,529.55. The FTSE 250 was up 26.02 points, 0.1%, at 18,548.46, and the AIM All-Share was up 0.46 of a point, 0.1%, at 742.81.

The Cboe UK 100 was up 0.4% at 750.16, the Cboe UK 250 was up 0.1% at 16189.28, and the Cboe Small Companies was down 0.1% at 13,421.77.

The UK jobless rate rose to 4.3% in the three months ended July, from 4.2% in the three months to June, figures from the Office for National Statistics showed. The figure came in line with FXStreet-cited market consensus.

Also in the three months to July, annual growth in average total pay, including bonuses, accelerated to 8.5%. July's figures were higher than FXStreet-cited consensus, which had expected an unchanged reading from 8.2% in the previous three-month period.

This total growth rate is affected by the NHS and civil service one-off payments made in June and July, the ONS said.

"While today's figures see a welcome return to real pay growth, the jobs data is very weak indeed. Employment has seen its largest quarterly fall since 2020, with both unemployment and economic inactivity rising," said Tony Wilson, director at the Institute for Employment Studies.

The figures are also likely to put pressure on the Bank of England, which is meeting next week to make the latest interest rate decision.

"There's every indication that interest rates will rise for the fifteenth time, but then what?" said Danni Hewson, head of financial analysis at AJ Bell.

"High borrowing costs and fears of an economic slowdown are impacting businesses, making them think twice about investing for the future until the present seems more stable."

In the US on Monday, Wall Street ended higher, with the Dow Jones Industrial Average up 0.3%, the S&P 500 up 0.7% and the Nasdaq Composite up 1.1%.

The US tech sector was boosted by a report in The Wall Street Journal that said Federal Reserve officials are likely to leave interest rates unchanged when they meet next week.

The report stated officials are taking a harder look at whether more rate rises are needed as a shift toward a more balanced bias on rates takes hold.

On Wednesday, investors will be eyeing a US inflation reading, out at 1330 BST, before the US Fed makes an interest rate decision next week.

Before the US interest rate decision, the ECB will be deciding its own this Thursday.

"There is no clarity regarding what the ECB will decide this week. The economy is slowing but inflation will unlikely to continue its journey south, giving the ECB a reason to opt for a 'hawkish' pause, or a 'normal' 25bp hike," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

The pound was quoted at USD1.2483 early on Tuesday in London, lower compared to USD1.2528 at the equities close on Monday. The euro stood at USD1.0721, down against USD1.0747. Against the yen, the dollar was trading at JPY146.88, higher compared to JPY146.42.

In FTSE 100, Smurfit Kappa was the worst performer in early trade, down 10%.

Ireland's Smurfit and the US's West Rock said they have signed a definitive transaction agreement to merge into Smurfit WestRock.

Together, Smurfit Kappa and WestRock generated combined last twelve months' adjusted annual revenue of about USD34 billion as of June 30. They said this will make Smurfit WestRock the "largest listed global packaging partner by revenue".

The company will be based at Smurfit's current location of Dublin, while its North and South American operations will be headquartered at WestRock's base in Atlanta, Georgia.

"This incredibly exciting coming together of our two great companies is a defining moment within the global packaging industry. Smurfit WestRock will be the 'Go-To' packaging partner of choice for customers, employees and shareholders. We will have the leading assets, a unique global footprint in both paper and corrugated, a superb consumer and specialty packaging business, significant synergies, and enhanced scale to deliver value in the short, medium and long term," said Smurfit CEO Tony Smurfit.

In the FTSE 250 index, JTC rose 3.3%.

JTC reported that in the six months to June 30 revenue rose by 31% to GBP121.5 million from GBP93.0 million a year earlier. Pretax profit, however, fell by 43% to GBP11.9 million from GBP21.0 million.

On the back of the results, JTC upped its interim dividend by 13% to 3.5p from 3.1p.

Looking ahead, it expects to deliver 2023 results ahead of current market expectations.

Among London's small-caps, Regional REIT lost 7.4%.

It said that it has swung to a pretax loss of GBP12.1 million in the first half of 2023, from a profit of GBP28.3 million a year ago.

On the back of this, Regional REIT lowered its interim dividend to 2.85p per share from 3.30p per share year-on-year.

"It has been another challenging period for the commercial real estate sector as rapidly rising interest rates continued to impact valuations," said Stephen Inglis, chief executive of London & Scottish Property Investment Management, the asset manager of Regional REIT.

In European equities on Tuesday, the CAC 40 in Paris was down 0.1%, while the DAX 40 in Frankfurt was down 0.2%.

In Asia on Tuesday, the Nikkei 225 index in Tokyo closed up 1.0%. In China, the Shanghai Composite closed down 0.2%, while the Hang Seng index in Hong Kong was down 0.3% in late trade. The S&P/ASX 200 in Sydney closed up 0.2%

Brent oil was quoted at USD90.74 a barrel early in London on Tuesday, up from USD90.42 late Monday. Gold was quoted at USD1,919.10 an ounce, down against USD1,923.84.

By Sophie Rose, Alliance News reporter

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