UK market gets off to a positive start
A flurry of M&A activity--both actual and rumoured--combined with improved banking sector sentiment and oil price strength to push the FTSE 100 higher
The FTSE 100 index closed 53.0 points or 1.3% higher, although it failed to climb above the 4,300-mark, closing instead at 4,294.0. The FTSE 250 index put in similar gains, rising 91.0 points or 1.2% to 7,477.2.
Lower-than-expected lending figures in the UK failed to dampen sentiment. Data released by the Bank of England showed mortgage approvals edged up to 43,414 in May from April’s 43,191—weaker than economists had predicted and an indication that house prices have further to fall.
Shrugging off the weak figures, banking stocks climbed higher on Monday after Goldman Sachs issued an upbeat research note in which the broker upgraded Lloyds Banking Group to Buy and resumed coverage of Barclays at Neutral. “We see a strong relationship between market share concentration and long-term returns,” the broker said, although it added that while the long-term outlook for banking asset margins looks promising, it expects to see near-term pressure as liabilities reprice ahead of assets.
Lloyds led the risers with a jump of 6.1%, while Barclays added 4.3% and Royal Bank of Scotland took on 2.3%. Asset managers also received a fillip as sentiment surrounding the broader financial sector improved, with Schroders up 3.7% and Man Group 3.5% better.
Elsewhere, merger and acquisition activity was responsible for a number of solid performances. Insurers Prudential, Old Mutual and Standard Life took on 3.0%-5.9% amid sector consolidation news after Liberty Acquisition Holdings said it has agreed to buy the UK insurer Pearl Group.
A handful of miners including Rio Tinto benefited from M&A speculation, with Rio closing up 4.5% on the back of reports China’s state-owned aluminium producer Chinalco is mulling an £880 million stake purchase. Anglo American ticked up 0.5% amid rumours it is sounding out potential investors for its iron ore assets in Brazil, while snubbed bidder Xstrata dropped 2.0% as Chinalco was again the subject of market whispers suggesting the Chinese group could be a rival suitor for Anglo.
Heavyweight FTSE 100 member Vodafone was also the subject of M&A talk following a press report that the mobile phone operator is preparing to bid for Deutsche Telekom-owned T-Mobile’s UK operations. Analysts were rather dismissive of the report, however. “The only reality we can suggest is likely is that T-Mobile is for sale,” FinnCap wrote in a note today, noting that should Vodafone be interested in buying the business it would push its market share beyond its current 25%, immediately attracting the attentions of Ofcom and the Competition Commission. “If this is a genuine transaction,” FinnCap said, “it will take an awfully long time to go through, if it even does, and such distraction would be unwelcome to management focus on margins and ex UK growth.”
Vodafone shares were 1.2% higher by close of play.
On the second tier, National Express topped the FTSE 250 leaderboard after rejecting a preliminary approach for a share-for-share merger from rival bus and train operator FirstGroup. National Express closed up 9.8%, while FirstGroup slipped 1.3%. Click here for more on this story.
Returning to the top line, combining with the M&A activity to push the blue-chip index higher was a near-$2 rise in crude oil prices to over $71 per barrel after the International Energy Agency slashed its expectations for medium-term global oil demand.
Tracking the rising oil price, heavyweights Royal Dutch Shell and BP added 2.4% and 2.0%, respectively, while BG Group and Cairn Energy were 4.1% and 3.0% firmer.
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