FTSE on track for fresh record close; Wall Street opens higher
The FTSE is still climbing, putting it on course for a new record close. Markets are up on both sides of the Atlantic.
In Europe:
And in the US:
That’s it for today. Thanks for the comments and please join us again on Monday. Have a good weekend. AM
The rise in the pound seems to be down to this report from Bloomberg:
Spanish and Dutch finance ministers have agreed to work together to push for a Brexit deal that keeps Britain as close to the European Union as possible, according to a person familiar with the situation.
Spanish Economy Minister Luis de Guindos and his Dutch counterpart Wopke Hoekstra met earlier this week and discussed their common interests in Brexit, according to the person. Both have close trade and investment ties and are concerned about the impact of tariffs. They are also worried about losing UKv contributions to the EU budget, the person said.
Updated
The pound is at the highest level against the dollar since the referendum:
Pound hits highest level since EU referendum
Big day for the pound! It has hit the highest level against the dollar since the EU referendum in June 2016.
The pound surged to $1.3691, apparently on reports that Spain and the Netherlands are willing to back a soft Brexit.
It hasn’t been that high since the result of the referendum was clear on 24 June 2016. At that point the pound was at $1.49.
The pound also picked up against the euro, currently up 0.1% at €1.1263.
Sterling currently soaring on reports that Spain and the Netherlands will work towards a ‘soft’ Brexit deal. pic.twitter.com/5KNiZsDMen
— Philip Shaw (@philipshaw8) January 12, 2018
US inflation softens
The headline consumer price index increased by 0.1% in December, according to data from the US Labor Department.
It was below the 0.2% predicted by economists polled by Reuters survey and took the annual rate to 2.1%.
US headline inflation softens, but it’s only temporary. Combination of oil prices, dollar, cell phone data plan quirks and rising pay means ING looks for CPI to hit 3% this summer. Core inflation to soon rise above 2%.
— ING Economics (@ING_Economics) January 12, 2018
US retail sales rise 0.4% in December
US retail sales rose 0.4% last months as consumers bought a range of goods in the runup to Christmas.
The Commerce Department revised the figure for November to show growth of 0.9%, up from an earlier estimate of 0.8%.
Sales were up 4.2% in 2017, compared with 3.2% in 2016.
US inflation and retail sales data due at 1.30pm UK time will give the latest insight into the state of the world’s largest economy.
Michael Hewson, chief market analyst at CMC, looks ahead to the figures:
If today’s US CPI (consumer price inflation) numbers show a ... weak tone questions may once again be asked as to the likely pace of US rate rises this year, as well as some puzzlement as to why recent sharp rises in oil and other commodity prices aren’t showing up in the headline rates. Expectations are for monthly CPI to come in at 0.1%, down from 0.4% in November while the annual rate is expected to show a drop to 2.1% from 2.2%.
Of more importance will be US retail sales for December after the strong performance in November of 0.8%, and the Black Friday effect. Can the momentum of this November number carry over to Cyber Monday as well as the lead up to Christmas with another decent number? With wage growth in the US above the level of headline inflation you would like to think so and a number of 0.5% is expected. A half decent number here could well give the greenback a lift, after yesterday’s sharp fall.
European markets have built on earlier gains, and are up across the board:
Connor Campbell, analyst at Spreadex, has taken a look at the currency markets:
The euro was pretty damn ebullient this Friday following the news that Angela Merkel’s CDU were moving to the next stage of their German coalition talks with the Social Democrats.
Combine that with the lingering effects of yesterday’s ECB meeting minutes, which were read to be hawkish by investors, and the euro rocketed 0.8% higher against the dollar, taking it to a brand spanking new 3-year peak.
The dollar’s issues weren’t just against the euro – the greenback also plunged 0.7% against the pound, allowing cable to tease its own 4-month high. It appears the dollar was softened up by yesterday’s disappointing US producer price inflation reading, allowing fears over today’s prospective dip in both inflation and retail sales.
Of course the Dow Jones’ many multinationals are more than fine with the dollar’s decline, putting the US index on track for a 25,700-tickling half a percent climb when the bell rings on Wall Street.
GKN’s shares have jumped by more than a quarter to an all-time high of 420p, above the initial 405p cash and share offer on the table from turnaround specialist Melrose.
But Melrose shares have subsequently climbed 7%, lifting the value of the offer to 422p a share.
Analysts at Jefferies said the company could be worth as much as 504p a share.
Anxiety over falling real pay is entrenched throughout the UK workforce, irrespective of income level, according to a report out this morning from the Royal Society of Arts, Manufactures and Commerce.
The thinktank - whose chief executive, Matthew Taylor, recently led an employment review for the prime minister - said the link between employment and economic security had been “fundamentally broken” since the 2008 financial crash.
Read the full story here:
Pound hits near four-month high against the dollar
The pound is up 0.6% against the dollar, at $1.3617. It is the highest since 20 September 2017.
Sterling’s gain reflects the broader weakness of the dollar, which is down against the euro and a basket of other major currencies.
Alvin Tan, currency strategist at Societe Generale, explains:
Sterling is benefiting from the dollar weakness and the growing euro strength rather than any pound-specific factors, which if anything have been underwhelming this week.
The pound is currently down 0.2% against the euro at €1.1230.
GKN shares hit record high
GKN is by far the biggest FTSE riser this morning, with shares in the firm hitting an all-time high:
Nicholas Hyett, equity analyst at Hargreaves Lansdown, gives his take:
GKN has made up for years of lumbering progress in a flash. A takeover offer, subsequent rejection, new chief executive, transformation strategy, trading update and planned separation of the business all in one go – it’s hard to describe GKN as a Mondeo now!
The separation of the automotive and aerospace units has been on the cards for years, with little obvious cross over between the two businesses. Historically, the pension deficit has held the group together, but with the sprawling footprint likely to have contributed to recent profit warnings, the reasons for divorce now seem to outweigh the costs of splitting.
The money to be made from a split is likely to have been what drew turnaround specialist Melrose to the table in the first place – the challenge for newly confirmed chief executive Anne Stevens is to deliver a better result for shareholders than the 405p she turned down today.
Vince Cable, leader of the Liberal Democrats and the former business secretary, doesn’t appear to be a fan of Melrose:
Attempted #takeover of leading UK #Engineering @GKN_plc by asset stripper melrose. Serious threat to #industrialstrategy. where is gov?
— Vince Cable (@vincecable) January 12, 2018
Melrose signals intent to pursue GKN bid battle
Melrose is pressing ahead with its £7bn hostile approach for GKN, which has been unanimously rejected by the board of the engineering giant.
Melrose has issued its own statement in response to the one put out by GKN, essentially saying it will carry on regardless.
The turnaround specialist believes that it can “re-energise and re-purpose” GKN.
Melrose says:
Melrose believes that there would be significant operational and commercial benefits arising from Melrose’s ownership of GKN’s businesses, reversing a history of existing GKN management not delivering on margin targets.
GKN announced today its intention to separate the businesses. Melrose believes that shareholder value would be maximised by it significantly improving the businesses prior to any separation. The potential acquisition represents a significant opportunity for Melrose to execute on its strategy of maximising inherent value of specialised industrial businesses it owns.
Carillion crisis: government urged to take back control of contracts
Shadow business secretary Rebecca Long-Bailey has urged the government to take action to limit the consequence of a potential collapse of construction giant Carillion.
The government is one of Carillion’s biggest clients, working across the NHS and education and on major contracts such as HS2.
Long-Bailey says:
The collapse of Carillion could provoke a serious crisis.
It would have major implications for the outsourced government contracts the company holds, as well as the firm’s thousands of workers, those in the supply chain and those who rely on Carillion’s pension fund.
The government, who despite warnings carried on with its programme of outsourcing public services to this company, must stand ready to bring these contracts back into public control, stabilise the situation and safeguard our public services.
Read the full story here:
Euro hits three-year high against the dollar
The euro is at a three-year high against the dollar after a breakthrough in German coalition talks.
News that Angela Merkel’s conservative Christian Democratic Union bloc and the centre-left Social Democrats have cleared a first hurdle towards the formation of the next German government sent the euro up as high as €1.2136 at one point- the highest since December 2014.
The euro is up 0.8% against the dollar at a $1.2120:
Over to Greece now where workers are staging a mass walk-out in opposition to a proposed new wave of reforms and austerity measures. One of the most contentious measures would restrict the right to call industrial action.
Helena Smith reports from Athens:
In what is being billed the first major industrial action of the year, public and private sector workers have staged a walk-out. Transport workers, seamen, state doctors, bureaucrats and construction workers, have all voiced opposition to the measures demanded by international creditors if debt-stricken Greece is to complete its latest bailout compliance review.
The multi-bill, widely seen as the last one before Greece exits bailout supervision, contains some of the harshest reforms yet. Unions and labour groups are particularly incensed by a new law that will restrict the right to call strikes and is much the focus of today’s protests.
Leading members of prime minister Alexis Tsipras’ leftist Syriza party have also expressed vehement opposition. Tsipras has urged them to see the bigger picture, arguing the measures are a necessary evil if the country is to regain economic independence and return to capital markets to borrow funds required to refinance its staggering debt mountain.
Parliament is expected on 15 January to vote through the contentious bill. The government must legislate about 100 ‘prior actions’ if time-tables are to be kept and further rescue funds dispensed at the next EU leaders’ summit on 22 January.
European markets edge higher
Europe’s major markets are all up this morning, with the exception of France’s CAC which is roughly flat.
Here are the latest scores:
- FTSE 100: +0.1% at 7,770
- Germany’s DAX: +0.2% at 13,224
- France’s CAC: flat at 5,489
- Italy’s FTSE MIB: +0.4% at 23,390
- Spain’s IBEX: +0.4% at 10,479
- Europe’s STOXX 600: flat at 397
The bid for GKN by Melrose might be considered audacious, given its smaller market value.
Shares in both companies are up sharply after news of the approach emerged. GKN is top of the FTSE 100 leaderboard, while Melrose is the FTSE 250’s biggest riser.
Garry White, chief investment commentator at Charles Stanley, says Melrose might be onto something:
The Melrose guys are very good at spotting an engineering bargain. GKN management would probably be wise to hold out for more than the current offer, but if anyone can get it out of a rut, Melrose can
— Garry White (@GarryWhite) January 12, 2018
GKN splits business and brings in new chief executive as it fends off bid
So after the day was looking a little thin on corporate news, GKN has delivered the goods with a triple whammy of news:
- The company, valued at £7.2bn, has rejected an “unsolicited” offer of 405p a share from Melrose. GKN shares are currently up 25% at 416p
- GKN said it intends to separate its automotive and aerospace businesses, “recognising the strategic optionality for shareholders in having separate companies with distinct investment profiles and capital allocation policies”
- Anne Stevens, currently interim chief executive, will take on the top job with immediate effect, the company said
GKN bid news catapults FTSE to new record high
GKN shares have jumped 24% this morning after the engineering giant said it had rejected an “unsolicited” offer of 405p a share from turnaround specialist Melrose.
In a statement to the stock exchange, GKN (which makes parts for the car and aerospace industry), explained:
The board of GKN has considered the proposal together with its financial advisers ... and has unanimously rejected it, having concluded that the proposal is entirely opportunistic and that the terms fundamentally undervalue the company and its prospects.
GKN shares are currently trading at 413p and the jump pushed the FTSE 100 to a new intraday high of 7,774 at one point.
The agenda: FTSE rises despite oil price dip; US retail sales
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The FTSE 100 is up in early trading, following a fresh record close on Thursday and another record finish on Wall Street.
It is up 0.05% at 7,766.
The index of the UK’s leading shares is up despite a 0.4% dip in the price of Brent crude oil to $68.94 a barrel.
After a flurry of Christmas trading updates from UK retailers on Thursday, it’s a much quieter day on the corporate front.
An exception is discount retailer B&M, which has reported a sharp increase in sales over Christmas period after opening more than 30 new UK stores over the last nine months.
Also coming up:
- 1.30pm GMT: US retail sales for December will reveal whether or not consumers in the world’s largest economy had the appetite to spend in the runup to Christmas
- 1.30pm GMT: US inflation data for December will be viewed in the context of the next move on rates by the Fed
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