Market buzz: Tesco suppliers hit by buying deal, Chinese PMI slips
1542: In a note on the CFTC Commitment of Traders report, Rabobank notes that currency speculators' GBP shorts grew further last week after plunging into negative territory in the middle of June, after the hawkish leaning from BoE chief economist Andy Haldane and amid UK political risk over Brexit policy.
US dollar speculators, after surging to their highest level since June 2017 the previous week, only edhed positions up modestly last week. "Support for the USD reflects heightened capital outflows from emerging markets and an indication from the FOMC that rates could be increased by a total of 4 times this year."
Euro longs dropped for a tenth consecutive time last week, though the fall was modest in comparison to the previous week, which Rabo says "was a reaction to the message from the ECB that rates may not be raised until at least summer 2019. Tensions within the German government are also weighing on sentiment".
1535: The Dow Jones index fell 120 points after the bell – not as bad as the 200 point fall forecast, but still hovering around 24100, its worst levels in two months despite a pair of strong PMI reports. These "mean little in the face of the war of words between Trump and the EU", says Spreadex market analyst Connor Campbell.
The Markit PMI came in at 55.4, with the ISM PMI at a four month high of 60.2 have instead helped the dollar, however, which also gains from a safe haven status in the eyes of investors.
The greenback furthered its gains against the pound and the euro; cable was sent back towards $1.31 after tumbling 0.6%, while the single currency $1.16 following a half a percent fall.
"Their currencies’ respective woes helped ease the situation in the Eurozone and, to a lesser extent, the UK," says Campbell, with the DAX seeing the greatest turnaround, reducing an initial 1.4% loss to a comparatively negligible 0.3% drop and the CAC halving its substantial decline to a still unpleasant 0.8% fall.
The FTSE is down 0.8% at 7,576.83.
1520: One to watch out for - Bank of England chief economist Andy Haldane has given an interview to Germany's Handelsblatt, which will be available online in the early evening, and in print on Tuesday.
1132: Shares in many of Tesco suppliers' have been sent lower after the announcement on its buying deal with Carrefour, with McBride down 2%, Bakkavor and Hilton Food down 0.8%, Unilever down 0.7%, Cranswick down 0.5%.
Dairy Crest was up 1% however, Premier up 0.6% and Greencore up 0.5%.
1100: Broker Shore Capital says Tesco's buying partnership with Carrfour is "interesting, and potentially positive" but say "we do not see the potential tie-up as a ‘game-changer’" wonder if a formal alliance of two national market leaders might be enough to pique the interest of European regulators.
Analysts at Peel Hunt furthermore note that McBride supplies both customers, "so will be subject to risk of having tighter buying terms, particularly if there are differences in pricing".
"It may also provide opportunities given that the company has an excellent relationship with Tesco, where McBride has sole supply on a wide number of lines and the company is seeing a stronger performance in the UK than in France."
1042: Credit Suisse put out a note on Micro Focus before the company's announcement this morning, saying that activists have been keen to crystalise value from SUSE and sell off the rump to private equity but that selling off a growing part of the business "merely exposes poor underlying trends".
In the six months to last October, group revenues fell 3%. But excluding SUSE, core Micro Focus fell 7%, and trends have likely deteriorated since then, analysts suggest.
"We think it is extremely difficult to value assets declining at that rate, especially when growing businesses like Avast trade on 9% FCF yields."
CS has argued for some time that even on fully recovered cash flow, the valuation of Micro Focus "looks full", with the arrival of Avast onto the LSE now provides a similar and relevant valuation benchmark.
Valuing fully recovered Micro Focus in line with Avast on a 9% FCF yield "supports a valuation of just 1307p. Given the ongoing execution risk at Micro Focus, we think the current risk/ reward is poor and therefore retain our 'neutral' rating."
0959: Tesco shares fell and are bouncing back after the supermarket group agreed to form a alliance with French peer Carrefour to group their buying power together to squeeze prices lower in the face of competition from discounters such as Lidl and Aldi.
"Although Tesco has only just completed its acquisition of Booker, management clearly felt that they had to respond to the Asda-Sainsbury tie-up, which promised to lower prices for every day items," said analyst Neil Wilson at Markets.com.
"But there is the inherent contradiction of that deal in this partnership too in that they talk about strengthening relationships with suppliers and delivering lower prices at the same time, the kind of logic that is designed to assuage competition authorities but leaves sceptics unimpressed.
"However the great advantage with the Tesco-Carrefour tie up is that it won't impact the UK market directly in the way that Asda-Sainsbury's would. Again Dave Lewis seems to be navigating things very well in first selecting a wholesaler (Booker) and now a foreign giant (Carrefour) and so avoiding undesirable run-ins with the CMA. Tesco cannot really do any more deals in the UK so a foreign partner makes sense."
0946: Micro Focus shares are on the front foot after it agreed to sell its SUSE software business for $2.5bn in cash. The company said it would use the proceeds to pay some of its debt and for general corporate purposes, while it might also be used to return to shareholders.
0938: UK manufacturing sector growth ticked a little higher in June but remained relatively subdued, according the IHS Markit manufacturing purchasing managers’ index, which rose to 54.4 from 54.3 in May, a touch ahead of consensus expectations for a reading of 54.0.
0853: Monday's opening London market report finds stocks still down, led lower by the mining sector amid growing trade war concerns.
At 0840 BST, the FTSE 100 was down 1.2% to 7,547.58, while the pound was up 0.1% against the euro at 1.1316 and 0.3% lower versus the dollar at 1.3168.
Mining stocks are the worst performers, with Anglo American, Glencore, BHP Billiton and Antofagasta all lower after data showed that growth in China's manufacturing sector slowed in June. The Caixin-Markit China manufacturing purchasing managers' index nudged down to 51 this month from 51.1 in May, in line with expectations.
Vedanta is a rarity in the sector, up 26% after directors have indicated they would be prepared to recommend a possible £778m all-cash takeover offer from founder Anil Agarwal. This comes fairly fresh on the heels of a share slump after several protestors were killed by police at protests against the expansion of the company's Tuticorin copper smelter in India.
0818: US dollar is up by 0.47% to 6.6523 yuan.
0810: The FTSE 100 has lost 71.57 points or 0.94% in the first few minutes of trading to 7,565.36.
Trade war fears and downbeat China data are being blamed by traders.
President Trump called the European Union "possibly as bad as China, just smaller" and said the bloc's trade practices with the US were "terrible".
London Capital Group analyst Jasper Lawler said: "A ramping up of trade war headlines over the weekend, such as a strong warning of retaliation from the EU and a potential currency war with China (US), will ensure that the fear of an all-out global trade war is central in traders’ mind, as the session begins on Monday."
0759: Economic activity in China eased slightly in June, pointing to slightly slower growth in the Asian giant on the back of slower credit growth and trade tensions.
Caixin's manufacturing sector purchasing managers' index slipped from a reading of 51.1 for May to 51.0 in June (consensus: 51.1).
"On balance, the PMI readings are consistent with a slight drop back in June on the China Activity Proxy – our in-house measure of GDP growth – which accelerated earlier last quarter thanks to the easing of winter pollution controls," said Julian Evans-Pritchard, senior China economist at Capital Economics.
"We had always expected this pick-up to be temporary given the headwinds to the economy from slower credit growth and escalating trade tensions."