UK lower, Hammerson & Intu, Tory revolt

By Jasper Lawler
London Capital Group

Indices

  • European markets have opened lower after another late sell-off on Wall St
  • The Nasdaq 100 gave up 1% gains to end lower
  • Japan’s Nikkei stock average closed down 2% for its biggest loss of 2017

Shares

  • Hammerson has agreed to a £3.4bn offer for Intu Properties
  • Legal & General is selling its closed mature savings business to Swiss Re for £650m

Forex

  • Dollar mixed before ADP data as Senate/Congress begin talks over tax bill
  • Talk of a Johnson-led Tory revolt against UK & EU ‘regulatory alignment’ hurting Sterling

Crypto

Bitcoin breaks $12k for the first time

Commodities

  • Gold has broken lower, now back to key $1260/5 per oz support
  • Oil consolidating before EIA US inventory data (after -5.5M draw in API data)

Europe opens lower

Sentiment continues to sour this week in equity markets. European stocks have opened lower following another late sell-off in the US and some big declines in Asia. Another Brexit-led decline in Sterling is keeping losses on the FTSE 100 in check. It began as a rotation from the outperforming tech sector into the financial sector on tax reform progress. Sector rotations are morphing into more broad-based profit-taking into the end of the year. The Nasdaq 100 reversed a 1% gain to end 0.2% lower in another daily reversal of sentiment.

Japan optimism fading

The negativity is setting in Asia too. Japan’s Nikkei stock average closed down 2% for its biggest loss of 2017. After such a strong run up following the re-election of Shinzo Abe, Japanese stocks look like they’ve made an interim top. Investors looking for a haven in the yen in response to rising volatility in other markets will add to the woes of Japanese shareholders.

Shopping centre owners consolidate

Shares of Intu Properties have jumped following a £3.4bn offer by rival property Group Hammerson. The deal would create one of the UK’s largest shopping centre operators. The offer of 353.9p per share is a 27% premium of the Dec 5 closing price. Intu shares were down over -25% YTD before the announcement so it’s an opportunistic buy. Intu share prices losses have accelerated on signs British shoppers are tightening purse strings. The cost of living squeeze on UK consumers from higher inflation is forcing companies like Hammerson and Intu, which will have a combined £21bn retail property portfolio into action. Online shopping means shopping centres and high street shopping are in a long-term malaise. Shareholders will want to see assets sold down in the merged company to help fund the deal and to reflect the lower demand for Brick and Mortar stores.

Tory Revolt heaps more political pressure on Sterling

Theresa May looks closer to losing power than at any point since the election. A day after losing support from the DUP for her text on the Irish border, she appears to be losing the backing of her own party on the issue of EU regulations. Conservative MP Jacob-Rees Mogg’s comment that the UK harmonising its regulations with the EU marks a red line in Brexit negations is an opinion widely-shared. The British pound is holding up remarkably well in the face of the latest Brexit problems. Sterling’s resilience can be viewed as either markets looking through the noise with the belief the UK and EU will move onto trade talks eventually, or perhaps a belief that new Tory leadership would mean a softer Brexit.