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- FTSE 100 falls back, down 17 points
- Oil price falls, BP (LON:BP) and Shell (LON:RDSa) weaken
- Retail sales growth slows in May, BRC
Weak start expected across the pond
US stocks are likely to open down as markets take a breather from a recent rally that pushed the S&P 500 to a nine-month high and digest latest data that have increased fears about a recession.
Futures for the Dow Jones Industrial Average fell 0.1% in Tuesday pre-market trading, while those for the broader S&P 500 index contracts for the Nasdaq-100 also declined close to 0.1%.
The main US indices ended lower on Monday after ISM services data for May came in lower than expected at 50.3 points and as Apple’s latest augmented reality innovation failed to impress.
After climbing to within a whisker of its all-time high, the iPhone maker’s shares turned around to finish down after the launch of its new virtual reality headset, Vision Pro. That pushed the Nasdaq 0.2% lower to 13,229 points, while the DJIA shed 0.6% to 33,563 and the S&P 500 ended 0.2% down at 4,274 points after hitting its highest level since August 2022.
“US markets initially got off to a reasonably positive start but the disappointment over the May ISM services report tempered gains,” commented Michael Hewson, chief market analyst at CMC Markets.
“The weak nature of the ISM services report was in sharp contrast to other service sector numbers, raising more questions, than answers about the strength of the US economy, ahead of next week’s Fed meeting.”
With US central bank officials now muzzled until after next week’s rate decision, Hewson said markets now must reassess whether the Fed pauses next week, or whether it hikes rates by another 25 basis points.
“The odds still favour a pause even more so after yesterday’s ISM report, however, we still have next week’s CPI numbers to contend with,” he added.
RBC upgrades Anglo American
RBC Capital Markets has upgraded Anglo American (LON:AAL) to 'outperform' from sector perform making the case that the miner should be a "relative beneficiary" from improved sector sentiment, particularly as its operational momentum returns.
The broker also increased its price target to 2,700p from 2,500p.
RBC said Anglo American has had a tough past 12 months referring to a 25% slide in its share price over the past year.
"The company's previously near best-in-class operating track record posted forgettable results as challenges mounted, and large downgrades came through the December update,” it noted.
"South Africa risks have been rising and the company's lower free cash flow generation has hampered investor confidence,” RBC said.
“Compounding the recent share price fall was the sector surge from the China reopening thematic, which has pushed Anglo well ahead of fair value," RBC explained, adding that this has now "unwound."
RBC reckons while risk remains, that Anglo should be able to restore some of its operational stability. It highlighted to a ramp-up at Quellaveco in particular as aiding its "base case" of 7% growth for earnings before interest, tax, depreciation and amortization by 2025.
"Expectations on more Chinese real estate support may provide a short-term boost to sentiment and Anglo is well positioned to benefit from its amenable starting point," RBC added.
"We continue to see challenges to commodity demand and remain below consensus Ebitda by 10%, but we see unlevered Anglo American as providing a preferable exposure now that the sector is more reasonably priced."
Shares in Anglo American were little changed early afternoon while the FTSE 100 was down 17 points at 7,583.
Takeovers declined in first quarter - ONS
Takeovers involving UK companies declined over the first three months of the year, amid tough economic conditions and political uncertainty, according to provisional figures from the Office for National Statistics.
Foreign companies spent £12.7bn acquiring UK firms between January and March, £4.1bn less than during the same quarter last year, the ONS said.
However, it was £6.9bn more than during the previous quarter, between October and December, when the value of merger and acquisition activity dipped.
The appetite among businesses to buy other companies may have been affected by global economic uncertainty and Russia's war in Ukraine, the ONS suggested.
Many businesses put investments on ice in 2022 due to the more difficult conditions, including high inflation and rising interest rates, experts suggested.
Nevertheless, the total combined number of monthly mergers and acquisitions – both UK companies acquiring foreign companies and vice versa – was lower at the start of 2023 compared with last year.
There were 141 transactions in January, 100 in February, and 114 in March, whereas there were more than 150 transactions in each month throughout 2022, the ONS said.