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FTSE 100 set for slow start as investors say Europe will be next to bounce back from Covid

Jim Armitage
·3-min read
Lord Frost and European Commission vice-president Maros Sefcovic met in Brussels (PA Wire)
Lord Frost and European Commission vice-president Maros Sefcovic met in Brussels (PA Wire)

The FTSE 100 was in for a flat session today despite rising hopes of a European economic recovery and the prospect of more stock market floats in London.

Stockbroker Peel Hunt was the latest company named as being considering an IPO in London. Its status as a company that thrives on strong share markets should add to the feeling of confidence in the City.

It comes at a time that some investors are beginning to look through “peak pessimism” for European economies despite EU leaders’ slow rollout of Covid vaccines and new outbreaks of the disease.

The FT polled numerous fund managers to find some were looking at where the economic data was likely to get better next, having seen the US improve quickly this year. The obvious answer appears to be Europe.

Germany has finally picked up the pace of vaccine doses and the bond and currency markets have been indicating for some time that confidence is rising in Europe, potentially leading to tighter monetary policy from the European Central Bank.

Data out today from the EU is likely to show inflation jumped to 1.3% in March, giving the ECB more potential leeway to consider relaxing some of its support for the economy.

All that being said, London and Europe looked set for a quiet start to trading with all eyes on whether the FTSE 100 can head through the 7000 level.

It was expected to open flat at 6992.7 by traders on the IG platform. CMC Markets punters were slightly more optimistic, calling it up 7, with the Dax in Germany expected up 30 at 15285 and France’s CAC 40 3 points higher at 6237.

Drugmaker GSK will be in focus again today after yesterday’s share price spike prompted by news that activist investor Elliott had bought up a chunky stake. Speculation has been running amok about what it could be planning for the company which has seen its shares tumble in recent months, piling pressure on chief executive Emma Walmsley.

The dilemma for the pundits is that Walmsley is already undertaking one of London’s most dramatic overhauls, including massive acquisitions and breakups for the company. That leaves the question: what more could an activist do?

Elliott seems far more likely to insist on something radical than, say, Sainsbury’s new investor, Czech billionaire Daniel Kretinsky. After he upped his stake to nearly 10% this week, it was suggested he would launch a bid for the business, but others said that seemed unlikely, given his track record of simply buying stakes in businesses he feels are undervalued such as Royal Mail.

On the economic data front, yesterday’s survey showing a 9.8% surge in US retail sales during March led US markets to fresh records yesterday, but was oddly received by the bond markets. Yields actually fell despite the upbeat new data.

CMC Markets’ analyst Michael Hewson pointed out that this could mean two things: “Either the recovery is already in the price, or markets think this is as good as it gets.”

He doubts the latter, citing that April jobs figures in the US could be shoot-the-lights-out strong, pushing bond yields higher again.

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