LONDON BRIEFING: Markets Show Resilience As Osborne Seeks To Reassure

LONDON (Alliance News) – Investors continued to show surprising nerve Monday, as the London market reopened after a weekend of political uncertainty with only a small decline. The FTSE 100 already had rebounded strongly Friday from opening losses that day.

In Asia on Monday, Hong Kong and Tokyo actually gained ground.

However, both budget airline easyJet and estate agent Foxtons issued profit warnings early Monday about the impact of Brexit.

In a pre-open speech, UK Chancellor of the Exchequer George Osborne said further economic and budgetary actions won’t be decided until a new UK prime minister is in place in the autumn, noting that it is “perfectly sensible” to wait until that happens. Osborne said he will address his own role in the Conservative Party in “coming days”.

Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: down 0.4% at 6,113.95
FTSE 250: down 1.0% at 15,924.88
AIM ALL-SHARE: down 0.1% at 702.89
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Hang Seng: up 0.1% at 20,280.93
Nikkei 225: closed up 2.4% at 15,309.21
DJIA: closed down 3.4% at 17,400.75
S&P 500: closed down 3.6% at 2,037.41
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GBP: down at USD1.3464 (USD1.3625)
EUR: down at USD1.1052 (USD1.1115)

GOLD: up at USD1,326.49 per ounce (USD1,317.55)
OIL (Brent): flat at USD48.80 a barrel (USD48.72)

(changes since previous London equities close)
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ECONOMICS AND GENERAL
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Monday’s Key Economic Events still to come
(all times in BST)

0900 EU M3 money supply and private loans
1330 US goods trade balance
1445 US Markit services and composite PMI preliminary
1530 US Dallas Fed manufacturing business index
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Britain’s economy is “fundamentally strong” and remains open for business, Chancellor of the Exchequer George Osborne said in an attempt to calm markets and investors after the country’s vote to leave the European Union. Osborne had not spoken in public since the vote, which caused stock markets around the world to plummet on Friday and the pound to drop to levels not seen since 1985. The UK chancellor said further economic and budgetary actions won’t be decided until a new UK primer minister is in place, noting that it is “perfectly sensible” to wait until that happens. Osborne said he will address his own role in the Conservative Party in “coming days”.
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Former London mayor Boris Johnson and Home Secretary Theresa May are leading a pack of at least 10 senior Conservatives tipped to be contenders in the battle to succeed UK Prime Minister David Cameron. The Brexit campaign frontman summoned friendly Tory MPs to his Oxfordshire home on Sunday in likely preparation for a run at the party’s leadership, as the Home Secretary was reportedly sounding out colleagues. May is thought to be the main contender to take on the former London mayor and a plot dubbed “ABB” (Anyone But Boris) has reportedly begun, organised by ministers and aides loyal to Cameron. Other challengers could include pro-Remain MPs Sajid Javid, the Business Secretary, Education Secretary Nicky Morgan, Work and Pensions Secretary Stephen Crabb and Energy and Climate Secretary Amber Rudd.
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Labour leader Jeremy Corbyn is digging in for a bitter Westminster war of attrition with Labour MPs as he banks on grass roots supporters saving his leadership of the party. The under-fire Labour leader pledged to ride out the crisis caused by a mass walk-out of the shadow cabinet as he warned would-be challengers he will not go down without a fight. Braced for yet more top team resignations after 11 shadow ministers turned their backs on him after he fired Hilary Benn for plotting to topple him, Corbyn insisted he would not “betray” the Labour members who elected him last September.
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Policymakers in the UK and Europe are holding uncertainty in their hands after Britons voted to leave the EU, International Monetary Fund Managing Director Christine Lagarde said. The outcome of ‘Brexit’ will depend on how policymakers deal with the situation, she said at the Aspen Ideas Festival in Colorado. “How they come out in the next few days is going to really drive the direction in which risk will go…We have strongly encouraged the parties involved to actually proceed with this transition in the most efficient, predictable way in order to reduce the level of uncertainty which will in itself determine the level of risk we are facing,” Lagarde said.
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Britain’s vote to leave the European Union has caused a rise in support for Scottish independence, with a majority of Scots now wanting to leave the UK, according to a new poll for the Sunday Times. Scotland had voted 62% to 38% to remain in the EU, joining London and Northern Ireland as the only UK regions to vote to remain. The Panelbase survey for the newspaper points to a reversal of the result of the 2014 independence referendum in Scotland, with “yes” now on 52%, up seven points and “no” on 48%, down seven points. The poll also found 52% believe Scotland is likely to become independent of the UK within 10 years, up from just 30% when the same question was asked in April.
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Eight children and two adults were taken to hospital after a rollercoaster derailed and crashed to the ground at a theme park in Scotland. Witnesses said the Tsunami ride at M&D’s amusement park at Strathclyde Country Park, Motherwell, had been full when it came off the track around 3.40pm Sunday. Police, firefighters and paramedics rushed to the scene as several visitors posted images on social media appearing to show a mangled carriage on a pathway surrounded by dozens of people. Those injured were taken to nearby hospitals including the Royal Hospital for Children in Glasgow although details of injuries or conditions have not been released.
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US Secretary of State John Kerry is travelling to Brussels and London on Monday to discuss the consequences of the British vote to leave the EU. In Brussels, he will meet with EU foreign policy chief Federica Mogherini, State Department officials told dpa. Kerry is then planning to fly to London to meet with British Foreign Secretary Philip Hammond.
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Three days after Britain’s Brexit vote, Spain’s voters handed conservative Prime Minister Mariano Rajoy a surprising and clear victory on Sunday. Rajoy’s centre-right People’s Party not only maintained its position as the strongest party in the country’s second parliamentary elections in six months, it also finished with more seats in parliament despite projections that its position would be weakened. The party is still short an absolute majority and will have to seek a partner in order to form a majority government.
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Britain’s decision to leave the EU increases uncertainties about the recovery of the world economy, China’s Premier Li Keqiang said. “We need to jointly tackle the challenges and create a stable international environment,” the premier said at the Summer Davos meeting of the World Economic Forum in the Chinese city of Tianjin. Europe is an important partner for China, which wants to expand its relations with both the EU and Britain, Li said.
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China’s industrial profits increased further in May, though at a slower pace than in the previous month, data from the National Bureau of Statistics showed. Industrial profits grew 3.7% from a year ago to CNY 537.2 billion in May, following a 4.2% gain in April.
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Israel and Turkey have reached a reconciliation deal, an Israeli official confirmed. Under the deal, Israel is to pay USD20 million to a fund for the families of nine Turkish nationals shot dead when Israel overpowered a ship headed to break the Gaza naval blockade in May 2010, the official said on condition of anonymity. The compensation will end all claims against Israel and Israeli military personnel, who will not be sued at the international court.
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Support for US Republican presidential candidate Donald Trump has plummeted to 39%, a poll released Sunday showed. The Washington Post-ABC News poll showed the dramatic decline from 46% last month. The same poll showed support for his opponent, Hillary Clinton, the presumptive Democratic nominee, increase from 44% last month to 51% this month, giving Clinton her largest lead in the Washington Post-ABC poll since late last year.
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BROKER RATING CHANGES
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GOLDMAN CUTS IAG TO ‘NEUTRAL’ (BUY) – PRICE TARGET 477 (800) PENCE
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TRADERS: JPMORGAN CUTS BARCLAYS TO ‘NEUTRAL’ (OVERWEIGHT)
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TRADERS: JEFFERIES CUTS BARCLAYS TO ‘UNDERPERFORM’ (BUY)
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BARCLAYS CUTS RBS TO ‘UNDERWEIGHT’ (EQUAL WEIGHT) – PRICE TARGET 200 (270) PENCE
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BARCLAYS CUTS LLOYDS TO ‘EQUAL WEIGHT’ (OVERWEIGHT) – PRICE TARGET 65 (95) PENCE
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GOLDMAN CUTS ROYAL MAIL TO ‘NEUTRAL’ (‘BUY’) – TARGET 568 (630) PENCE
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GOLDMAN CUTS KINGFISHER TO ‘NEUTRAL’ (‘BUY’) – TARGET 375 (435) PENCE
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GOLDMAN CUTS GKN TO ‘NEUTRAL’ (‘BUY’) – TARGET 291 (329) PENCE
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GOLDMAN RAISES BUNZL TO ‘NEUTRAL’ (‘SELL’) – TARGET 2,100 (1,800) PENCE
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TRADERS: CITIGROUP RAISES BT GROUP TO ‘BUY’ (NEUTRAL)
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COMPANIES – FTSE 100
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easyJet said pretax profit in its fiscal third quarter will be lower year-on-year following flight cancellations and the Egyptair tragedy, and said the outcome of the UK’s EU referendum will hit revenue per seat in the second half of the year. The low-cost airline said it has experienced 1,061 cancellations so far in the third quarter to the end of June, due to a significant number of disruptive events including air traffic control strikes in France, runway and congestion issues at Gatwick airport and severe weather conditions. Those incidentshit third-quarter pretax profit by around GBP28 million year-on-year, easyJet said, while also reducing revenue per seat by around 1.6 percentage points. In addition, the UK’s decision to leave the EU will contribute to further economic and consumer uncertainty this summer, easyJet said, leading to an expected mid-single digit fall in revenue per seat at constant currency in the second half of the financial year, year-on-year.
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Aviva said it is continuing to analyse the possible implications of Brexit following the EU referendum last week, but said it has one of the “strongest and most resilient” balance sheets in the UK insurance sector. The multinational insurance company noted the market volatility following the result, but said the company’s capital position is resilient to market stress. Aviva said, as of the close on Friday, the company’s solvency II coverage ratio remained close to the top of its working range of 150% to 180%.
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Anglo American is thought to be close to concluding the sale of two coal mines in Australia, which would be a key component to the company’s debt reduction plans, and fellow commodity giant BHP Billiton is expected to be one of the leading bidders, the Financial Times reported. Anglo American has been in the process of selling the Moranbah and Grosvenor mines, which both produce coking coal for use in steel-making, and BHP is thought to be interested in snapping up the mines after committing to the long-term future of coal, the newspaper said.
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Meahwhile, BHP outlined its approach to exploration which will see the company target opportunities across copper and oil to enhance its long-life, tier 1 portfolio. Next financial year, the company plans to invest about USD900 million in exploration, which represents 18% of its overall capital budget. Speaking at Citigroup’s Mining Exploration Day in Sydney, BHP Billiton Head of Geoscience, Laura Tyler, said, “We are investing at a time when most in our sector continue to reduce discretionary spend.”
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COMPANIES – FTSE 250
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Defence contractor Ultra Electronics Holdings said trading in the first half of the year has met its expectations, and the value of its order book has increased since the turn of the year. The company said market conditions have continued in line with its expectations in the first half of 2016, and its forecasts for the full year remain unchanged.
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UBM said the company’s share consolidation plan is effective from Monday following the sale of its PR Newswire business earlier this month. UBM had announced the sale of the business in late 2015 to Cision, a PR software company owned by Chicago-based private equity house GTCR Canyon Holdings, for total cash proceeds of GBP490.0 million. UBM has returned GBP245.0 million of the proceeds to shareholders via a special dividend, and its associated share consolidation of eight shares for nine is effective from Monday with the new shares issued for trading.
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COMPANIES – LONDON MAIN MARKET AND AIM
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London-focused estate agent Foxtons Group said the UK’s decision to leave the EU will add to the already-uncertain conditions in the London residential property market. Foxtons said it is too early to accurately predict what impact Brexit will have on London property sales, but it said the upturn it had been anticipating in the second half is now unlikely to materialise. As a result, revenue and adjusted earnings before interest, taxation, depreciation and amortisation will be “significantly lower” year-on-year in 2016, as challenging conditions continue through the remainder of the year.
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COMPANIES – INTERNATIONAL
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Healthcare company Fresenius said its supervisory board appointed Stephan Sturm as chief executive officer as of July 1, 2016. Sturm succeeds Ulf Mark Schneider, who has decided to leave the company effective June 30, 2016 to pursue another opportunity. Fresenius also confirmed its guidance for 2016. Sales are expected to increase by 6% to 8% in constant currency. Net income attributable to shareholders is expected to grow by 8% to 12% in constant currency.
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Intel is considering selling the cyber-security business it purchased almost six years ago for USD7.7 billion, the Financial Times reported, citing people familiar with the matter. The company has discussed the future of Intel Security with bankers, including potentially selling the anti-virus software maker formerly known as McAfee, the report said.
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Monday’s Shareholder Meetings

Curtis Banks Group
Eland Oil & Gas
Surgical Innovations Group
GB Group
Anglo Asian Mining
Verona Pharma
Baron Oil
Coms
Capital Gearing Trust
Anglo-Eastern Plantations
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By Tom Waite; thomaslwaite@alliancenews.com; @thomaslwaite

Copyright 2016 Alliance News Limited. All Rights Reserved.

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