(Alliance News) - The FTSE 100 outperformed European peers on Monday, in a quiet start to the week with American markets shut for Independence Day, with airlines and supermarkets driving the blue chip index higher.
Adding to the positive mood was a set of strong service PMI prints across Europe.
"US traders might be on holiday but that hasn't stopped European markets from advancing, and the FTSE 100 in particular has enjoyed a good, solid day of trading that has seen it add 40 points to the score," IG Chief Market Analyst Chris Beauchamp said.
He continued: "Positive noises about 'freedom day' on July 19 and an end to many of the restrictions of the past year has lent an air of 'cyclical rebound' to today's trading; names like IAG, Barclays and Antofagasta populate the top end of the leaderboard, on hopes that a return to normality will be the dominant theme from the second half of July as the UK puts the worst behind it."
The index of London blue-chips closed up 41.64 points, or 0.6%, at 7,164.91 on Monday. The mid-cap FTSE 250 index closed up 275.41 points, or 1.2%, at 23,022.40. The AIM All-Share index lost 0.59 of a point at 1,265.34.
The Cboe UK 100 index closed up 0.6% at 713.04. The Cboe 250 ended up 1.3% at 20,713.82, and the Cboe Small Companies finished up 0.6% at 15,584.73.
In mainland Europe, the CAC 40 in Paris advanced 0.2% while the DAX 30 in Frankfurt was up 0.1% on Monday.
The UK service sector was stronger than expected in June even if the rate of growth eased off May's 24-year high, survey results showed.
The IHS Markit/Chartered Institute of Procurement & Supply UK services business activity index registered 62.4 points in June, down from 62.9 in May but still marking the second-highest reading since October 2013. The reading beat the flash figure of 61.7.
The pound nudged higher after the data. Sterling was quoted at USD1.3851, higher than USD1.3791 at the London equities close on Friday.
Germany and Spain helped the eurozone's private sector grow at a faster pace than first estimated in June.
The IHS Markit composite output index rose to 59.5 points in June, from 57.1 in May. The June number also topped the flash estimate of 59.2 points.
Germany's composite score reached a 123-month-high, while Spain's surged to a 256-month best figure.
The euro also rose amid general dollar weakness, trading at USD1.1865, up from USD1.1845.
"Final PMIs from the Eurozone and UK were revised higher, as the latest flash readings from Spain and Italy beat expectations. These figures helped to keep the pound and euro supported against the dollar, after the greenback slipped in the aftermath of the US jobs report on Friday," Fawad Razaqzada, market analyst at ThinkMarkets, said.
In the FTSE 100, J Sainsbury added 2.3% and Tesco shares increased 3.1% - both in a positive read across as FTSE 250-listed Wm Morrison Supermarkets advanced 12% on takeover interest.
IG's Beauchamp said: "Unsurprisingly the weekend's Morrisons news has put Tesco and Sainsbury into firmly positive territory, but the longer-term outlook seems tougher to divine.
"The sector seems primed for some big competitive battles, since whoever takes Morrisons in the end will want to gain market share, and that will involve some serious cash and a willingness to spend it. Those hoping for stronger dividends from the two leading UK supermarkets may be disappointed as their management redeploys cash to maintain their pre-eminence against a Morrisons backed by significant cash reserves from its new owners."
Morrisons on Saturday accepted a takeover offer from a consortium of investment groups following its rejection of a bid last month from CD&R.
Under the agreed GBP6.3 billion deal, a group of investors comprising Softbank Group Corp-owned Fortress, Canada Pension Plan Investment Board and Koch Real Estate Investments will pay 252 pence per share plus a 2p special dividend.
According to the announcement, the deal also includes GBP3.2 billion in debt, which makes the total operation worth GBP9.5 billion with debt recovery. In June, Morrisons rejected CD&R's 230p per share offer, worth just over GBP5.5 billion.
However, Apollo could be poised to enter the bidding fray, on Monday saying it is mulling making a possible offer for Morrisons, but is yet to make a formal approach.
At the top of the FTSE 100 was International Consolidated Airlines, owner of flag carrier British Airways, gained 4.9% as UK Prime Minister Boris Johnson prepares to lift England's coronavirus restrictions on July 19.
Johnson will tell people that it will be left to their judgment how to reduce the risk posed by the virus, rather than expecting the government to set out restrictions in law. The approach is expected to mean that from "freedom day" in a fortnight's time, face masks will no longer be required in many settings and social distancing restrictions will be removed in pubs and restaurants.
The prime minister, who will give further details at a press conference on Monday afternoon, said: "As we begin to learn to live with this virus, we must all continue to carefully manage the risks from Covid and exercise judgment when going about our lives."
Other travel and leisure stocks rose, with pub operator JD Wetherspoon up 2.6%, Wagamama-owner Restaurant Group up 1.8%, and budget airlines easyJet up 3.2% and Ryanair 2.1%. Cineworld gained 4.3%.
AJ Bell's Danni Hewson commented: "Looking at London markets today investors seem pretty sure the vaccine rollout has changed things from this time a year ago. In the week leading up to July 4, 2020 when many restrictions were lifted, there was a mixed bag of risers and fallers, undoubtedly a response to the uncertainty of the situation. Today almost all retail, travel and leisure stocks across the FTSE 100 and 250 have made gains and the momentum has pushed the latter to an all-time high."
The risk on sentiment was also boosting London's blue chip banks. Barclays added 3.1%, NatWest 2.2%, Lloyds 1.9% and HSBC 1.6%.
Brent oil was quoted at USD76.94 a barrel on Monday evening, up from USD75.97 late Friday - changing hands around its highest levels since late 2018. BP shares rose 0.9% while Royal Dutch Shell 'A' and 'B' shares increased 0.9% and 1.3% respectively.
Oanda analyst Sophie Griffiths said: "Oil prices are continuing to push higher, extending gains into a seventh straight week as the market awaits the outcome of crucial talks by OPEC+. The group failed to reach an agreement over raising oil supply last week. The group was in favour of increasing supply by two million barrels per day from August to December in an attempt to balance out surging demand. However, the United Arab Emirates dissented, resulting in nothing being agreed."
Gold also fared well on Monday, as the dollar weakened, quoted at USD1,791.50 an ounce, up from USD1,783.83 on Friday.
"Gold is edging higher, building on small gains from last week. The safe-haven precious metal is benefitting from souring risk appetite amid rising Delta Covid cases and weaker-than-expected Chinese Caixin services PMI. Investors are also reassessing the Fed's hawkish moves in the wake of Friday's closely-watched jobs report," Griffiths added.
Growth in China's private sector continued to weaken in June at the fastest rate in 14 months, driven by a slowdown in output from the manufacturing and services sectors, data from Caixin and IHS Markit showed Monday.
The Caixin China General Services purchasing managers index dropped considerably to 50.3 index points from 55.1 points in May, but still reflecting the fourteenth consecutive month of growth.
The Japanese yen advanced against the dollar, with its own private sector stemming its decline in June. The dollar was quoted at JPY110.84, down from JPY111.31 on Friday at the London equities close.
The au Jibun Bank Japan Services purchasing managers index rose to 48.0 index points in June from 46.5 points in May, and above June's flash reading of 47.2 points, reflecting a softer reduction in business activity.
In the economic calendar on Tuesday, there is an interest rate decision from Australia's central bank overnight, with German factory orders at 0700 BST, UK construction PMI at 0930 BST and eurozone retail sales at 1000 BST. In the afternoon, there is US IHS Markit services PMI at 1445 BST and ISM services PMI at 1500 BST.
In the local corporate calendar, Sainsbury will issue a trading statement and Ocado will publish half-year results, while solid state battery firm Ilika, online estate agent Purplebricks and Mercia Asset Management will publish full-year results.
By Paul McGowan; paulmcgowan@alliancenews.com
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