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Market Roundup
The FTSE 100 index added 0.2% on Monday as fears of a US-China trade war receded but the US announced new sanctions against Russia.
Associated British Foods led Monday’s blue-chip gainers. The Primark owner advanced 3.1% ahead of its interim results next week.
WPP also rallied 2.4% on reports that its investigation into misconduct allegations against chief executive Martin Sorrell could be delivered as early as next week. Sorrell has denied any wrongdoing.
On Tuesday, shares rose on both sides of the Atlantic after President Xi Jinping pledged to open up China’s economy to more free trade and investment. The FTSE 100 added 1%, with mining stocks benefiting most.
UK shares were off 0.1% on Wednesday amid disappointing UK economic data and mounting concerns about Syria. Tesco, however, provided some encouraging news, with pre-tax profits bouncing back to £1.3bn. The supermarket’s shares were up nearly 6%.
Thursday saw the UK’s blue-chip index close virtually unchanged. But EasyJet and Wizz Air climbed following news that British Airways owner IAG had taken a stake in Norwegian Air, the long-haul discount operator, in a possible prelude to a bid.
The FTSE 100 was little changed in early trading on Friday.
Company Focus: Novartis
Swiss pharmaceuticals group Novartis is buying US biotechnology firm AveXis for $8.7bn (£6.1bn) in cash.
AveXis’s operations are centred around gene therapy, a technology whose use is still in its early stages. The deal will add a promising drug, AVXS-101, to Novartis’s pipeline for spinal muscular atrophy – a rare childhood wasting disease.
Novartis is hopeful that AVXS-101 will be approved in 2019. The drug has been granted Prime designation in the EU, a scheme launched to support the development of medicines that target an unmet medical need. It has also been given Orphan Drug Designation and Breakthrough Therapy Designation in the US.
Vas Narasimhan, who became Novartis chief executive earlier this year, said: “We believe AVXS-101 could create a lifetime of possibilities for the children and families impacted by this devastating condition. The acquisition would also accelerate our strategy to pursue high-efficacy, first-in-class therapies and broaden our leadership in neuroscience.”
The deal follows Novartis’ sale last month of its 36.5% stake in a consumer health joint venture for $13bn to JV partner GlaxoSmithKline.

Economic Roundup
UK manufacturing contracted in February after almost a year of expansion, prompting economists to downgrade their expectations for UK economic growth in the first quarter of 2018.
Manufacturing output fell 0.2% compared with January – its first decline since March 2017 – according to the Office for National Statistics. UK manufacturing was bolstered last year by a combination of the weak pound and stronger global growth.
Construction sector output also contracted 1.6% in February, extending January’s decline. The fall was driven by a steep reduction in the volume of infrastructure and took construction’s year-on-year drop to 3%.
Ruth Gregory, UK economist at Capital Economics, said: “February’s activity data added to the evidence that the economy lost a little pace in [the first quarter].”
Capital Economics is now forecasting a slowdown in economic growth to 0.3% for the first quarter of 2018, down from 0.4% in the previous quarter, with the March snow likely to have hit retailers as well as builders and factories. The National Institute of Economic and Social Research also forecast that growth slowed in the first quarter – to just 0.2%.
Meanwhile, UK retail sales picked up in March despite the cold weather deterring shopping on the high street.
Like-for-like retail sales rose 1.4% compared with a year ago, according to the British Retail Consortium-KPMG retail sales monitor, with food sales up 4.2% on a like-for-like basis in the three months to the end of March.
Helen Dickson, BRC chief executive, said: “There’s no doubt that the ‘Beast from the East’ and its successor played a significant role in deterring shoppers from making store visits. But it didn’t dampen consumers’ appetites towards food purchases, which saw the anticipated spike from the Easter festivities.”
“The divide between food and non-food sales became further pronounced, with food clearly the winner,” added Paul Martin, KPMG head of retail. “The start of 2018 has already seen a list of retail casualties, and with trading conditions unlikely to change in the short-term, retailers are increasingly having to be clear on their point of differentiation. It appears that unless you’re a grocer, bridging the gap between online and off-line sales offers the best means of success in this climate.”
Data from Barclaycard showed annual growth in consumer spending slowed to 2% in March, with store sales down 1.9% but internet spending up more than 11%.
According to Halifax data, the annual rate of house price inflation rose to 2.7% in the three months to March, up from 1.8% in the three months to February. The average house price hit a record of £227,871.
However, research from the Royal Institution of Chartered Surveyors (Rics) found prices were unchanged nationally – and falling in London and the South East. Buyer demand fell for the 12th month in a row in March, while new instructions to agents fell for the 7th successive month. And more than half of London agents reported an increase in sellers withdrawing properties from the market – thought to be because they were unable to achieve their asking prices or preferred to wait for market conditions to improve.

Company announcements that caught our attention this week
Date Company Comment
11/4/2018 Tesco Tesco issued a good set of full-year results as the UK’s biggest supermarket staged a comeback under chief executive Dave Lewis. However, for investors much of the good news now appears to be in the price.
The group reported pre-tax profits of £1.3bn for the year to 24 February – the first time annual profits have exceeded £1bn since 2014. UK like-for-like sales rose 2.2%, driven by food sales, which were 2.9% higher.
Net debt fell by £1.1bn during the year to £2.6bn. The merger with wholesaler Booker, which completed in this period, is expected to deliver at least £200m of pre-tax synergies, including £60m in the first year.

12/4/2018 FirstGroup FirstGroup, one of the biggest train operators in the UK and owner of the Greyhound coach service in the US, has rejected a takeover approach from private equity firm Apollo.
Management confirmed rumours on Wednesday of a “preliminary and highly conditional indicative” cash offer. The bid was rejected due to management’s belief the offer undervalues the company and is opportunistic. Apollo now has until 9 May to make clear its intentions.
FirstGroup has attracted activist investor interest several times in recent years. Activists argue the business is unnecessarily spread geographically, with little in the way of synergies between its UK bus and rail business and its US operations.

Key Company Diary Dates
Tue 17 Apr Associated British Foods Half-year results
Wed 18 Apr RELX Trading update
Wed 18 Apr SEGRO Trading update
Thu 19 Apr Sky Nine-month results
Thu 19 Apr Rentokil Initial Trading update

Economic highlights over the next week

Tue 17 Apr – Unemployment – 1.45m people in the UK were unemployed in the period November 2017 to January 2018, 24,000 more than in the previous quarter but 127,000 lower than the previous year. At 4.3%, the unemployment rate is its lowest since 1975.

Tue 17 Apr – Pay – Despite unemployment falling in recent years, wage increases have struggled to keep up with inflation. Average earnings excluding bonuses increased by 2.6% in the three months to January 2018.

Wed 18 Apr – UK inflation – Consumer inflation, as measured by the CPI index, was 2.7% in the year to February, down from 3% in January.

Important Notes:
Main source of information: Company Report and Accounts, Bloomberg
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