Something has come loose in the UK market, like a hose pipe that was blocked up suddenly gushing forth. Another deal today for Darktrace and another record high for the FTSE 100.
Fund manager Nick Train suggested a transformative deal could unleash pent-up demand for UK stocks and close the valuation gap – maybe BHP’s move on Anglo American is just that. The FTSE 100 rose to a new intraday high of 8,139.92 this morning as European indices were broadly higher on some better news from US tech giants Microsoft and Alphabet. More on that here
But it’s the same story; an undervalued UK asset is being taken out. Darktrace is to go private. The company has not been happy about being listed in London. "Darktrace's operating and financial achievements have not been reflected commensurately in its valuation with shares trading at a significant discount to its global peer group,” management said. US private equity group Thoma Bravo is paying 620p in cash for Darktrace, a 20 per cent premium on last night’s closing share price.
And on the BHP thrust – Anglo has rejected the offer saying it “significantly undervalues” the business and would be “highly unattractive” to shareholders. Of course it did – they always do. Shares fell a measly 1 per cent to £25.34... this is far from over.
Yesterday’s GDP report from the US was messy. Growth slowed more than expected, but inflation was hotter than forecast. GDP expanded 1.6 per cent in the first quarter, well below the 2.4 per cent anticipated. Core PCE accelerated to 3.7 per cent. The quarterly core PCE implies a month-on-month rise of 50 bps to be reported today. That is well above the 0.3 expected and could call for Federal Reserve chair Jerome Powell to sound more hawkish next week.
The market shifted its full cut from November to December and the likelihood of the Fed leaving rates unchanged this year has risen to 20 per cent. Yields popped higher with the US 10-year north of 4.7 per cent for the first time since early November. Stocks fell with the S&P 500 down 0.5 per cent, weighed also by a 10 per cent drop for Meta. Meanwhile, Alphabet shares shot 10 per cent higher overnight and Microsoft was up 4 per cent in after-hours trading following earnings – these are big, big moves for trillion-dollar stocks. We are at a point where the AI stuff is proving hard to value because the earnings profiles are becoming more uncertain.
The Trader is written by Neil Wilson, chief market analyst at Finalto
