London midday: FTSE flat ahead of payrolls; Direct Line surges on takeover

(Sharecast News) - London stocks were still steady by midday on Friday as investors eyed the latest US non-farm payrolls report, with deal news in focus as Direct Line agreed to be taken over by Aviva. The FTSE 100 was flat at 8,347.50.

The payrolls report for November is due at 1330 GMT, along with the unemployment rate and average earnings.

Patrick Munnelly at Tickmill Group said: "Forecasts suggest a 200,000 job increase in November, following a dip in October due to hurricanes and strikes. The unemployment rate is anticipated to rise slightly to 4.2% from 4.1%. Markets are hoping for a balanced outcome: not too strong to undermine the likelihood of a rate cut, nor too weak to spark concerns about economic health.

"Futures currently imply a 70% chance of a rate cut by the Fed on December 18, suggesting that a strong jobs report could provoke a significant market reaction, especially as recent softer data has led futures to incorporate another quarter-point cut for 2025."

On home shores, figures released earlier by Halifax showed that house prices rose in November for the fifth month in a row to hit a record high of £298,083.

Prices ticked up 1.3% on the month following a 0.4% jump in October.

Meanwhile, annual house price growth was 4.8% in November - the strongest level since November 2022 - following 4% growth the month before.

Amanda Bryden, head of mortgages at Halifax, said: "Latest figures continue to show improving levels of demand for mortgages, as an easing in mortgage rates boost buyer confidence. However, despite these positive trends, many potential buyers and movers still face significant affordability challenges and buyer confidence may be tested against a changeable economic backdrop.

"As we move towards the end of the year and into 2025, positive employment figures and anticipated decreases in interest rates are expected to continue supporting demand. This should underpin further house price growth, albeit at a modest pace as borrowing costs remain above the average of a few years ago."

Paul Dales, chief UK economist at Capital Economics, said: "The 1.3% m/m leap in Halifax house prices in November mirrors the 1.2% m/m rise in the Nationwide measure and suggests that some relief rally or release of pent-up demand after the Budget has more than offset the latest rise in mortgage rates.

"Prices are very unlikely to continue rising at this rate - the latest rise in mortgage rates will bite eventually. That said, the falls in market swap rates in recent days suggest that mortgages rates will start to drift a little lower in the coming weeks.

"And our forecast that the economy will strengthen next year and a fall in Bank Rate from 4.75% now to 3.50% by early 2026 (rather than to 3.75-4.00% as investors expect) will reduce mortgage rates to just below 4.00%, suggests that house prices will have a decent 2025. We're forecasting a 3.5% rise compared to the consensus forecast of 2.50-3.00%."

In equity markets, Direct Line jumped as it accepted an increased offer from rival Aviva of 275p a share, valuing the company at £3.6bn. Last week, it rejected a 250p cash and share offer.

Derren Nathan, head of equity research at Hargreaves Lansdown, said: "The deal, a mix of cash, shares, and a small dividend, delivers a 73% premium to Direct Line's pre-offer price. Direct Line's board had been holding out, insisting they could make it on their own.

"But even they had to admit that Aviva's proposal is a golden ticket they'd struggle to match independently. Confidence in their solo strategy aside, this offer was just too good to pass up.

"Let's not sugarcoat it: Direct Line has hit some serious potholes lately. Market share has been sliding, underwriting hasn't exactly been flawless, and regulators have been knocking on the door. But with a fresh leadership team at the wheel, the company has been working on a bold turnaround plan.

"For Aviva, the price is pushing the limit of good value but snapping up Direct Line could be a strategic jackpot. It cements their place as a heavyweight in the UK home and motor insurance markets and brings fresh opportunities to steer Direct Line's transformation, while squeezing out efficiency gains from their combined scale."

Berkeley Group fell as the housebuilder said pre-tax profit in the six months to the end of October declined 7.7% to £275.1m.

United Utilities and Severn Trent were lower after Jefferies downgraded both to 'hold' saying the risk/reward looks more balanced at their current valuations. Jefferies reiterated its 'buy' rating on Pennon.

In other broker note action, Spirax was hit by a downgrade to 'neutral' at JPMorgan, while AJ Bell was knocked lower by a downgrade to 'hold' at Deutsche Bank.

Outsourcer Serco was weaker after a downgrade to 'sell' from 'buy' at UBS.

AO World was boosted by an initiation at 'buy' by Deutsche Bank.

Frasers Group fell as it launched a voluntary offer for all the shares in Norwegian sporting goods retailer XXL that it does not already own at 10 Norwegian kroner per share.

The offer values XXL at approximately NOK246.36m.

Market Movers

FTSE 100 (UKX) 8,347.50 -0.02% FTSE 250 (MCX) 21,045.71 0.21% techMARK (TASX) 4,715.57 0.07%

FTSE 100 - Risers

Vodafone Group (VOD) 72.78p 1.68% B&M European Value Retail S.A. (DI) (BME) 357.30p 1.48% Convatec Group (CTEC) 234.80p 1.47% Prudential (PRU) 665.20p 1.34% Vistry Group (VTY) 673.00p 1.28% Standard Chartered (STAN) 981.80p 1.17% NATWEST GROUP (NWG) 416.60p 0.99% JD Sports Fashion (JD.) 103.40p 0.98% Entain (ENT) 821.60p 0.93% Smurfit Westrock (DI) (SWR) 4,300.00p 0.89%

FTSE 100 - Fallers

Severn Trent (SVT) 2,672.00p -2.55% Berkeley Group Holdings (The) (BKG) 4,068.00p -2.35% Spirax Group (SPX) 7,350.00p -1.93% Frasers Group (FRAS) 649.50p -1.89% United Utilities Group (UU.) 1,108.50p -1.82% Next (NXT) 10,045.00p -1.81% Tesco (TSCO) 369.20p -1.42% Hiscox Limited (DI) (HSX) 1,125.00p -1.40% Compass Group (CPG) 2,746.00p -1.29% Pershing Square Holdings Ltd NPV (PSH) 3,860.00p -1.28%

FTSE 250 - Risers

Direct Line Insurance Group (DLG) 252.80p 7.12% Kier Group (KIE) 154.20p 6.34% Future (FUTR) 1,123.00p 4.47% Burberry Group (BRBY) 925.40p 3.26% SDCL Energy Efficiency Income Trust (SEIT) 58.00p 3.02% Aston Martin Lagonda Global Holdings (AML) 114.40p 2.88% Wizz Air Holdings (WIZZ) 1,372.00p 2.77% Currys (CURY) 82.40p 2.68% PZ Cussons (PZC) 86.00p 2.63% SSP Group (SSPG) 185.20p 2.49%

FTSE 250 - Fallers

AJ Bell (AJB) 462.00p -4.15% Serco Group (SRP) 150.10p -3.41% Energean (ENOG) 955.00p -3.29% RIT Capital Partners (RCP) 1,982.00p -2.12% Pacific Horizon Inv Trust (PHI) 567.00p -1.73% Softcat (SCT) 1,553.00p -1.52% Carnival (CCL) 1,882.50p -1.52% Bellevue Healthcare Trust (Red) (BBH) 136.20p -1.30% Ruffer Investment Company Ltd Red PTG Pref Shares (RICA) 271.00p -1.28% Edinburgh Worldwide Inv Trust (EWI) 189.00p -1.25%