The FTSE 100 closed in negative territory on Monday, weighed down by a sharp decline in pharmaceutical giant AstraZeneca following reports of a potential mega-merger.
The FTSE 100 index ended the session down 10.35 points, or 0.1%, closing at 10,857.70 as AstraZeneca shares tumbled.
AstraZeneca (AZN.L), the second largest company in the FTSE 100 by market value, slumped 9.0%, shedding 1,132.00p to close at 11,500.00p.
The Financial Times reported on Sunday that AstraZeneca and US peer Bristol-Myers Squibb (BMY) recently held talks about a $400 billion merger deal.
If completed, the tie-up would create the world’s fourth largest pharmaceutical company by market value, trailing only Eli Lilly (LLY), Johnson & Johnson (JNJ) and AbbVie.
Jefferies analyst Michael Leuchten said a deal “would be more than a head scratcher”, adding: “Given the strength of AstraZeneca’s growth and innovation profile, we are a bit perplexed by the news.”
Leuchten further noted: “But if there is one company that doesn’t need financial engineering, it’s AstraZeneca in our view.”
Bank of America analyst Sachin Jain suggested that investors could perceive a potential merger as a signal that AstraZeneca “lacks confidence” in its own pipeline.
While the FTSE 100 struggled, the FTSE 250 performed strongly, rising 249.75 points, or 1.0%, to close at 24,224.77.
European markets outpaced London, with the Cac 40 in Paris closing up 1.2% and the Dax 40 in Frankfurt ending 1.5% higher on the day.
US markets also rallied, with the Dow Jones Industrial Average up 1.0%, the S&P 500 index 1.1% higher and the Nasdaq Composite advancing 1.8%.
The positive mood in broader markets was driven by a sharp fall in oil prices, with Brent crude for October delivery trading at $83.92 a barrel, down sharply from $90.12 late Friday.
The oil price decline followed comments from US President Donald Trump, who said he was holding off on new attacks on Iran and indicated the “perimeters” of a deal were present.
Kathleen Brooks, research director at XTB, said the oil price falls will “ease inflation fears and could also act as a dampener on bond yields, which rose sharply last week, especially at the long end.”
The yield on the US 10-year Treasury narrowed to 4.69% on Monday from 4.74% on Friday, while the 30-year yield fell to 5.23% from 5.27%.
Lower bond yields gave UK housebuilders a significant lift, with Vistry surging 8.0%, Barratt Redrow climbing 3.8% and Persimmon advancing 2.2%.
Shipping services firm Clarkson jumped 9.0% on the FTSE 250 after saying it expects full-year performance to be “materially” ahead of market expectations following a record first half.
Clarkson attributed its strong performance to turbulent conditions in the Strait of Hormuz, which reshaped global trade flows and drove elevated hedging activity among clients.
The S&P Global UK manufacturing PMI slipped to 51.9 points in July from 52.5 in June, falling below the earlier flash reading of 52.8 points for the month.
Investors will be watching closely on Tuesday when BP, HSBC and Smith & Nephew all report half-year results, alongside key US data including trade balance figures and the latest job openings survey.