Rate cut comments boost European equities, Tritax Big Box REIT and UK Commercial Property REIT set to merge

“Investors are hanging onto every word uttered by anyone affiliated with the major central banks, looking for signs that interest rate cuts are finally on the agenda,” says Russ Mould, Investment Director at AJ Bell.

“Expectations that we will soon see this pivot moment have underpinned the pick-up in equity markets since late 2023 and confirmation of the first cut could give another leg-up to stocks and shares.

“The new trading week saw the spotlight shun on European stocks after ECB Governing Council member Fabio Panetta said the magic moment is ‘fast approaching’ for the European Central Bank to reduce rates.

“He highlighted the need to look at the pros and cons of cutting rates quickly and gradually versus waiting until later and doing it more aggressively.

“At the centre of this debate is the extent to which monetary policy decisions could increase volatility in financial markets and economic activity. Central banks ultimately want to keep volatility as low as possible.

“European equity markets appeared to like Panetta’s comments, with the DAX, CAC 40 and Stoxx 50 all nudging ahead on Monday. This movement had a positive read-across to the UK market where the FTSE 100 saw a five-point rise in the first half hour of trading.

“The important economic and corporate news flow is concentrated in the back end of the week, with UK GDP on Thursday and US PPI on Friday. The UK corporate reporting calendar is fairly quiet until Thursday when RELX and Centrica issue results, followed by NatWest on Friday. In the US, Coca-Cola reports on Tuesday, Cisco on Wednesday and Deere & Co and Applied Materials on Thursday. That’s enough to keep investors on their toes.”

Tritax Big Box Reit/UK Commercial Property

“For a second time, investors in Tritax Big Box REIT may have to get used to a significant change in the investment focus of the vehicle.

“A holder of big box warehouses used in e-commerce, in 2019 Tritax moved from buying existing assets to developing its own, at greater risk, as it struggled to find investments at the right price.

“Now the company could be about to take a much bigger step away from its original remit as it looks to combine with UK Commercial Property REIT, which has a more diversified portfolio of offices, shopping centres and logistics assets.

“It’s no surprise UK Commercial Property is a target for consolidation as its attractions were made clear when Picton Property attempted a merger last year, but that deal failed to get off the ground. UK Commercial Property parent Abrdn has a significant stake in Tritax – the asset manager behind Tritax Big Box REIT – which could also help smooth the way for this deal.

“The merger would create a business owning big box assets and having exposure to smaller units, strategically located in urban locations. These are sometimes known as ‘last mile’ logistics assets and are used in the final stage of the process of delivering goods to the consumer’s door.

“A key question, assuming the tie-up goes through as planned, will be whether the enlarged entity decides to streamline the combined portfolio through the sale of less-important assets.”

These articles are for information purposes only and are not a personal recommendation or advice.