London pre-open: Stocks seen flat as investors digest PBOC

London stocks were set for a muted open on Tuesday as investors mulled the latest policy announcement from the People’s Bank of China.

The FTSE 100 was called to open unchanged at 7,588.

CMC Markets analyst Michael Hewson said: "With US markets closed, markets in Europe underwent a weak and subdued session at the start of the new week with yesterday’s declines predominantly on the back of the late Friday sell-off in the US, which saw markets there close off their highs of the week.

"The lack of any further details on a China stimulus plan, along with additional upward pressure on interest rates over uncertainty about further rate rises, and a slowing global economy, saw European investors engage with some modest profit taking.

"Asia markets were mixed this morning, even as the People’s Bank of China cut its 1 and 5 year lending rates by a modest 10 bps.

"The UK gilt market was the main source of movement in the bond market, with 2-year yields pushing up to their highest level in 15 years, while 5- and 10-year yields came close to the highs we saw at the end of September last year, after the Kwarteng budget.

"There is growing anxiety about the effect the recent rise in UK gilt yields is already having on the mortgage market, a concern that was played out in the form of weakness in house building and real estate shares yesterday, as 2-year mortgage deals pushed above 6%.

"It is also feeding into a wider concern that economic activity in the second half of the year will be constrained by increased mortgage costs, which in turn will push up rents as well as shrinking disposable income."

In corporate news, Lookers said it has agreed to be bought by Toronto-based car dealership Alpha Auto Group in a £465.4m cash deal.

The price represents a 35.3% premium to the closing share price on Monday.

Lookers chief executive Mark Raban said: "Today's offer reflects the transformational progress that has been made in recent years. We have harnessed our strong market position, enhanced our brand relationships, and executed well against our six strategic priorities.

"I am excited about the combination with Bidco. It will create a business of greater scale, and bring together two successful businesses with complementary OEM relationships, and a strong platform to support future growth in the UK."