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(Alliance News) - The FTSE 100 surged Wednesday, despite the UK plunging to its worst quarterly GDP decline in 65 years and the first recession in over a decade.
The FTSE 100 index closed up 125.87 points, or 2.0%, at 6,280.12 Wednesday. The mid-cap FTSE 250 index was up 92.40 points, or 0.5% to finish at 18,089.58. The AIM All-Share index gained 1.0% at 954.84.
The Cboe UK 100 index closed up 2.3% at 626.45. The Cboe 250 added 0.3% to 15,436.56, and the Cboe Small Companies ended flat at 9,439.22.
In mainland Europe, the CAC 40 index in Paris added 0.9%, while the DAX 30 in Frankfurt advanced 0.9%.
"A circa 20% decline in the second quarter has done little to dent confidence in UK stocks, with the FTSE 100 reaching a three-week high. Meanwhile, precious metals are turning higher once more after a historic decline yesterday. UK housebuilders are enjoying a positive day, with a sharp surge in construction activity helping improve sentiment," Joshua Mahony, senior market analyst at IG, commented.
Barratt Development, Persimmon, Taylor Wimpey advanced 3.4%, 3.3% and 3,2%, respectively.
On an annual basis, UK gross domestic product fell 21% in the three months to June, having contracted 1.7% in the first quarter of 2020. Market forecasts, cited by FXStreet, was for an annual contraction of 22%.
On a quarterly basis, UK GDP shrank by 20% having contracted 2.2% in the first three months of 2020. The quarterly change was in line with the consensus estimate.
The pound was quoted at USD1.3044 Wednesday's equities close in London, down from USD1.3084 at the close Tuesday. Sterling picked up from an overnight low of USD1.3017 versus the greenback, however.
Analysts fear the road to recovery for the UK economy will be a long and arduous one, despite green shoots of recovery appearing as lockdown measures eased.
The UK economy entered into recession for the first time since the 2008-09 financial crisis with the sharpest quarterly decline in economic activity in at least 65 years, according to figures the Office for National Statistics on Wednesday.
The grim second-quarter figures showed the UK suffered one of the biggest economic hits from the pandemic in western Europe, ignobly besting the eurozone's 15% drop and France's 19% contraction.
However, monthly figures showed the UK economy bounced back by a slightly better-than-expected 8.7% in June, following upwardly revised growth of 2.4% in May, as lockdown restrictions eased.
AJ Bell Personal Finance Analyst Laura Suter commented: "News that the UK has officially fallen into recession doesn't come as a surprise, but the scale of the retraction in the economy means it's the largest UK recession ever. The UK economy shrank by 20.4% in the second quarter as the country fell into lockdown and businesses shut their doors.
"The figure for June is key, as we all knew that lockdown measures would have a big impact on the economy but what we still don't know is how quickly the UK will rebound. Figures showing GDP growth of 8.7% in June are encouraging - albeit this is coming from a very low base after the falls in May and still sits far below the pre-Covid figures from February. But July figures are expected to be more positive still, as more businesses re-opened and people emerged from their houses to start spending."
Suter noted any second wave will "hamper" any rebound.
"The much-talked-about V-shaped recovery of the UK economy relies on no second lockdown and also on UK trade talks being successful - presenting two large uncertainties," she added.
Back on the FTSE 100, Asia-focused lenders HSBC and Standard Chartered were benefitting from a lack of further developments in US-China tensions - adding 3.6% and 2.8%, respectively.
AstraZeneca and GlaxoSmithKline were also in the green - up 3.0% and 2.6%, respectively - following news at least 5.7 billion coronavirus vaccines doses have been pre-ordered around the world, although no vaccines under development has proved its efficacy yet in clinical trials.
Astra and GSK have signed or are in advanced negotiations with the European Commission to provide a combined 700 million vaccine doses, while both are involved in the USD9.4 billion handed out so far by the US to provide 700 million doses.
Admiral Group was the best blue-chip performer, adding 7.2% after the motor insurer lifted its shareholder payout as lower insurance claims boosted first-half performance.
For Admiral, strong prior-year reserve releases at home and outside the UK, along with some non-recurrence of negative items in 2019 - including a GBP33 million Ogden discount rate impact - helped push pretax profit for the six months to June 30 up 31% to GBP286.1 million from GBP218.2 million recorded a year ago. Operating profit increased 30% to GBP292.3 million.
The Wales-based company declared a dividend payment of 70.5 pence per share, including a special 15.5p per share payment, together 12% higher than the 2019 interim dividend of 63.0p per share. In addition, Admiral said it will pay the previously deferred 2019 special dividend of 20.7p alongside the 2020 interim dividend.
Just Eat Takeaway.com advanced 3.7%. The online takeaway platform said revenue rose as demand increased for food deliveries while people were deprived of eating out due to lockdown restrictions.
Just Eat Takeaway reported revenue for the half-year ended June 30 multiplied to EUR675 million from EUR179 million last year, while orders increased 32% to 257 million during the period. The figures are presented as if the combination was completed on January 1, 2019 to provide comparable information for the full six-month period, the company said. Like-for-like revenue grew by 44% to EUR1 billion from EUR715 million a year ago.
However, Just Eat Takeaway, recorded a loss of EUR158 million compared to EUR127 million a year prior, as a result of amortisation, advisory, transaction and integration-related expenses of the integration of the firm with Takeaway.com, plus the proposed takeover of GrubHub in the US.
M&G gained 3.6%. The savings and investments business said first-half performance was "resilient" amidst the global economic impact of the Covid-19 pandemic, but the company does not intend to raise shareholder payouts while the "threat of Covid-19 remains".
M&G, which was demerged from Prudential in 2019, however, added that it remains committed to its dividend policy of stable or increasing payouts. It declared an interim dividend of 6.0 pence per share, in line with its policy of paying one-third of the previous year's final dividend.
The London-based company posted pretax profit of GBP665 million for the six months to June 30, down 53% from GBP1.43 billion profit recorded a year ago. Gross premiums fell year-on-year to GBP3.46 billion from GBP5.91 billion. First-half adjusted operating profit before tax - the company's preferred profit measure - totalled GBP309 million, down 57% from GBP714 million a year ago.
At the other end of the blue chip index, Avast lost 2.9%.
The Prague-based cybersecurity company's pretax profit narrowed in the first half ended June 30 to USD115.3 million from USD143.9 million a year prior. Revenue increased to USD433.1 million from USD425.4 million.
The company said the strong performance shown in the half-year was in line with its expectations. The performance was driven by the work-from-home trend forced by lockdowns around the world.
After experiencing a spike in demand which directly correlated to nations going into lockdown due to the global pandemic, Avast has seen most trade return to normal levels. Avast therefore believes that the spike was temporary.
Looking ahead, Avast maintained previous annual guidance for organic mid-single-digit revenue growth and raised organic billings growth expectation from in-line to be slightly in excess of organic revenue growth.
Stocks in New York were green at the London equities close, looking to rebound from yesterday's red session, with the DJIA up 0.9%, the S&P 500 index was up 1.4%, and the Nasdaq Composite was up 2.0%.
Tower Bridge Advisers analyst Hames Meyer commented: "Despite continued deadlock in Congress over a fourth Covid-19 relief bill, markets remain in a bullish trend. Yesterday's sharp decline in precious metal prices was most likely a head fake. A shift toward value away from high-tech growth seems to have more legs that past similar rallies. The next few days should define whether that shift will be more enduring this time around."
The euro was changing hands at USD1.1794, up from USD1.1770 late Tuesday. Against the yen, the dollar was quoted at JPY106.94, firm from JPY106.49 in London.
Gold was trading at USD1,948.50 an ounce at the close Wednesday, up slightly from USD1,947.40 at Tuesday's equities close in London. The precious metal's price has collapsed from the USD2,026 mark at the start of the week, however, as the dollar has firmed.
Brent oil was priced at USD45.26 a barrel Wednesday evening, up from USD45.12 a barrel at Tuesday's close.
In Thursday's economic calendar, there is a UK RICS housing price balance print and Japan producer price index readings overnight. Later on, there is French ILO unemployment and German consumer price index readings at 0630 BST and 0700 BST, respectively.
In the afternoon, there is the closely-watched weekly US jobless claims at 1330 BST, alongside US import and export price indices.
In the UK corporate calendar, luxury watches retailer Watches of Switzerland and Mike Ashley's Frasers Group will be issuing full-year results. Half-year results are due from bookmaker GVC Holdings, public transport operator National Express and sewing kit manufacturer Coats Group.
By Paul McGowan; paulmcgowan@alliancenews.com
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