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LONDON (Alliance News) - UK stocks made significant gains on Tuesday on the growing expectation that EU leaders will shy away from imposing harsh economic sanctions on Russia in response to its apparent role in the airline disaster in Ukraine.
US second-quarter earnings also have continued to remain supportive, with big names such as Coca-Cola beating expectations Tuesday, and expectations running high for technology bellwether Apple, which is still to report Tuesday as the US earnings season hits its peak.
The FTSE 100 closed up 1.0% at 6,795.34, the FTSE 250 up 1.1% at 15,650.73, and the AIM All-Share up 0.4% at 772.56.
Within European majors, the German DAX closed up 1.3%, and the CAC 40 up 1.5%.
After the European market close, stocks in the US continue to trade at, or close to, new all-time highs. The DJIA is up 0.4% at 17,123.40, the S&P 500 up 0.6% at 1,984.63, and the Nasdaq Composite up 0.8% at 4,458.77.
Pro-Russian separatists who control the area around the crash site in eastern Ukraine on Tuesday finally handed over the plane's "black-box" flight recorders to international investigators, and also allowed the passage of a train carrying the remains of those who died to outside of the rebel-controlled area.
Investors have been waiting on the sidelines in recent sessions as the growing international outrage at delays caused by the separatists to the start of a proper investigation led to an escalation of political tension between Russia and the West. Harsher economic sanctions against Russia would hurt the economies of all parties involved, particularly those within the EU, which is Russia's biggest trading partner.
EU official have been meeting in Brussels on Tuesday to discuss what measures will be imposed on Russia, but as soon as the rebels began to cooperate with investigators, commentary from officials in Brussels began to turn from harsh economic sanctions to a possible arms embargo, which is also reportedly being opposed by some nations, including Germany and France.
Some form of extra sanctions from the EU remains likely before the end of the month, but at the time of the European close, they seemed unlikely to have many teeth.
"I think the fact that EU leaders remain divided over whether to impose tougher sanctions on Russia is creating an expectation that today's meeting will be another example of what the EU does best, namely deferring any decision due to a lack of consensus," said CMC Market chief market strategist Michael Hewson.
While tensions around one of the geopolitical situations that has been weighing on market sentiment appears to be easing a little, the situation between Israel and Gaza continues to deteriorate. The death toll has continued to rise on both sides Tuesday, and at the time of the European market close, US airline Delta said it has cancelled all flights to Israel, after it was forced to divert a plane due a Hamas rocket exploding near Tel-Aviv airport.
Amongst UK stocks movers Tuesday, ARM Holdings was the stand out blue-chip gainer, closing up 5.9% after reporting a year-on-year rise in its second-quarter revenue and pretax profit. ARM's average royalty revenue per chip was 4.6 cents, down from 5.0 cents in the second quarter, as lower-cost ARM-based microcontrollers and smartcards grew faster than the high-value chips used in smartphones and tablets. Even so, the chipmaker proposed an interim dividend of 2.25 pence, up 7.1% from 2.1 pence in the previous year.
ARM supplies micro-chips for US technology giant Apple, which is due to report its second quarter results after the US closing bell.
The supermarkets dragged on the other end of the FTSE 100 Tuesday, with Tesco, Morrisons and Sainsbury's all amongst the worst performers, down 4.0%, 1.6%, and 1.4%, respectively. The supermarkets suffered a raft of broker price target cuts Tuesday, following Monday's surprise profit warning from Tesco.
Tesco itself had bucked the sector trend to close higher on Monday, on the back of positivity surrounding the appointment of Dave Lewis from Unilever as its new chief executive officer, but on Tuesday the stock wiped out all those gains and more.
Royal Mail closed down 3.4% after it warned that its UK parcel business is experiencing tougher competition than expected. The shares closed at 450.335 pence, below the closing price of 455 pence on their first day of trading in October last year. As a group, Royal Mail is performing broadly in line with expectations, as cost cutting in the letter business offset the parcel weakness in its first quarter. However, given that the hype surrounding the initial public offering was all about the potential of the parcel business, investors have reacted negatively to Tuesday's update.
Looking towards Wednesday, the UK economy and its monetary policy will be in early focus as the minutes of the July 9-10 Bank of England rate setting meeting are released at 0930 BST, followed by a speech by Governor Mark Carney from the Commonwealth Games in Glasgow at 1245 BST.
Fellow Monetary Policy Committee member Paul Fisher has also given an interview to the Independent newspaper, which will be published on its website at midnight, and in the print edition on Wednesday.
In the UK corporate calendar Wednesday, full-year results are due from FTSE 250 listed engineer Renishaw, along with second-quarter numbers from GlaxoSmithKline, and interim results from Capita and AIM-listed Staffline Group. Interim management statements will also be released by Sage Group, Carphone Warehouse, Talk Talk Telecom, and Brewin Dolphin.
By Jon Darby; jondarby@alliancenews.com; @jondarby100
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