LONDON MARKET CLOSE: FTSE 100 dips but budget buoys homebuilders, pubs

(Alliance News) - London's mid-cap FTSE 250 index ended in the green on Wednesday as pub operators cheered the UK government's budget, but a similarly positive reaction from blue-chip housebuilders was unable to do the same for the FTSE 100.

The FTSE 100 index closed down 24.35 points, or 0.3%, at 7,253.27. The FTSE 250 ended just 10.77 points higher at 23,172.04, and the AIM All-Share closed down 7.31 points, or 0.6%, at 1,226.01.

The Cboe UK 100 ended down 0.3% at 718.97, the Cboe UK 250 closed down 0.1% at 20,818.08, and the Cboe Small Companies ended down 0.8% at 15,466.61.

In European equities on Wednesday, the CAC 40 in Paris ended down 0.2%, while the DAX 40 in Frankfurt ended down 0.3%.

"European markets have given back of some of yesterday's gains, with the DAX and FTSE100 posting modest losses, with most of the focus on today's UK budget from Chancellor of the Exchequer Rishi Sunak," said Michael Hewson, chief market analyst at CMC Markets.

Housebuilders and pub firms were pushed higher by UK Chancellor Rishi Sunak's budget.

Sunak told members of parliament in his budget speech that the planned increase in duty on spirits such as Scotch whisky, wine, cider and beer will be cancelled from midnight. He said this alone will represent a tax cut worth GBP3 billion.

He also revealed a new "draught relief" which will cut duty on beer and cider sold in pubs by the most since 1923.

Pub operators surged to the top of London's mid-cap index on the news, with JD Wetherspoon rallying 5.3% and Mitchells & Butlers up 5.7%. Marston's rose 6.3%.

Meanwhile, housebuilder Taylor Wimpey topped the FTSE 100, closing up 2.7%, while Barratt Developments rose 1.2% and Berkeley Group advanced 1.1%.

"Housebuilders appear to be shrugging off the cladding surcharge and focussing on the pledge to spend up to GBP24 billion on more affordable housing," said Hewson.

Also in Sunak's budget was some upbeat new forecasts for the UK economy. The chancellor said the Office for Budget Responsibility had forecast a faster bounce back, with growth expected to be 6.5% this year rather than the 4% previously expected.

Borrowing will also be lower than previously forecast, falling from 7.9% of gross domestic product – a measure of the size of the economy – to 3.3% next year, then 2.4%, 1.7%, 1.7% and 1.5% in the following years. But he said inflation in September was 3.1% "and is likely to rise further" – the OBR expects CPI to average 4% over the next year.

The pound failed to get a boost from the budget, quoted at USD1.3726 at the London equities close Wednesday, down compared to USD1.3774 at the close on Tuesday.

The euro strengthened heading into Thursday's European Central Bank meeting, quoted at USD1.1592 at the European equities close Wednesday, against USD1.1587 at the same time on Tuesday.

The ECB, which is expected to stand pat and push back on recent raised rate expectations, follows a hawkish Bank of Canada on Wednesday which decided to end quantitative easing and keep its bond holdings steady given the progress of the country's economic recovery.

ING said of the BoC decision: "We had been looking for two 25bp rates hikes in the second half of 2022, but with three hikes fully priced before today's hawkish shift in commentary, we are going to have to adjust our forecast."

Against the yen, the dollar was trading at JPY113.80, down compared to JPY114.25 late Tuesday.

Stocks in New York were mixed at the London equities close, with the Dow Jones Industrial Average down 0.3%, the S&P 500 index flat, and the Nasdaq Composite up 0.5%.

Bolstering the tech-heavy Nasdaq was Microsoft, which rose 4.4% after the personal computing and technology firm posted a sharp increase in first quarter earnings.

Revenue in the three months ended September 30 rose 22% year-on-year to USD45.32 billion from USD37.15 billion a year earlier. Revenue topped CNN cited consensus of a smaller hike to USD44.0 billion. Net income, meanwhile, improved 27% to USD20.24 billion from USD15.88 billion.

Google parent Alphabet rallied 4.5% after reporting a surge in quarterly earnings.

Revenue for the third quarter of 2021 jumped to USD65.12 billion from USD46.17 billion a year ago. This 41% year-on-year revenue leap, along with the operating margin strengthening to 32% from 24%, resulted in net income surging 68% to USD18.94 billion from USD11.25 billion.

Back in London, Fresnillo fell 3.5% after a fall in third quarter output.

Fresnillo reported attributable silver production of 12.7 million ounces, down 15% when compared to the second quarter of 2021. On a year-on-year basis, silver output was down 4.7%. Quarterly attributable gold production was 172,500 ounces, down 14% quarter-on-quarter. When compared to the third quarter of 2020, gold production was flat.

"We have seen some limited short-term disruption as a result of the new labour reforms in Mexico, which has impacted the performance of our Fresnillo and Saucito mines in particular," warned Chief Executive Octavio Alvidrez, though he retained confidence in full-year guidance.

Gold was quoted at USD1,792.13 an ounce at the London equities close Wednesday, up against USD1,788.24 at the close on Tuesday.

Oil struggled, with Brent quoted at USD85.32 a barrel at the London equities close Wednesday, tumbling from USD86.37 late Tuesday, after Iran said it has agreed to resume talks next month with world powers over its nuclear deal.

"We agree to start negotiations before the end of November. Exact date would be announced in the course of the next week," Ali Bagheri, who also serves as Tehran's chief negotiator, wrote on Twitter.

Royal Dutch Shell 'A' and 'B' shares fell 0.5% and 0.9% respectively, while BP fell 0.5%.

In the FTSE 250, FirstGroup rose 4.5% after the train and bus operator pledged to return GBP500 million to shareholders as it confirmed plans for a tender offer. Importantly, FirstGroup highlighted that activist shareholder Coast Capital Management has agreed to support the plan and tender all its shares.

Coast has previously opposed decisions made by the FirstGroup board including the sale of its US school bus and transit divisions in May, which it described at the time as a "destructive disposal".

HomeServe shares increased 2.8% after completing the acquisition of home emergency assistance business CET Structures. The GBP53 million acquisition was made on a debt-free, cash-free basis and is to be funded via existing debt facilities. It is expected to be "modestly enhancing" to HomeServe's adjusted earnings per share in the current financial year.

The UK corporate calendar on Thursday has third quarter results from oil major Shell, lender Lloyds Banking and builders' merchant Travis Perkins. Trading statements are due from advertising firm WPP and packaging company DS Smith.

Headlining Thursday's economic calendar is the ECB decision at 1245 BST, followed by a press conference with President Christine Lagarde at 1330 BST, as well as a Bank of Japan interest rate decision overnight. German unemployment is at 0855 BST and inflation at 1300 BST, while US GDP and the latest initial jobless claims are at 1330 BST.

By Lucy Heming; lucyheming@alliancenews.com

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