LONDON MARKET CLOSE: Hunt's mini-budget reversal sends sterling higher

(Alliance News) - It was a bright start to the week for stocks in Europe, but London's FTSE 100 was unable to keep pace with its counterparts on the continent despite a strong session from housebuilders and utilities.

The pound also moved higher, with the UK government undergoing a further U-turn as new Chancellor Jeremy Hunt reversed the majority of his predecessor's mini-budget.

Hunt issued an emergency statement as he sought to restore stability following weeks of turmoil. He confirmed he is ditching many of the measures in the mini-budget, including the planned cut to income tax.

In an emergency statement, he said: "We will reverse almost all the tax measures announced in the growth plan three weeks ago that have not started parliamentary legislation."

The pound was quoted at USD1.1409 late Monday, up sharply from USD1.1235 at the London equities close on Friday.

"Markets seem prepared to give Jeremy Hunt the chance to turn back the clock. Sterling is up, gilt yields have fallen sharply, and London's indices are on the front foot," AJ Bell analyst Danni Hewson said.

"The new chancellor has bought the government some breathing space and this morning’s market reaction will have sent a clear message to both the PM and her detractors that 'Trussonomics' should never have been seriously considered, at least not whilst the economy is taking such a beating."

The FTSE 100 index closed up 61.45 points, or 0.9%, to 6,920.24 Monday.

The FTSE 250 ended up 470.02 points, or 2.8%, to 17,502.84. The AIM All-Share added 7.86 points, or 1.0%, to 787.66.

The Cboe UK 100 rose 0.7% to 691.81, the Cboe UK 250 climbed 2.8% to 14,992.73 points. The Cboe Small Companies added 1.0% to 12,396.90.

In European equities on Monday, the DAX 40 in Frankfurt advanced 1.7%, while the CAC 40 in Paris added 1.8%.

"It’s been a positive start to the week for European markets, with decent gains across the board, helped by the continued walk back of the recent UK mini budget by the new Chancellor of the Exchequer Jeremy Hunt," CMC Markets analyst Michael Hewson said.

"Sharp declines in UK gilt yields have provided a solid uplift to the FTSE 100 led by utilities and housebuilders, as the UK blue-chip index looks to reverse the declines of the last few days."

Persimmon gained 4.8%, Taylor Wimpey 3.8%, Barratt Development 3.8% and Berkeley added 3.1%. Land Securities and British Land advanced 4.8% and 5.2%.

"Falling gilt yields and the fact that the stamp duty measures survived the budget cull, have provided a solid boost to house builders Barratt Developments, Persimmon and Taylor Wimpey, along with a lift from the stamp duty measures which survived intact," Hewson continued. "While mortgage rates are now likely to fall back modestly because of today’s measures, lower rates of mortgage availability may well temper the rebound as the week progresses."

Utility firms also got a lift from the scrapping and review of the energy price cap from next year.

United Utilities, Centrica, SSE and National Grid gained 4.4%, 1.1%, 1.5% and 4.0%, respectively.

At the bottom of the blue chips, Hargreaves Lansdown lost 1.9%.

The retail investment platform said Chief Executive Officer Chris Hill has decided to retire from the company.

The FTSE 100-listed retail investment platform said it is undertaking a "thorough and extensive search for his successor". Hill will remain in his role until his successor joins and to allow time for a handover up to November 2023.

The company lifted margin guidance on Monday, however.

Hargreaves Lansdown reported net new business of GBP700 million for the first quarter ended September 30. Assets under administration slipped to GBP122.7 billion from GBP123.8 billion at the end of June, amid a GBP1.8 billion hit from market movements.

Revenue rose 15% to GBP162.9 million from GBP142.2 million in the same period last year.

In addition, last Friday, Hargreaves was hit by a lawsuit from RGL Management on behalf of thousands of investors in Neil Woodford's Woodford Equity Income Fund.

Hargreaves Lansdown had promoted Woodford's fund in its influential 'best buy' list until the GBP3.7 billion fund was suspended in 2019. Around 300,000 investors had their money trapped in Woodford's fund when it was frozen in June 2019 including more than 130,000 Hargreaves Lansdown clients.

On AIM, MJ Hudson slumped 30%. Its annual results are expected to be below guidance due to auditing uncertainties.

Following feedback from EY, the asset-management consulting company is in discussions with its auditors about the treatment of revenue recognition on a major contract alongside certain costs included in its full year adjusted earnings before interest, taxation, depreciation and amortisation.

The consequence, MJ Hudson said, is that "the company is unlikely to be in a position to meet prior guidance."

In July, the company said it expected adjusted EBITDA to be slightly more than GBP8.3 million for the financial year ended June 30. This was reiterated in August.

The auditing adjustment relates to the treatment under International Financial Reporting Standards of GBP1.3 million of revenue deriving from a single, multi-year contract with a public sector body.

In New York, the Dow Jones Industrial Average was 1.7% higher, the S&P 500 up 2.5% and the Nasdaq Composite was 3.2% higher.

Investors in the US were cheering better-than-expected results from Bank of America.

BofA recorded higher quarterly revenue but a fall in net income as increasing non-interest expenses and the need to provide for credit losses affected profitability.

In the three months to September 30, the North Carolina-headquartered bank's net income fell to USD7.1 billion from USD7.7 billion in the same period last year.

Revenue rose 7% to USD24.5 billion from USD22.8 billion the year before as higher interest rates enabled greater returns on loans. Net interest income increased 24% to USD13.8 billion, while non-interest income decreased 8% to USD10.7 billion.

IG's Chris Beauchamp said: "The cheerier results from Bank of America have provided buyers with an excuse for a rally in stocks that has reversed the drop seen on Friday (it must be the day for full-on u-turns). The Dow finds itself back above 30,000 on hopes that perhaps the outlook for US consumers is not as bad as previously feared."

The euro stood at USD0.9810 late Monday, up from USD0.9758 at the time of the London equities close on Friday. Against the yen, the dollar was trading at JPY148.77, up from JPY148.38.

Brent oil was quoted at USD91.70 a barrel Monday evening, down from USD91.96 late Friday. Gold was trading at USD1,661.00 an ounce, up from USD1,648.48.

In the international economics events calendar on Tuesday, there is economic sentiment data for the eurozone and Germany in the morning followed by US industrial production at 1415 BST.

In the local corporate calendar, there is a trading statement from gambling firm 888 Holdings and private bank Arbuthnot Banking, while home construction firm Bellway will issue annual results.

In the US, there is quarterly figures from Goldman Sachs, Johnson & Johnson, United Airlines and Netflix.

By Paul McGowan; paulmcgowan@alliancenews.com

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