LONDON MARKET CLOSE: Russia, Trump Offer Hope As Stocks Rally

(Alliance News) - Stocks in London were on the march Tuesday, with a potential vaccine coming out of Russia overshadowing worrying unemployment numbers in the UK.

The FTSE 100 index closed up 103.75 points, or 1.7%, at 6,154.34 on Tuesday. The mid-cap FTSE 250 index added 272.24 points, or 1.5%, to close at 17,997.18. The AIM All-Share index finished up 0.8% at 9445.89.

The Cboe UK 100 index closed up 1.6% at 612.28. The Cboe 250 ended up 2.0% at 15,295.51, and the Cboe Small Companies added 1.0% at 9,441.10.

In mainland Europe, the CAC 40 in Paris closed up 2.4%, while the DAX 30 in Frankfurt advanced 2.0%.

"In one of those sessions that seems to fly in the face of the most recent string of headlines, the Western markets rallied hard on Tuesday," SpreadEx analyst Connor Campbell said.

He continued: "Flip-flopping between being the market's worst nightmare and its white knight, Donald Trump donned the latter outfit on Monday and Tuesday, lifting indices higher first with an executive order for Covid-19 relief, and then claim he is 'seriously' considering a capital gains tax cut."

Lower taxes on selling investments like stocks will usually set investors cheering. Markets also latch onto any good news about coronavirus, so word that Russia had registered a vaccine also provided hope on prospects for an economic recovery

Russia on Tuesday declared itself the first country to approve a coronavirus vaccine with President Vladimir Putin saying one of his daughters had been inoculated.

Dubbing the vaccine "Sputnik V" after the Soviet-era satellite that was the first launched into space, Russian officials said it provided safe, stable immunity and denounced western attempts to undermine Moscow's research.

Scientists in the west have raised concerns about the speed of development of Russian vaccines, suggesting that researchers might be cutting corners and coming under pressure from authorities to deliver.

The World Health Organization said any WHO stamp of approval on a Covid-19 vaccine candidate would require a rigorous safety data review.

"We are in close contact with the Russian health authorities and discussions are ongoing with respect to possible WHO pre-qualification of the vaccine," said the UN agency's spokesman Tarik Jasarevic in Geneva.

Germany, however, raised doubts over the quality and safety of Russia's coronavirus vaccine, stressing that drug approval is granted in the EU only after full clinical trials.

"Patient safety is of the highest priority," a health ministry spokeswoman told German newspaper network RND. "There is no known data on the quality, efficacy and safety of the Russian vaccine."

SpreadEx's Campbell added: "Add onto that the ongoing negotiations regarding a second stimulus package from [US] Congress, and investors were able to look beyond the US-China tensions that had caused a fair few jitters in the past week or so."

The pound was quoted at USD1.3084 at the close Tuesday, flat from USD1.3083 at the London equities close Monday. Sterling recovered from an intra-day low of USD1.3054 against the greenback following the release of UK unemployment data.

The UK unemployment rate held steady in June, despite the biggest jump in people out of work in over a decade, with many workers electing not to actively seek employment, the Office for National Statistics said.

The UK unemployment rate in the three months to June was 3.9%, unchanged from the three months to May, the ONS said. The market consensus forecast, cited by FXStreet, was for a rise to 4.2%.

The ONS said that in July 730,000 fewer people were in paid employment when compared with March and 114,000 fewer when compared with June. The decrease in employment in the quarter to June was the largest quarterly decrease since May to July 2009, it added.

Explaining why the jobless rate has remained flat, the ONS said that to be counted among the unemployed, workers need to be actively looking for a new job, which many have decided not to do yet.

Analyst at Lloyds Bank commented: "On the face of it, the latest labour market statistics - covering the three months to June – provided little indication of the coronavirus-related malaise that has been seen in other indicators of domestic activity, particularly with tomorrow's GDP report likely to show that economic output fell by about 20% over the same period.

"However, it is clear that the headline figures are overstating the health of the UK labour market, particularly with more-timely data elsewhere in the report painting a more sombre picture. The number of people in employment fell by 220,000 in the three months to June, albeit not to the same extent report by HMRC PAYE data, which showed a fall of 565,000 in the number of paid employees over the same period - in part due to the latter including those classed as employed but not being paid currently."

In the FTSE 100, InterContinental Hotels Group added 5.0%. The hotel operator said it saw signs of a tentative recovery in demand, as Covid-19 lockdown restrictions eased in major markets, despite swinging to a loss.

IHG reported a pretax loss of USD275 million for the six months ended June 30, swinging from a USD375 million profit a year before, as revenue dropped 45% to USD1.25 billion from USD2.28 billion. Revenue per available room - a key metric in the hotel industry - was down 52% in the six-month period, and was down 75% in the second quarter as occupancy at comparable hotels dropped to 25%.

Looking ahead, IHG said "small but steady" improvements in occupancy and RevPAR through the second quarter continued into July, with RevPAR expected to be down 58% on a year before - compared to the second quarter's 75% decline - and occupancy rising to around 45%.

Prudential gained 2.7% after the life insurer and financial services firm hailed its "resilient" first-half, despite seeing a sharp profit drop, and said it now plans to fully demerge its Jackson unit in the US.

The six months to June 30 was "challenging", with the period hit by Covid-19 disruption. Prudential's pretax profit slumped 43% year-on-year to USD663 million from USD1.16 billion. Gross premiums earned slipped 5.9% to USD19.84 billion from USD21.08 billion a year earlier.

Adjusted operating profit in Asia rose by 14% to USD1.73 billion, although issues relating to the Hong Kong operation, most notably the travel restrictions of the lockdown, let alone any geopolitical concerns, resulted in a painful decline of 45% in new business profits.

Annual premium equivalents - a measure of the new policies sold - fell 27% to USD2.64 billion from USD3.64 billion. Covid-19-related restrictions applied from the start of the year in Hong Kong and mainland China, and across the region during the second quarter of 2020, resulting in APE sales declining 34% in Asia compared with the year before.

Prudential cut its dividend by 74% to 5.37 cents per share from 20.29 cents a year ago.

In addition, Prudential said it has decided to pursue the full separation and divestment of Jackson to enable it to focus exclusively on its high-growth Asia and Africa businesses. This would result in two separately listed companies with "distinct investment propositions", the company said.

At the other end of the large caps, gold miners Fresnillo and Polymetal International lost 7.3% and 4.2%, tracking spot gold prices lower, quoted at USD1,947.40 at Tuesday's equities close in London, down sharply from USD2,033.00 late Monday.

Midcap peers Centamin and Hochschild Mining gave back 7.1 and 8.9% respectively.

Oanda's Craig Erlam commented: "Gold is taking a bit of a beating today, despite the dollar also giving up some of its recent gains. The test and collapse of USD2,000 support has likely seen some profit taking kick in following the yellow metals strong performance in July. The next test at USD1,980 is giving gold some reprieve but with USD2,000 caving so easily, I can't imagine it will hold too much longer. None of this changes my view longer term, with gold continuing to look bullish but markets don't move in a straight line and these corrective moves can be sharp but are generally healthy."

Stocks in New York were green at the London equities close, with the DJIA up 1.0%, the S&P 500 index was up 0.5%, and the Nasdaq Composite was up 0.1%.

IG Senior Market Analyst Joshua Mahony said: "US stocks have closed in on record highs today, as the bullish sentiment seen throughout the past fortnight continued apace. While the outperformance for the tech-focused Nasdaq had been justifiable, the ability to push back within touching distance of record highs on the S&P 500 highlights an overwhelmingly optimistic outlook for investors."

The euro stood at USD1.1770 at on Tuesday evening, up from USD1.1761 at the European equities close Monday. Against the yen, the dollar was trading at JPY106.49 in London, up from JPY105.81 late Monday.

Brent oil was quoted at USD45.12 a barrel at Tuesday's close, up from USD44.84 at the London close Monday.

In Wednesday's economic calendar, there is a slew of UK data due at 0700 BST, including GDP, trade balance, industrial production and manufacturing production. At 1000 BST, there is a eurozone industrial production print followed by US MBA mortgage applications at 1200 BST and US consumer price index reading at 1330 BST.

The UK corporate calendar on Wednesday has half-year results from blue chip car insurer Admiral, investment manager M&G, cybersecurity outfit Avast, steam management manufacturing firm Spirax-Sarco Engineering and construction firm Balfour Beatty.

By Paul McGowan; paulmcgowan@alliancenews.com

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