LONDON MARKET CLOSE: Stocks Surge On Hope Of Central Bank Intervention

(Alliance News) - Stocks in London ended sharply higher on Wednesday in the wake of the US Federal Reserve's first emergency rate cut in over 10 years, with investors expecting other major central banks to do the same.

In the first unscheduled rate reduction since 2008, the US Fed on Tuesday axed its key interest rate by a half point to a range of 1.0% to 1.25, explaining that "coronavirus poses evolving risks to economic activity".

On Wednesday, the Bank of Canada slashed its benchmark interest rate to 1.25% from 1.75% in the face of the fast-spreading virus. The two North American cuts followed the Australian Reserve Bank rate cut overnight Tuesday.

The Bank of England's rate decision is on March 26.

The FTSE 100 index closed up 97.39 points, or 1.5%, at 6,815.59. The FTSE 250 ended up 60.18 points, or 0.3%, at 19,742.83, and the AIM All-Share closed up 2.89 points, or 0.3%, at 885.85.

The Cboe UK 100 ended up 1.5% at 11,522.59, the Cboe UK 250 closed down 0.1% at 17,624.25, and the Cboe Small Companies ended up 0.7% at 11,633.38.

In Paris the CAC 40 ended up 1.3%, while the DAX 30 in Frankfurt ended up 1.2%.

"The positive move has been influenced by speculation that we might see interest rate cuts from the Bank of England as well as the European Central Bank in the near-term. Some traders feel the central banks might sit on their hands for a while and see how things play out. In light of the Fed's emergency rate cut yesterday, the chatter about other central banks cutting too is likely to do the rounds for a while," said CMC Markets analyst David Madden.

In the FTSE 100, Reckitt Benckiser ended the best performer, up 5.4% as investors placed bets over a rise in the household goods maker's sales amid the spread of the coronavirus.

At its annual results last week, Reckitt said it was experiencing a rise in demand for its Dettol and Lysol disinfectant brands. In addition, the latest grocery data from Kantar Worldpanel on Tuesday showed shoppers in the UK ramped up spending on soap, hand sanitisers and household cleaning products in February.

"Already it looks like buying of soaps and hand sanitiser is putting pressure on existing supplies, and as a result we have seen Reckitt Benckiser rise. Sales of disinfectant products will only rise from here, and while major price rises seem unlikely the sheer increase in volume will help performance for the year," said IG Group's Chris Beauchamp.

At the other end of the large cap index, travel stocks continued to suffer as investors fretted over concerns of the coronavirus spread on global travel.

TUI, International Consolidated Airlines, easyJet and Carnival ended down 3.7%, 3.8%, 1.2% and 1.3% respectively.

Elsewhere, Sirius Minerals closed up 17% after the potash mine developer's takeover by blue chip miner Anglo American got approved by shareholders.

The vote, meeting and long wait came after Sirius failed to raise the funds it needed for a fertiliser mine, forcing the board to recommend the GBP405 million rescue package from Anglo American. Announcing the result, Sirius said the resolutions had been passed "by the requisite majorities".

Anglo American shares closed up 0.8%.

The pound was quoted at USD1.2812 at the London equities close, flat from USD1.2809 at the close Tuesday, as UK services sector recorded another month of growth, though at a slightly slower pace than that seen in January, data showed.

The IHS Markit/Chartered Institute of Procurement & Supply services business activity index registered 53.2 in February, well above the no-change mark of 50 but slower than 53.9 in January. The latest reading was the second-highest since September 2018.

In addition, the dollar remained under pressure against major counterparts following the US Federal Reserve's surprise interest rate cut on Tuesday.

"The Bank of England's next MPC meeting is on March 26, and it will be chaired by the new Governor (Bailey). The market appears to be leaning toward a cut, and after the Fed's move yesterday, there is more talk of a 50 basis points reduction in the base rate, which seems a bit exaggerated at this juncture," Bannockburn Global Forex said.

The euro stood at USD1.1141 at the European equities close, down from USD1.1173 late Tuesday.

In economic news from the continent, eurozone private sector growth hit a six-month high in February, IHS Markit said.

The final services business activity index was 52.6 for February, up slightly from January's reading of 52.5. The flash reading for February was 52.8. Rises in both the services and manufacturing readings meant the composite output index increased in February. It rose to a six-month high of 51.6, in line with the flash reading, from 51.3 in January.

Against the yen, the dollar was trading at JPY107.25, slightly lower from JPY107.33 late Tuesday.

Stocks in New York were sharply higher at the London equities close following Joe Biden's strong performance in the Democratic Super Tuesday primary elections boosted the former vice president's chances against rival Bernie Sanders.

The DJIA was up 2.0%, the S&P 500 index up 1.8% and the Nasdaq Composite up 1.6%.

Investors are fearful of a rise to power from the self-proclaimed leftist Sanders, who is in favour of hefty taxes on wealth, a breakup of major banks and a radical remake of the US healthcare system - policies that have rattled Wall Street.

On Tuesday, Biden re-established himself as a frontrunner to contest November's general election against President Donald Trump, winning at least nine and possibly 10 of the nomination contests held across 14 states.

Analysts at Capital Economics said: "The prospect of a Biden-Trump showdown would be a clear positive for the markets, and probably a small plus for the economy too. A Biden presidency would be more left wing than Barack Obama's, and he may yet need to shift further left to win over the support of the rest of the party. But his proposed tax rises are relatively modest, he supports light touch regulation and he would pursue a much softer line on tariffs.

"Even though his odds are falling, it's too soon to write off Sanders' chances entirely. He is not far behind in terms of delegates and is likely to continue fighting until the convention in July. Momentum could yet swing back in the other direction, particularly if Warren were to throw her support behind Sanders. A potential Sanders presidency still poses a downside risk to stock markets over the coming months, though we suspect the economy would not suffer quite as badly."

In addition, US media tycoon Michael Bloomberg quit the Democratic presidential race and endorsed Biden on Wednesday after being snubbed by voters on Super Tuesday, despite blowing more than half a billion dollars on his campaign.

"Three months ago, I entered the race for president to defeat Donald Trump. Today, I am leaving the race for the same reason: to defeat Donald Trump - because it is clear to me that staying in would make achieving that goal more difficult," Bloomberg said in a statement.

Trump wasted little time in taking a swipe at the 78-year old billionaire on Twitter, having exchanged barbs over the social media platform over recent weeks.

"Mini Mike Bloomberg just 'quit' the race for President," Trump tweeted. "I could have told him long ago that he didn't have what it takes, and he would have saved himself a billion dollars, the real cost. Now he will pour money into Sleepy Joe's campaign, hoping to save face. It won't work!"

On Thursday, the Organization of the Petroleum Exporting Countries will convene in Vienna, Austria for the 178th time to discuss output cuts in a meeting overshadowed by worries over the coronavirus.

Brent oil was quoted at USD52.17 a barrel at the London equities close, down from USD52.37 at the close Tuesday.

OPEC, led by Saudi Arabia, and its allies in the so-called OPEC+ group - foremost among them Russia- will discuss how to halt the sharp fall in oil prices in the past two months as the epidemic has spread and global oil demand has slumped.

At their last meeting in December, the producers agreed to cut production by 500,000 barrels per day, with Saudi Arabia offering a further 400,000 barrels of "voluntary" cuts.

Gold was quoted at USD1,643.40 an ounce at the London equities close, higher against USD1,636.30 late Tuesday.

The economic events calendar on Thursday has UK mortgage approvals at 0930 GMT.

The UK corporate calendar on Thursday has annual results from broadcaster ITV, asset manager Schroders, industrial turnaround specialist Melrose Industries, insurer Aviva and pizza chain Domino's Pizza Group.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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