LONDON MARKET CLOSE: Stronger Pound Hurts FTSE 100 As Fed Holds Fire

(Alliance News) - Stocks in London ended mostly lower on Thursday as a stronger pound hindered gains in the FTSE 100, while the saga between hedge funds and the 'Reddit crowd' day traders took another twist.

The international-exposed FTSE 100 index ended down 41.22 points, or 0.6%, at 6,526.15. The FTSE 250 index closed up 89.90 points, or 0.4%, at 20,368.25. The AIM All-Share index finished down 3.28 points, or 0.3%, at 1,172.87.

The Cboe UK 100 ended down 0.7% at 649.04, the Cboe UK 250 closed up 0.8% at 17,842.24, and the Cboe Small Companies ended down 0.7% at 12,110.03.

In Paris the CAC 40 ended up 0.9%, while the DAX 30 in Frankfurt ended up 0.3%.

"Another day of volatility for global markets, although this time we are seeing a more optimistic stance take hold on either side of the Atlantic. Weakness in the US dollar does highlight a notable improvement in risk-attitudes, although that subsequent rise in sterling has held back the FTSE 100," said IG Group's Josh Mahony.

The pound was quoted at USD1.3725 at the London equities close, up from USD1.3698 at the close Wednesday, as the dollar weakened after the US Federal Reserve on Wednesday left interest rates at historic lows.

In the FTSE 100, Mexican precious metals miner Fresnillo ended the best performer, up 6.4%, tracking spot gold and silver prices higher.

Further, WallStreetBets investors were targeting the precious metals sector, which according to posts on Reddit is another heavily-shorted area. A WSB post circulating on Twitter called the silver bullion market "one of the most manipulated on earth," saying it should be at USD1,000 an ounce and "a squeeze would destroy banks".

Gold was quoted at USD1,856.61 an ounce at the London equities close, higher against USD1,848.50 late Wednesday, following dovish tones from the Fed on Wednesday. Spot silver was trading higher at USD26.44 an ounce from USD25.38.

"A pullback in the dollar today is providing some upside for gold, which has been consolidating around USD1,850 in recent weeks. Nothing much has really changed on that front and the Fed on Wednesday did little to change that. It reinforced its commitment to low interest rates and bond purchases and offered a slightly more downbeat assessment of the economy in the near-term," said Oanda Markets analyst Craig Erlam.

Diageo closed up 3.2% after the distiller lifted its dividend despite reporting a lower interim profit as Covid-related restrictions hurt bars and restaurants.

The Johnnie Walker scotch maker said sales for the six months to December 31 edged down 3.6% to GBP10.44 billion from GBP10.83 billion a year ago, with pretax profit falling 11% to GBP2.20 billion from GBP2.46 billion.

However, organic net sales rose 1.0%, the Smirnoff vodka maker noted, despite a hit to Travel Retail and on-trade restrictions. The on-trade market comprises outlets such as bars, restaurants and clubs, while off-trade is focused on at-home consumption. Travel Retail includes duty-free sales in airports.

Diageo lifted its interim dividend by 2% to 27.9p per share from 27.41p per share the year before.

At the other end of the large caps, Prudential closed down 7.8% after the insurer said it is contemplating raising around USD2.5 billion to USD3 billion in Hong Kong or London, or both, with the hope or increasing its investor base in Asia.

The firm confirmed its overall Asian quarterly sales trajectory has continued improving in the second half of 2020, with 2020 operating performance expected to align with current market expectations. Prudential expects to post its 2020 preliminary results on March 3.

The London-headquartered firm has also opted to pursue separation of its Jackson Financial US business in the second quarter of 2021 via a demerger. Once the separation is complete, Jackson expects to list on the New York Stock Exchange. At the time of separation, it will have total financial leverage in the 25% to 30% range, subject to market conditions. Jackson is not expecting to pay a pre-separation dividend to Prudential.

The euro stood at USD1.2125 at the European equities close, up from USD1.2100 a day before. Against the yen, the dollar was trading at JPY104.30, up from JPY104.07 late Wednesday.

Stocks in New York were bouncing back on Thursday following the Wednesday's rout on a deluge of mixed earnings from large companies and data showing 2020's historic drop in US growth.

The DJIA was up 1.7%, the S&P 500 index up 1.4% and the Nasdaq Composite up 0.9%.

Apple late Wednesday delivered strong quarterly earnings, posting an all-time revenue record, with iPhone sales alone jumping by nearly 20%, but refrained from providing guidance for the next quarter.

In the three months to December 27, the first of its financial year, total net sales soared 21% to USD111.44 billion, a company record, from USD91.82 billion 12 months earlier. The figure easily topped market forecasts, cited by CNN, of sales amounting to USD103.3 billion.

Earnings per share jumped 35% to USD1.68, also beating market forecasts which tipped an EPS of USD1.42. Net income meanwhile, jumped 29% to USD28.76 billion from USD22.24 billion in the year prior.

The stock was down 1.8% in New York.

Facebook on Wednesday reported fourth-quarter earnings which easily topped market consensus, but the social network site warned of regulatory headwinds in 2021 as well as an advertising revenue hit due to a software update from Apple.

Revenue in the three months ended December 31 jumped 31% to USD28.07 billion from USD21.08 billion a year earlier. The fourth-quarter revenue figure topped forecasts, cited by CNN, of revenue amounting to USD26.4 billion.

Net income during the period jumped 53% to USD11.22 billion from USD7.34 billion a year earlier. Fourth quarter diluted earnings per share jumped 52% to USD3.88 from USD2.56 a year earlier. CNN-cited consensus forecast EPS of USD3.19.

The stock was up 0.9% on Wall Street.

Tesla was 2.2% lower despite the electric carmaker late Wednesday reporting a sharp rise in earnings during the fourth quarter with revenue topping USD10 billion for the first time.

For the fourth quarter to December 31, revenue rose 46% to USD10.74 billion from USD7.38 billion in the fourth quarter of 2019. Gross profit was USD2.07 billion, up 49% from USD1.39 billion the year before.

GAAP net income in the fourth quarter was USD207 million, more than doubled from USD105 million, with GAAP earnings per share coming in at USD0.24 from USD0.11. Non-GAAP EPS was USD0.80, up from USD0.41.

Markets were also monitoring unusual lurches in a handful of stocks including GameStop and now American Airlines following a revolt by amateur investors mobilised over Reddit that has rattled the Wall Street established order and challenged seasoned hedge funds.

American Airlines shares were up 6.8% in New York despite saying it swung to a loss in the fourth quarter of 2020 as revenue plummeted during Covid-19 related lockdowns and travel restrictions.

Total operating revenue for the three months ended December 31 plunged 64% to just USD4.03 billion from USD11.31 billion the year before, including a 69% drop in passenger revenue to USD3.19 billion from USD10.35 billion. Available seat miles were 53% lower than they were the year prior.

As a consequence, the airline swung to a USD2.81 billion pretax loss for the quarter from income of USD571 million the year before. Loss per share for the quarter was USD3.81, versus earnings per share of USD0.95 year-on-year.

Gamestop shares were 55% lower at USD153.00, following meteoric gains during the week, as many retail brokerages restricted trading on the stock. Online trading pioneer Robinhood said that in some cases, investors would be able to sell only their positions and not open new ones and raised margin requirements on certain securities.

CMC Markets analyst David Madden said: "Short squeezes were due to retail traders snapping up stocks like Gamestop. There was a fear that other investment firms might start dumping stocks just to exit the market. Sentiment in equities has since improved as those worries in relation to hedge funds have faded. It was announced that a couple of trading apps, that have been facilitating retail investors battle with certain hedge funds, have imposed restrictions on certain stocks. That has helped bring down the fear factor as the battle won't be as intense now."

On the economic front, the US economy expanded in the fourth quarter of 2020, official figures showed, while initial jobless claims fell for a second straight week.

US gross domestic production grew at an annual rate of 4.0% in the fourth quarter of 2020, according to the Bureau of Economic Analysis's advance estimate. In the third quarter, the economy rebounded 33.4% after a slump of 31.4% in the second quarter. For 2020 as a whole, the economy shrank 3.5%, compared with a 2.2% increase in 2019.

Separately, the Department of Labor said initial jobless claims for the week to January 23 fell to 847,000 from 914,000 the week before. This marks the second consecutive week of decline in claims and beat analyst forecasts, cited by FXStreet, of a smaller fall to 875,000.

Brent oil was quoted at USD55.80 a barrel at the equities close, down from USD56.27 at the close Wednesday.

The economic events calendar on Friday has Germany GDP readings at 0700 GMT, Spain inflation figures at 0800 GMT. In the afternoon, there are US personal consumption expenditure numbers at 1330 GMT - the core reading is the Fed's preferred gauge of inflation.

The UK corporate calendar on Friday has trading statements from Russian steelmaker Evraz and Paragon Banking Group. Gold miner Polymetal International posts annual production results.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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