LONDON MARKET MIDDAY: AB Foods And Travel Firms Rise As Lockdowns Ease

(Alliance News) - London stocks climbed higher on Monday as a further rift in US-China trade relations was avoided and markets instead eyed the easing of Covid-19 lockdowns.

The FTSE 100 index was up 64.73 points, or 1.1%, at 6,141.33 Monday midday. The mid-cap FTSE 250 index was up 235.54 points, or 1.4%, at 17,278.50. The AIM All-Share index was up 0.6% at 880.96.

The Cboe UK 100 index was up 1.3% at 10,380.37. The Cboe 250 was up 1.4% at 14,782.75, and the Cboe UK Small Companies up 0.9% at 9,248.82.

In mainland Europe, the CAC 40 in Paris was up 1.2%, while markets in Germany are closed for a holiday.

"Markets are breathing a sigh of relief today, as fears over a potential breakdown in US-China trade were allayed to the benefit of risk assets," said Joshua Mahony, senior market analyst at IG.

"Despite many speculating that the coronavirus crisis will make the US-China trade deal targets near-impossible, the threat of a reversal back to high tariffs had incited a significant decline on Friday," said Mahony. "However, it appears that the WHO has felt the brunt as much as China, with plans to retract Hong Kong's special status unlikely to make a huge dent in market sentiment."

President Donald Trump on Friday said the US will "begin the process" of revoking Hong Kong's special trading status and withdraw from the World Health Organization, taking drastic steps as his feud with Beijing over the coronavirus pandemic escalates.

"They broke their word to the world on ensuring the autonomy of Hong Kong," Trump said from the White House, referring to Beijing's imposition of controversial national security legislation on the semi-autonomous territory and global financial centre.

"Therefore I am directing my administration to begin the process of eliminating policy exemptions that give Hong Kong different and special treatment," Trump said, adding the move will impact the "full range" of agreements with Hong Kong, including customs and travel agreements.

The latest moves by the president are sure to roil relations with Beijing and threaten to jeopardize the first-phase US-China trade deal signed earlier this year.

A formal status change would also be a major blow to Hong Kong's trading relationship with the US and the territory's status as a key Asian financial hub, which also serves as a port for Beijing's financial and commercial transactions with other countries.

While Trump's comments appeared to be a sweeping revocation of the special status it remains unclear if the president will formally end the decades-long relationship with Hong Kong, or if he will take a more piecemeal approach.

Stocks in the US are headed for a lower start on Monday. The Dow Jones is called down 0.2%, the S&P 500 down 0.3% and the Nasdaq down 0.6%.

To come in the economic calendar is a US IHS Markit manufacturing PMI at 1445 BST and the ISM's manufacturing PMI at 1500 BST.

Already released, IHS Markit data showed the UK manufacturing sector rebounded in May but Covid-19 continues to severely hamper activity.

The IHS Markit/CIPS purchasing managers' index rose to 40.7 in May from a record low of 32.6 in April. May's flash reading had been 40.6.

Though an improvement, the reading remained well below the no-change mark of 50, meaning the UK manufacturing sector continued to contract in May - though at a more moderate rate than in April.

Over in the eurozone, manufacturing also continued to struggle in May.

The IHS Markit eurozone manufacturing PMI in May rebounded from historical lows in April to 39.4 from 33.4. Despite being generally looser across the region compared to April, government restrictions designed to limit the spread of the global coronavirus disease continued to severely hamper the sector, IHS Markit said.

The pound was quoted at USD1.2387 Monday midday after the data, easing back from morning highs but still above USD1.2330 at the London equities close on Friday. The euro traded at USD1.1114 on Monday, soft on USD1.1117 late Friday.

Against the yen, the dollar was quoted at JPY107.66 versus JPY107.75.

Gold was quoted at USD1,735.55 an ounce on Monday, higher than USD1,732.75 on Friday. Brent oil was trading at USD37.84 a barrel, up from USD35.72 late Friday.

Turning to London, there were broad-based gains in the FTSE 100 with a number of travel firms among the best performers.

IG's Mahony said: "The FTSE 100 is enjoying a reversal of Friday's pessimism, with high-risk recovery stocks coming back into prominence. Travel associated stocks such as IAG, Rolls-Royce, and easyJet are taking off once again, with the sector likely to remain bullish in the absence of a second wave."

British Airways parent International Consolidated Airlines was up 5.6%, while jet engine maker Rolls-Royce was up 5.7% and easyJet up 4.6%.

A long queue of masked visitors snaked outside the Vatican Museums as one of Italy's biggest tourist draws reopened after a three-month coronavirus shutdown.

Italy on Wednesday will further loosen travel restrictions in the one-time epicentre of Europe's pandemic in a bid to reboot the tourism industry that accounts for some 13% of the national GDP.

Italians will be allowed to freely move about the country and EU visitors will be welcomed without quarantine requirements.

At the top of the blue-chip index was Associated British Foods, up 7.2%. The firm expects to reopen all of its Primark stores in England on June 15, following the recent announcement by the UK government on the opening of all other non-essential retail stores by that date.

As at Monday, fashion retailer Primark is trading in 112 stores, which represents 34% of the brand total selling space. By June 15, Primark anticipates having 281 stores opened around the world, which represents 79% of total selling space.

Trading in the 112 stores has been regarded as both "reassuring and encouraging", with consumer demand strong for children's leisure and night wear, alongside summer products.

AB Foods said it is awaiting further guidance for the stores in the rest of the UK, and expects openings in late June.

Standard Chartered was up 6.3% after Jefferies double-upgraded the emerging markets-focused lender to Buy from Underperform.

Elsewhere, Ted Baker shares slumped 12% to 135.10 pence after announcing a GBP95 million fundraise and a full-year swing to a loss on expenses, including a substantial charge relating to inventory.

The luxury fashion retailer reported a GBP79.9 million pretax loss for its year ended January 25 after a GBP30.7 million pretax profit the year before. Revenue fell 1.4% to GBP630.5 million from GBP639.6 million thanks to "significant discounting" in the apparel industry as a whole and the UK in particular due to a "weak consumer spending and channel shift to online".

Ted Baker separately announced plans to raise GBP95 million through a placing and open offer, as well as a firm placing which are all underwritten. It may also raise up to an additional GBP10 million through a subscription offer that is not underwritten. All shares will be issued at a price of 75p each.

De La Rue surged 96% after the banknote printer said it has made a strong start to its year ending March 31, 2021, as the Covid-19 outbreak has had a limited impact on operations.

In its Authentication division, the firm noted the signing of a five-year agreement to supply polycarbonate data pages for the new Australian passport.

To date, De La Rue's Authentication unit has been awarded contract with a total lifetime value of GBP100 million, further underpinning the group's expectations of the business reaching revenue of GBP100 million by the 2022 financial year, with strong operating margins.

Meanwhile, in Currency, De La Rue is still experiencing strong demand that has remained throughout the Covid-19 pandemic, and has been awarded contracts reflecting around 80% of its annual Currency printing capacity. As a result, the group continues to expect Currency unit to reach a mid-teens adjusted operating margin in its 2021 financial year.

By Lucy Heming; lucyheming@alliancenews.com

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