LONDON MARKET MIDDAY: Banks Rally As Investors Price In US Rate Hike

LONDON (Alliance News) - Shares in London were in the green Wednesday midday, with higher oil prices supporting sentiment, while banking stocks led blue-chip gainers as the risk of Brexit seemed to recede and market participants started counting on a US interest rate hike this summer.

The FTSE 100 was up 0.6%, or 37.41 points, at 6,257.67 points, the FTSE 250 was 0.3% higher at 17,188.23, and the AIM All-Share was up 0.1% at 734.22.

Banks were among the best blue-chip performers, with Royal Bank of Scotland Group up 3.8%, HSBC Holdings up 3.2% and Standard Chartered up 1.8%, "as markets price-in the earnings benefit of a possible US rate rise in the summer," said CMC Markets analyst Jasper Lawler.

IG analyst Joshua Mahony said the US rate hike is likely to take place in July, "given the uncertainty surrounding the June Brexit vote [on June 23] and the likely willingness to hike well ahead of the US presidential election on November 8."

"It is clearly a significant signal that the Brexit and Fed hike risks which dominate the airwaves, are largely seen as outside chances, with traders instead focusing in on the positives rather than the negatives," Mahony noted.

Fund supermarket Hargreaves Lansdown released on Tuesday the results of a survey showing that the financial sector, followed by consumer goods and technology, would be the most bruised by a Brexit, but the Leave camp was forecast in the Hargreaves survey to get less than 40% of the vote.

Shares in London-listed lenders were also boosted on Tuesday after a poll by ORB for the Daily Telegraph found 55% of respondents intend to vote to keep Britain in the European Union, against 42% in favour of leaving. However, on Wednesday, two further polls showed the two sides level pegging.

The FTSE 350 Banks sector rose 2.4% on Tuesday, and was adding 2.1% Wednesday by midday, the best performing sector.

Elsewhere, Royal Mail was up 1.0% after UK media and communications regulator Ofcom said it will not impose new price controls on the postal operator, given the declining letters market in the UK and increased competition in the parcels market. The regulator also said it will leave in place the current regulatory framework on the postal services provider, which provided it with greater commercial freedom. This includes a safeguard cap placed on stamp prices.

Electronics retailer Dixons Carphone added 0.8% after saying it expects to report headline pretax profit at the upper end of its previous guidance in its recent financial year, following solid like-for-like revenue growth.

At the other end of the index, Marks & Spencer was the worst blue-chip performer, down 7.5%. The food, clothing and homewares retailer warned on its profit in the short term as new Chief Executive Steve Rowe revealed his plans to try to revive the struggling Clothing & Home division, formerly called Merchandise.

In order to do this, M&S will invest to re-establish its price position by cutting prices, enhance service by putting more employees into its stores, and improve the style of its products, but the costs of doing this will hit profit this year and next, Rowe warned.

The new strategy came as M&S released its results for its recently-ended financial year. Pretax profit in the year ended April 2 fell to GBP488.8 million from GBP600.0 million the year before, hit by increased charges and non-underlying costs. Underlying pretax profit, which excludes these, grew to GBP689.6 million from GBP661.2 million, beating the consensus estimate of GBP673.0 million.

M&S will pay total dividend of 18.7 pence, which is up 3.9% on the prior year, and a special dividend of 4.6p for the first half of the new financial year.

Intertek Group also was in the red, down 4.5%, after saying it achieved good revenue growth in the first four months of 2016, though its resource industry-facing businesses continued to see challenging market conditions.

"The group has started the year well with double-digit revenue growth. Our product-related businesses, which contribute over two-thirds of our earnings, delivered good organic growth performance; our trade activities reported solid organic growth, while market conditions remained challenging in our resource-related businesses," said Chief Executive Andre Lacroix.

In the FTSE 250, Serco Group was the best mid-cap performer, up 12%. The outsourcer said it anticipates underlying trading profit for 2016 will be ahead of current market expectations. Serco said its financial performance in the first four months of 2016 has been stronger than anticipated, primarily due to good outcomes on a number of commercial negotiations.

Oil prices were higher after the American Petroleum Institute reported late Tuesday a drop of 5.1 million barrels in crude oil stocks, following a 1.1 million fall a week earlier.

Brent was quoted at USD49.22 a barrel at midday, compared to USD48.75 at the London equities close on Tuesday. Meanwhile, West Texas Intermediate oil, the US benchmark, was at USD49.14 a barrel, compared to USD48.57 at the close Tuesday.

In Europe, the CAC 40 in Paris and the DAX 30 in Frankfurt were up 1.0% and 1.3%, respectively. European investors were cheering the news that eurozone finance ministers struck a deal early Wednesday for Greece to access a fresh round of bailout funds, while also laying out debt relief measures aimed at securing the involvement of the International Monetary Fund.

The agreement, reached after 11 hours of talks in Brussels, should allow Greece to receive an overall EUR10.3 billion in the coming months, needed to prevent the cash-strapped nation from returning to the brink of bankruptcy.

Better-than-expected consumer and business confidence figures out of Germany also bolstered investors' risk appetite. German consumer confidence is set to strengthen in June, a survey by research group GfK showed. The consumer sentiment indicator, based on a survey of around 2,000 Germans, rose to 9.8 in June from 9.7 in May. It was forecast to remain unchanged in June.

Stocks in New York were called for a positive open, with the Dow 30 seen up 0.3% while the S&P 500 and the Nasdaq 100 were both pointed up 0.4%.

Still in the economic calendar, the US goods trade balance is due at 1330 BST, while the US housing price index is at 1400 BST. Martkit's services and composite Purchasing Manager's Index readings are due at 1445 BST, while the EIA crude oil stocks data are due at 1530 BST.

In Asia on Wednesday, the Japanese Nikkei 225 index in Tokyo ended up 1.6%. In China, the Shanghai Composite closed down 0.2%, while the Hang Seng index in Hong Kong rose 2.7%.

By Daniel Ruiz; danielruiz@alliancenews.com

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