LONDON MARKET MIDDAY: Caution Ahead Of US Fed; Shorted Stocks Boosted

(Alliance News) - London stocks slid further as Wednesday's session progressed, with markets moving cautiously ahead of the US Federal Reserve's latest interest rate decision.

Even a share price surge for heavily-shorted Pearson was unable to shunt the FTSE 100 into positive territory at midday, with Mexican gold miner Fresnillo dragging at the other end of the blue-chip index.

The FTSE 100 index was down 47.59 points, or 0.7%, at 6,606.42 at midday. The mid-cap FTSE 250 index was down 106.74 points, or 0.5%, at 20,341.62. The AIM All-Share index was down 0.8% at 1,188.95.

The Cboe UK 100 index was down 0.8% at 657.06. The Cboe 250 was down 0.4% at 17,706.18, and the Cboe Small Companies up 0.1% at 12,219.75.

In mainland Europe, the CAC 40 in Paris was down 0.7%, while the DAX 30 in Frankfurt fell 1.0% on Wednesday.

Pierre Veyret at ActivTrades said investors are in "wait and see" mode ahead of the Fed's latest interest rate decision at 1900 GMT and subsequent press conference with Chair Jerome Powell at 1930 GMT.

No change is expected to Fed policy, with focus lying on the central bank's outlook as the US rolls out vaccines and President Joe Biden's new administration attempts to pass a bumper USD1.9 trillion fiscal stimulus package.

The dollar strengthened ahead of the Fed.

Sterling was quoted at USD1.3704 midday Wednesday, lower than USD1.3737 at the London equities close on Tuesday.

The euro traded at USD1.2116, down on USD1.2162 late Tuesday. Against the yen, the dollar was quoted at JPY103.85, firm versus JPY103.65.

Gold was quoted at USD1,838.77 an ounce on Wednesday, lower than USD1,854.00 on Tuesday and suffering under the stronger greenback. Brent oil was trading at USD56.08 a barrel, up from USD55.87 late Tuesday.

"More dovish measures are widely expected to sustain and protect markets against downside risks. Moreover, tech stock traders are also anticipating increased market volatility later in the afternoon as the giants of Apple, Facebook and Tesla are all set to publish their earnings," said ActivTrades's Veyret.

Stocks in New York are set for a subdued start ahead of the Fed. The Dow Jones is called down 0.5% and the S&P 500 down 0.4% but the Nasdaq Composite up 0.2%.

Helping to buoy the tech-heavy Nasdaq was Microsoft, the stock rallying 3.1% pre-market. Microsoft reported a strong second quarter after the market close, seeing increased demand for its services as companies rely on cloud computing from Azure and cloud-software offerings like Teams to keep employees connected while they work from home.

For the second quarter ended December 31, revenue was up 17% to USD43.08 billion from USD36.91 billion in the second quarter of 2019. Second quarter net income was up 33% to USD15.46 billion from USD11.65 billion the year before, with diluted earnings per share coming in at USD2.03, up 34% from USD1.51.

Surging to the top of the FTSE 100 on Wednesday was educational publisher Pearson, up 9.1% at midday.

"There is no new news about the publishing company but it is known that a relatively large amount of the stock has been shorted, so it is possible that we are witnessing a major short squeeze," explained David Madden at CMC Markets.

"Recently, the US group GameStop has undergone erratic moves as there is a tussle between short sellers and buyers," he said. "It might be the case that funds are flowing into Pearson to shake out some of the short sellers."

In New York, GameStop shares closed up 93% at USD147.98 on Tuesday and were trading a whopping 92% higher pre-market on Wednesday. Since 2021 began, GameStop shares have rocketed nearly eight-fold in value since ending 2020 at USD18.84.

Investors betting against GameStop by borrowing shares and selling them "short" in the hope of buying them back cheap, pocketing the difference, seem to be up against day traders and users of social media sites such as Reddit boosting the company in online posts.

Shares in Blackberry and Virgin Galactic, two other New York-listed firms targeted by online traders, were up 9.4% and 11% respectively in pre-market trade. In London, in the FTSE 250, Cineworld and Petrofac - both amongst the most shorted stocks in London - were up 13% and 7.5% respectively at midday.

At the bottom of the FTSE 100 was Fresnillo, sinking 8.9% after saying gold and silver production declined in 2020.

The Mexican miner reported attributable 2020 total silver production of 53.1 million ounces, down 2.7% from 54.6 million ounces in 2019. This includes a 3.6% drop in silverstream production to 2.8 million ounces from 2.9 million and a 2.9% drop in silver to 50.3 million ounces from 51.8 million.

Attributable gold production in 2020 as a whole dropped 12% to 769,618 ounces from 875,913 ounces the year before. This was attributed to "a lower volume of ore processed at Herradura as a result of Covid-19 related working restrictions and the aforementioned issues at Noche Buena."

For 2021, Fresnillo is guiding for attributable silver production in the 53.5 million to 59.5 million ounce range including silverstream. The lowest end of the forecast would be only a 0.8% improvement from 2020. For gold, Fresnillo is forecasting 2021 attributable production of between 675,000 and 725,000 ounces, below 2020 production by as much as 12%.

In the FTSE 250, Greencore rose 7.6%. Jefferies raised the stock to Buy from Hold.

On AIM, Scapa shares rose 25% to 222.06 pence after agreeing to be taken over by Schweitzer-Mauduit International in a deal worth GBP402.9 million.

Schweitzer-Mauduit is a product engineering and manufacturing company with its global headquarters in Alpharetta, in the US state of Georgia. Its AMS Holdco 2 subsidiary will offer 210 pence per share for Ashton-under-Lyne, England-based healthcare and industrial firm Scapa.

The price per share represents a 59% premium to Scapa's 132.5p per share six-month volume weighted average price on Tuesday and a 19% premium to its Tuesday closing price of 177p.

The economic events calendar on Wednesday has US durable goods orders at 1330 GMT. The World Economic Forum's Davos Agenda continues.

By Lucy Heming; lucyheming@alliancenews.com

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