LONDON MARKET MIDDAY: FTSE 100 Charges Ahead Even As Rolls-Royce Drags

(Alliance News) - London stocks on Tuesday bounced back from a soft start to the week as markets look ahead of a busy week for US corporate earnings and hang on to Washington stimulus hopes.

Rolls-Royce pared early losses in the FTSE 100 while Indivior rallied to the top of the mid-cap FTSE 250.

The FTSE 100 index was up 45.31 points, or 0.7%, at 6,684.16 on Tuesday. The FTSE 250 index was up 138.21 points, or 0.4%, at 20,488.62. The AIM All-Share index was down 0.3% at 1,195.57.

The Cboe UK 100 index was up 0.8% at 664.52. The Cboe 250 was up 0.7% at 17,799.97, and the Cboe Small Companies down 0.4% at 12,176.09.

"Investors seem willing to look past [Friday's] poor PMI data, either reasoning that things will get better from here as vaccination programmes ramp up, or more likely they have nowhere else to go given the lack of income available outside equities," said Chris Beauchamp, chief market analyst at IG.

"The rally since November has slowed noticeably, but it has yet to move to the downside, and instead most indices are content to tread water, with a decent earnings season in the US and expectations of fiscal stimulus providing a reason to hang around the party until the situation improves."

US corporate earnings continue on Tuesday, with Microsoft and American Express among some of the companies reporting. Later in the week come results from the likes of Apple, Boeing, Facebook, Tesla and Visa.

Ahead of the reports, Wall Street was pointed to a mixed open. The Dow Jones is called up 0.1%, the S&P 500 down 0.1% and the Nasdaq Composite down 0.2%.

In mainland Europe, the CAC 40 in Paris was up 1.0% while the DAX 30 in Frankfurt surged 1.4% on Tuesday. The euro was higher, at USD1.2164 versus USD1.2125 late Monday.

Sterling firmed to USD1.3670 at midday from USD1.3655 at the London equities close on Monday.

The unemployment rate for the three months to November came in at 5.0%, up from 4.9% in the three months to October but beating consensus, according to FXStreet, of a steeper rise to 5.1%.

Early estimates for December indicate that the number of payrolled employees fell by 2.7% compared with a year ago, marking a fall of 793,000 employees, the ONS said. Since February - being the month before the coronavirus pandemic gripped the UK - 828,000 fewer people were in payrolled employment.

Safe haven assets, the Japanese yen and gold, were mildly higher on Tuesday. Against the yen, the dollar was quoted at JPY103.78 versus JPY103.81. Gold was quoted at USD1,851.69 an ounce on Tuesday, a touch higher than USD1,848.02 at the London equities close on Monday.

Brent oil was trading at USD56.31 a barrel, rising from USD55.50 late Monday. Oil majors tracked the price of Brent higher, with BP shares up 1.5% at midday, while Royal Dutch Shell 'A' and 'B' shares both rose 1.4%.

Rolls-Royce remained rooted at the bottom of the FTSE 100 but had managed to pare losses by midday. The stock was down 4.5% at 93.62 pence at midday, having traded below the 90p mark earlier in the session.

The jet engine maker said new coronavirus strains and the tighter travel restrictions introduced in their wake is creating short-term uncertainty.

"Continued progress on vaccination programmes is encouraging for the medium-term recovery of air traffic and economic activity. In the near-term, however, more contagious variants of the virus are creating additional uncertainty," Rolls-Royce explained.

Its current forecasts indicate free cash outflow in the region of GBP2 billion in 2021. This is based on widebody engine flying hours for this year at around 55% of 2019 levels, compared to a base case of 70% presented in October.

Russ Mould, investment director at AJ Bell, commented: "The market will be keeping a close eye on the state of the aviation industry and whether the second half of 2021 is realistic for a notable increase in the number of planes flying. That matters for Rolls-Royce as its real money is made from repair and maintenance work rather than the sale of engines, and that requires planes to be in the sky."

JD Sports Fashion fell 1.5% after the sportswear retailer confirmed it is looking into the possibility of an equity raise to fund its expansion.

The FTSE 100-listed sportswear retailer said it is exploring additional funding options with a view to "increasing its flexibility to invest in future strategic opportunities", which could potentially involve a non pre-emptive equity placing. The company didn't put a figure on the potential raise.

On Monday, Sky News reported JD was in talks over an around GBP400 million share sale to fund its expansion.

Among blue-chip stocks in the green at midday was Compass, up 3.3% after Exane raised the contract caterer to Neutral from Underperform.

At the top of the FTSE 250 was Indivior, rallying 11% after saying after the market close on Monday that former parent company Reckitt Benckiser has withdrawn a USD1.4 billion claim against the FTSE 250-listed drugmaker.

In November, Indivior announced that FTSE 100-listed Reckitt Benckiser had submitted a claim against the company. The claim related to an indemnity contained in the demerger agreement entered into between the two companies in November 2014.

Indivior was spun off from the consumer health and hygiene firm and listed on the London Stock Exchange in December of that year.

On Monday, Indivior said RB has agreed to withdraw the USD1.4 billion claim and to release Indivior from any claim for indemnity under the demerger agreement relating to the US Department of Justice and Federal Trade Commission settlements which RB entered into in July 2019, as well as other claims for indemnity. Indivior has agreed to pay RB a total of USD50 million over the next five years.

Reckitt shares were down 1.7% on Tuesday.

Mid-cap UDG Healthcare rose 5.1%. The healthcare services provider said it expects to post a significant rise in earnings for its current financial year as its divisions delivered a first quarter performance ahead of the prior year.

It anticipates that for its financial year ending September 30, constant currency adjusted operating profit will be between 11% to 13% ahead of the USD165.3 million reported in financial 2020. Constant currency adjusted diluted earnings per share is also expected to be between 9% to 11% ahead of the USD47.7 cents recorded the year prior.

By Lucy Heming; lucyheming@alliancenews.com

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