LONDON MARKET MIDDAY: FTSE 100 climbs; Metro Bank shares slide

(Alliance News) - Stock prices in London were largely higher at midday on Thursday, shrugging off bad news for the UK construction sector, as investors began to adjust to the higher for longer narrative around interest rates.

The FTSE 100 index was up 38.58 points, or 0.5%, at 7,451.03. The FTSE 250 was up 164.77 points, or 0.9%, at 17,657.67. Meanwhile, the AIM All-Share was down just 0.15 of a point at 695.06.

"There have been plenty of signs to suggest central banks will continue with their fight against inflation by keeping rates high, but a lot of people seem to have been too complacent and expected a sudden drop in rates. With the message now loud and clear that this situation is unlikely in the near-term, investors can have some sort of certainty and thus reposition their trades accordingly," said Russ Mould, investment director at AJ Bell.

The Cboe UK 100 was up 0.5% at 743.08, the Cboe UK 250 was up 1.0% at 15,375.71, and the Cboe Small Companies was up 0.6% at 12,935.69.

Survey data on Thursday revealed that the UK construction sector fell back into contraction last month.

The S&P Global/Chartered Institute of Procurement & Supply construction purchasing managers' index fell to 45.0 points, down sharply from 50.8 in August.

Crossing over the 50-point no-change mark, it shows the sector saw a downturn in activity from the prior month.

It was the steepest decline in construction output since May 2020. The PMI reading was also markedly lower than FXStreet-cited market consensus of 49.9.

Analysts at Capital Economics said the weakness chimes with its view that construction activity and lending will deteriorate further as tight monetary policy continues to bite over the rest of this year.

In London, Imperial Brands was the top blue-chip performer, up 3.9% at midday after the cigarette maker announced a GBP1.1 billion buyback and said that it expects to deliver full-year trading in line with expectations.

The company said that, on a constant currency basis and including Russia, tobacco and next-generation products net revenue grew by a low single-digit percentage in the financial year that ended September 30.

Meanwhile, Imperial said its adjusted operating profit growth is expected to have accelerated to the "lower end" of its mid-single digit range.

Russ Mould at AJ Bell said the trading update helped the stock claw back some of the losses it experienced on Wednesday when UK Prime Minister Rishi Sunak outlined plans to clamp down on smoking and vaping.

Sunak said that the legal age for buying tobacco in the UK should rise every year to stop youngsters taking up smoking, as he also pledged to crack down on the sale of disposable vapes to children.

He told the Conservative party conference in Manchester that "a 14-year-old today will never legally be sold a cigarette" under new legislation for England.

BP and Shell sat at the bottom end of the FTSE 100, meanwhile, as the stocks tracked the price of oil lower. BP was down 1.9%, while Shell was down 1.1%.

Brent oil was quoted at USD84.61 a barrel at midday in London on Thursday, down from USD87.91 at the London equities close on Wednesday.

In the FTSE 250, Volution jumped 14%, making it the index's best performing stock at midday.

The designer and manufacturer of energy-efficient indoor air quality solutions hailed "ever tightening regulations" as boosting demand for its business, as it declared a higher payout after its annual profit rose.

For the year ended July 31, Volution reported a pretax profit of GBP48.8 million, up 3.4% from GBP47.2 million a year prior. Revenue climbed 6.6% to GBP328.0 million from GBP307.7 million.

The company noted that demand in the refurbishment market has been "supportive" during the year, particularly in the UK where it saw demand in public refurbishment, maintenance and improvement market benefiting from the "heightened awareness of health risks associated with mould and condensation."

On the back of its robust annual results, Volution declared a final dividend of 5.5 pence per share, up from 5.0p a year prior. This brought the total dividend to 8.0p, which is 9.6% higher than 7.3p a year prior.

Elsewhere in London, Metro Bank plunged 22% after it confirmed that it is continuing to evaluate the best ways to enhance its capital resources.

The UK challenger bank was responding to a Financial Times report on Wednesday which said that Metro Bank is seeking to raise up to GBP600 million, citing people with knowledge of the plan.

The talks came after regulators last month failed to approve a request from Metro to lower the capital requirements attached to its mortgage business.

"The company is evaluating the merits of a range of options, including a combination of equity issuance, debt issuance and/or refinancing and asset sales. No decision has been made on whether to proceed with any of these options," Metro said on Thursday.

Shore Capital analysts Gary Greenwood & Vivek Raja said that supporting a further capital raise for the bank would be akin to "throwing good money after bad" as Metro has "already had enough time and opportunity to sort itself out and has been unable to do so."

"Investors and bondholders may therefore be better served investing their money elsewhere," the analysts argued.

In European equities on Thursday, the CAC 40 in Paris was marginally lower, while the DAX 40 in Frankfurt was marginally higher.

Stocks in New York were called lower. The Dow Jones Industrial Average was called down 0.2%, the S&P 500 index down 0.2%, and the Nasdaq Composite down 0.1%.

The dollar failed to make substantial gains on Thursday following the release of "disappointing" US employment data on Wednesday, which showed job growth in the US private sector slowed significantly in September.

The pound was quoted at USD1.2135 at midday on Thursday in London, down from USD1.2144 at the London equities close on Wednesday. The euro stood at USD1.0519, higher against USD1.0515. Against the yen, the dollar was trading at JPY148.87, a touch higher compared to JPY148.83.

According to the ADP National Employment Report, private sector employment increased by 89,000 jobs in September. In August, private sector employment increased by 180,000 jobs, this was upwardly revised from 177,000.

Ricardo Evangelista, senior analyst at ActivTrades, said the "disappointing" increase slightly cooled expectations of further interest rates hikes from the US Federal Reserve before the end of the year.

The analysts warned, however, that the data is only part of a build-up that will culminate in the release of the non-farm payroll figures on Friday.

The employment report is expected to show jobs growth of 170,000 in September, easing from 187,000 in August.

Evangelista said the "dollar dominance" of the last few weeks could "easily be resumed" should the non-farm payroll figures reflect more resilience in the US labour market.

Gold was quoted at USD1,823.10 an ounce at midday on Thursday in London, lower against USD1,826.09 at the London equities close on Wednesday.

Still to come in Thursday's economic calendar, US continuing jobless claims data will be released at 1330 BST.

By Heather Rydings, Alliance News senior economics reporter

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