LONDON MARKET MIDDAY: FTSE 100 fights back to green; pound finds feet

Mon, 24th Oct 2022 12:09

(Alliance News) - The FTSE 100 crept back into the green by midday on Monday, having risen at the open before promptly falling back, as the international-facing index struggled against a stronger pound.

Sterling improved on Monday as the recent chaos in Westminster looks set to end with Rishi Sunak as UK prime minister.

"Since trading opened in foreign exchange markets last night, we've seen a warm response amongst investors to news that Boris Johnson has pulled out of the running to return as UK prime minister," XTB Chief Market Analyst Walid Koudmani said.

"Certainly there was some trepidation in the markets that Boris could return as fiscally he is not seen as highly competent, but perhaps more troubling would have been the fact any new premiership under Johnson would be surrounded by political potholes every week, bringing more instability."

Sunak became the far frontrunner to be the country's next prime minister after Johnson ended his comeback bid and rival Penny Mordaunt battled to win sufficient support from Tory members of Parliament.

Sunak, a former chancellor, had on Friday hit the threshold of 100 nominations from Conservative colleagues, well ahead of the deadline of 1400 BST on Monday.

The FTSE 100 index was up 5.08 points, or 0.1%, at 6,974.87. The mid-cap FTSE 250 was up 96.12 points, or 0.6%, at 17,302.67, and the AIM All-Share was up 1.31 points, or 0.2%, at 786.71.

The Cboe UK 100 was up 0.1% at 696.87, the Cboe UK 250 up 0.6% at 14,777.27, and the Cboe Small Companies down 0.2% at 12,218.86.

In European equities on Friday, the CAC 40 in Paris advanced 1.4% and the DAX 40 in Frankfurt was 1.3% higher.

"The cult of Boris, which was hanging over the Conservatives like a charm of enchantment, has for now been broken, sending the pound higher, after the former prime minister said he would not stand again. Westminster is rife with speculation that he had not garnered enough support from MPs, despite his protestation of the contrary," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

Sterling was quoted at USD1.1310 midday Monday, sharply higher than USD1.1203 at the London equities close on Friday. Despite the strong gain since Friday, the pound was sliding from an intraday high of USD1.1379 earlier this morning.

Mordaunt appears far behind but allies insist they are "confident" she will hit the target, which would see the Commons Leader face off against Sunak in an online ballot of Tory party members.

But if she fails, Sunak will effectively receive a "coronation" from Conservative MPs and quickly succeed Liz Truss as prime minister – seven weeks after he lost out to her in the last contest.

A government source said the new prime minister could be in place as soon as Monday if the Tory leadership contest does not progress further.

The new PM looks set to face a series of tough economic conditions. New flash estimates released on Monday showed the UK private sector output has fallen for the third straight month, fuelling speculation the UK is headed for a "deep" recession.

John Glen, CIPS chief economist, said: "No great surprise seeing the manufacturing and services sectors backsliding again in October given the jangled nerves amongst cash-strapped businesses facing a faltering economy, political turmoil and historically high input costs."

The S&P Global/CIPS flash UK purchasing managers' index composite output measure fell to a 21-month low of 47.2 points in October from 49.1 in September.

Any reading below 50 points indicates contraction.

The flash services PMI business activity index slumped to 47.5 points in October from 50.0 in September, while the manufacturing PMI slid to 45.8 from 48.4.

Hargreaves's Streeter added: "On a broader level, investors are catching glimpses of light at the end of a tough tunnel of monetary tightening and that's helping to inject some optimism into financial markets.

"Even though more rate hikes are expected from the Federal Reserve, comments from Janet Yellen, the US Treasury Secretary that high inflation does not look like it's become entrenched in the economy, has led to hopes that there will be a gentler path of rate rises ahead."

In New York on Monday, stocks were set to open mixed. The Dow Jones Industrial Average was called up 0.1% and the S&P 500 flat, but the Nasdaq Composite was seen down 0.2%.

In London, Pearson was the best performer in the FTSE 100 - advancing 7.7%.

It said trading in the nine months to September 30 was "strong", with underlying sales up 7% year-on-year, allowing the company to reaffirm its full-year sales and adjusted profit outlook.

Looking ahead, Pearson said it is on track to deliver at least GBP100 million of cost efficiencies next year, and it remains on track to deliver group sales and adjusted operating profit in line with consensus expectations for 2022.

Frasers added 1.5%.

It increased its investment in German fashion designer Hugo Boss to just under a third, while also confirming it has bought a 5% stake in UK online clothing retailer Asos.

Frasers said it now owns 4.3% of the shares of Hugo Boss, while it additionally has a 28.5% interest via put options that it has sold. This gives Frasers a 32.8% interest, up from 30.9% previously.

Derbyshire-based department store operator Frasers said its maximum exposure for the Hugo Boss interest is EUR960 million, up from EUR900 million in June. Back then, it held a 4.9% stake via shares and a further 26% via options.

Hugo was 1.0% higher in Frankfurt.

Frasers said the holding in Hugo Boss is just "ordinary course of business" for the firm as it continues to seek "opportunities that strengthen Frasers Group's brand proposition".

Meanwhile, Frasers on Wednesday last week bought a 5.1% stake in FTSE 250-listed online-retailer Asos, a filing showed on Monday. That would make Frasers the sixth largest shareholder in Asos, according to data from Morningstar.

Asos added 2.0%.

In London's junior market, video-streaming technology firm Aferian slumped 38% as it expects device revenue for financial year 2022 ending November 30 to be 10% lower than expected in June.

It noted its Amino business experienced delays as customers reduce working capital. However, exit annual recurring revenue and software growth - of 15% and 5% respectively - will be in line with management expectations.

Aferian guided for full-year adjusted operating profit of USD7.8 million to USD8.8 million, down at least 25% from USD11.8 million a year prior.

Heading in the opposite direction, Mosman Oil & Gas was up 26% on AIM.

It said a third-party technical report for its license in Australia, covering the Cinnabar development well, finds "favourable scenarios" for all three essential play elements.

The evaluation identified five "high-graded areas of prospectivity", which includes hydrocarbons, helium and hydrogen, Mosman said.

The euro traded at USD0.9822 midday Monday, higher than USD0.9802 late Friday. Against the yen, the dollar was quoted at JPY149.38, up versus JPY148.03.

Gold was quoted at USD1,648.10 an ounce midday Monday, higher than USD1,643.70 on Friday evening. Brent oil was trading at USD90.48 a barrel, lower than USD92.84 late Friday.

Still to come Monday, there is composite PMI reading from the US at 1445 BST.

By Paul McGowan; paulmcgowan@alliancenews.com