LONDON MARKET MIDDAY: FTSE 100's rebound cools ahead of ECB decision

(Alliance News) - London's rebound slowed as it continued into a third straight session on Thursday, with markets awaiting a decision from the European Central Bank to provide some fresh direction.

The FTSE 100 index was up 14.36 points, or 0.2%, at 7,012.64 midday Thursday. A rise in the pound was holding back big dollar earners, so smaller UK stocks were faring even better. The mid-cap FTSE 250 index jumped 264.55 points, or 1.2%, to 22,806.52. The AIM All-Share index was up 1.4% at 1,229.42.

The Cboe UK 100 index was up 0.1% at 698.4227. The Cboe 250 was up 1.2% at 20,496.79, and the Cboe Small Companies up 0.4% at 14,981.10.

"The FTSE 100 was pausing for breath on Thursday having done its best to pick itself off the canvas after being felled by Covid and inflation concerns at the start of the week," said AJ Bell investment director Russ Mould.

After a battering on Monday over rises coronavirus cases from Asia to Europe, putting the global economic recovery at risk, fears calmed as the week progressed, resulting in a rally on Wednesday.

Stocks continued to push ahead on Thursday, but momentum had slowed from Wednesday's 1.7% surge for the FTSE 100.

However, some renewed impetus for markets could come from the European Central Bank.

AJ Bell's Mould said: "The market could be given some direction by the European Central Bank meeting later which may announce a shift in its plans as it looks to contend with mounting inflation."

The ECB's interest rate decision is due at 1245 BST, followed by a press conference with President Christine Lagarde at 1330 BST.

It comes hot on the feels of the ECB's strategy review a fortnight ago, where it revealed a new symmetric inflation target of 2%. This allows more room for inflation overshoots than the previous target of 'below, but close' to 2% did.

In mainland Europe, the CAC 40 in Paris and the DAX 30 in Frankfurt were both up 0.8% on Thursday.

The euro traded at USD1.1799 ahead of the ECB announcement, flat against USD1.1800 late Wednesday.

"The obvious danger is that the ECB council pushes back against overly dovish messages. Consensus GDP forecasts for eurozone growth have risen in the last 10 weeks from 4.1% for both 2021 and 2022, to 4.5% and 4.2%. There's more than enough Covid-related uncertainty to go around, but there are also inflation concerns that will linger," said Kit Juckes, strategist at Societe Generale.

In focus in New York will be another day of bumper corporate earnings, with results due to computer chip maker Intel, microblogging site Twitter, and American Airlines.

Ahead of this Wall Street is called for a higher start. The Dow Jones Industrial Average and S&P 500 both are pointed up 0.2% and the Nasdaq Composite up 0.1%.

The dollar was mixed on Thursday. Sterling was quoted at USD1.3758 midday Thursday, up from USD1.3684 at the London equities close on Wednesday. Against the yen, the dollar firmed to JPY110.30 versus JPY110.25.

With stocks advancing, safe-haven gold was quoted at USD1,796.12 an ounce midday Thursday, lower than USD1,805.13 on Wednesday. Brent oil was trading at USD72.97 a barrel, up against USD71.86 late Wednesday.

In London, Flutter was leading the charge in the FTSE 100, up 3.5% after Royal Bank of Canada raised the gambling stock to Outperform from Sector Perform. Peer Entain rose 3.4%.

Another company in the green was Royal Mail, rising 3.1% after Bernstein raised the postal operator to Outperform from Market Perform. Royal Mail on Wednesday fell 2.7% as it registered quarterly revenue growth but warned of "fluctuations" in volumes as lockdown restrictions start to ease.

On the other hand, Unilever was down 5.6%, the worst performer in the FTSE 100, after the firm saw cost inflation in the second quarter.

Unilever's underlying operating margin in the first half of 2021 slipped 100 basis points to 18.8% due to investment into its brands and input cost inflation. Revenue for the half edged up 0.3% to EUR25.79 billion from EUR25.71 billion, while pretax profit slipped 3.6% to EUR4.37 billion from EUR4.53 billion.

"Cost volatility and the timing of landing price actions create a higher than normal range of likely year end margin outcomes. We are managing this dynamically and expect to maintain underlying operating margin for 2021 around flat," said Chief Executive Alan Jope.

Edison director Sara Welford commented: "Despite the assurance that the company expects to maintain an approximately flat underlying operating margin for 2021, investors will keep a close eye on the impact that cost volatility and landing of price actions will have on year-end margin outcomes, particularly following the announcement of a 2% decrease in underlying earnings per share."

NatWest shares fell 1.1% after the UK government unveiled plans to sell part of its near 55% stake in the lender.

The Treasury currently owns 6.34 billion shares in the bank, via UK Government Investments, representing a 54.7% stake. It has entered into a trading plan managed by US investment bank Morgan Stanley to sell the shares.

The Treasury has, however, put a cap on how many shares Morgan can sell on any given day. The investment bank is limited to selling no more than 15% of NatWest's daily traded volume, in an attempt to avoid flooding the market with NatWest shares. As a result, the government is unable to say how many shares in total will be sold over the 12-month period.

Topping the FTSE 250 index was Morgan Sindall, up 12% as it guided annual results to be beat previous expectations following a strong first-half performance.

The construction and property regeneration group said all divisions have performed well. The six months ended June 30 are expected to show pretax profit around GBP53 million, more than tripled from GBP15.7 million a year prior and up 46% on 2019's pre-pandemic levels.

The Construction & Infrastructure division's margin and profit recorded growth in the half, while Fit Out continued its "high level" of performance.

"As a result, the group now anticipates that its full year results for 2021 will be significantly ahead of its previous expectations," said Morgan Sindall.

By Lucy Heming; lucyheming@alliancenews.com; with contribution from Amrit Sahota

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