LONDON MARKET MIDDAY: FTSE Surges On US Fed, Infrastructure Spend Hope

(Alliance News) - The mood turned positive on Tuesday and the FTSE 100 bounced 150 points after further economic stimulus by the US Federal Reserve and a report of a USD1 trillion infrastructure investment plan by the Trump administration.

This lifted London stocks exposed to the construction and infrastructure sector in the US. Among them, equipment rental firm Ashtead also was boosted by its full-year results.

The FTSE 100 index was up 152.91 points, or 2.5%, at 6,217.61. The FTSE 250 was up 506.88 points, or 3.0%, at 17,596.05, and the AIM All-Share was up 1.7% at 877.87.

The Cboe UK 100 was up 2.5% at 10,521.62, the Cboe UK 250 was up 3.2% at 15,161.3, and the Cboe Small Companies up 1.7% at 9,814.26.

In European equities on Tuesday, the CAC 40 in Paris was up 2.4%, while the DAX 30 in Frankfurt was 2.9% higher.

Wall Street was called for a bright start as the mood picked up on Tuesday. The Dow Jones was called up 1.7%, the S&P 500 up 1.2% and the Nasdaq Composite up 1.1%.

"This bullish trading stance took hold during yesterday's US session when both the Fed and Washington tried to reassure investors against rising virus numbers. While the Fed will start buying corporate bonds on Tuesday, Washington unveiled a USD1 trillion infrastructure spending plan, aiming to provide further support to the economy, which gave an immediate boost to market sentiment," said Pierre Veyret, technical analyst at ActivTrades.

The US Federal Reserve will start purchasing individual corporate debt instruments, in a bid to ensure liquidity for loans to the private sector, in the latest market intervention by the central bank since the coronavirus pandemic shook the country.

The Fed said it "will begin buying a broad and diversified portfolio of corporate bonds to support market liquidity and the availability of credit for large employers".

The US central bank has been buying up private sector bond index funds since March, but the latest announcement means it will move to buying individual bonds if company's meet certain criteria, including on ratings and maturities.

Meanwhile, the Trump administration is preparing a nearly USD1 trillion infrastructure proposal as part of its push to restart the world's largest economy, Bloomberg reported.

A preliminary version being prepared by the US Department of Transportation would reserve most of the money for traditional infrastructure work, such as roads and bridges, the news service said. The proposals also would set aside funds for 5G wireless infrastructure and rural broadband, according to Bloomberg, which cited people familiar with the matter.

London-listed construction and infrastructure stocks were boosted by the news. Ashtead was up 8.7%, CRH up 7.2% and Ferguson up 5.2%.

In addition, Ashtead increased its total dividend for financial 2020, as it expressed confidence in the strength of its balance sheet despite the market turmoil caused by Covid-19.

For the year to the end of April, the equipment rental firm recorded a 7% drop in pretax profit to GBP982.8 million from GBP1.06 billion the year before. This was due to a rise in total operating costs to GBP2.68 billion from GBP2.39 billion as well as an increase in depreciation to GBP1.09 billion from GBP843.0 million.

Earnings before interest, taxes, depreciation and amortisation increased by 5% to GBP2.38 billion from GBP2.11 billion the prior year. This was on total revenue that increased by 9% to GBP5.05 billion from GBP4.50 billion.

Ashtead declared a final dividend of 33.5p per share, bringing its total payout for financial 2020 to 40.65p, up 1.6% from 40.0p the year before.

"Tool hire business Ashtead doesn't want to give up its proud dividend record without a fight. Having increased the pay-out every year out of the last 15, including through the global financial crisis, perhaps we shouldn't be surprised by its decision to do so again in the face of a global pandemic...Ashtead's ability to sustain dividend growth in the future may have received a further boost overnight with reports of a big new package of infrastructure spending in the US – its core market," said Russ Mould, investment director at AJ Bell.

The dollar was soft on Tuesday amid the risk-on mood. The euro was quoted at USD1.1344 on Tuesday, up from USD1.1266 at the London equities close Monday.

The pound was quoted at USD1.2661 midday, up from USD1.2554, after the UK unemployment rate held steady in April.

The jobless rate was stable at 3.9% in the three months to April, the Office for National Statistics said. The figure beat the market consensus forecast, cited by FXStreet, for a rise to 4.5%.

However, UK workers on company payrolls slumped by more than 600,000 between March and May, and unemployment claims soared by 1.6 million as the coronavirus lockdown hammered Britain's labour market.

Against the yen, the dollar was trading at JPY107.38 in London, flat from JPY107.40 late Monday.

Brent oil was at USD40.32 a barrel Tuesday, up from USD39.04 at the London close Monday. Gold was priced at USD1,731.13 an ounce, higher than USD1,720.80.

To come in Tuesday's economic calendar, there are US retail sales figures at 1330 BST, while Federal Reserve Chair Jerome Powell testifies to Congress at 1500 BST.

Back in London, Capita rose 11% as it won a seven-year contract worth EUR67 million in total from Irish Water for the transformation and operation of its customer contact centre services.

The contract is worth EUR10 million a year over five years. Irish Water also has an option to extend the contract for a further two years, worth an additional EUR17 million over years six and seven. Under the contract, London-based Capita will transform customer management support services for Irish Water's customers with a range of new software and digital capabilities.

4imprint rose 9.8%. It reported a steady rise in weekly order counts as lockdown restrictions in the US began to ease throughout May and early June.

In April, the FTSE 250 marketing company said the spread of Covid-19 had led to order counts falling to 20% of the prior year's level. Now the weekly order counts are reaching 50% of the number reported for the year before.

4imprint said its balance sheet remains strong, following actions taken to conserve cash, including significantly decreased marketing investment. As at the end of May, 4imprint had cash balances of USD28.1 million, and no debt. In addition, the company has a working capital facility of USD20 million.

RPS was up 17%. The professional services firm said it continues to take steps to save cash, as its fee revenue for April and May declined in line with expectations.

As at May 29, net bank borrowings were GBP77.2 million, down from GBP105.2 million as at May 31, 2019, and from GBP102.8 million as at March 31, 2020, as part of the company's attempt to contain the cash impact.

Other steps taken by RPS to preserve cash include cancelling the 2019 final dividend and deferring 2020 salary increases.

For April and May, fee revenue declined by 17% year-on-year on a constant currency basis. However, 50% of revenue is derived from government work, which continues to provide some resilience, RPS said.

By Lucy Heming; lucyheming@alliancenews.com

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