LONDON MARKET MIDDAY: Further Gains On Upbeat US-China Trade Sentiment

(Alliance News) - Further positive newsflow around relations between the US and China caused the FTSE 100 to trade in the green for a second consecutive session, with the start of this year's Santa Rally already being eyed.

The FTSE 100 was 20.58 points higher, or 0.3%, at 7,390.27 Tuesday midday. The FTSE 250 was down 13.15 points, or 0.1%, at 20,236.57, and the AIM All-Share was down 0.1% at 888.76.

The Cboe UK 100 index was up 0.4% at 12,528.72. The Cboe UK 250 was flat at 18,151.64 and the Cboe UK Small Companies was 0.1% lower at 11,238.27.

In European equities, the CAC 40 index in Paris was up 0.2% and the DAX 30 in Frankfurt up 1.1% in early afternoon trade.

"European stocks are slightly in the green again on Tuesday as the positive trade headlines continue to flow and investors prepare for a bumper festive season," said Craig Erlam at Oanda.

In addition, stocks in the US are pointed to a higher open, with the Dow Jones and S&P 500 both seen 0.3% higher and the Nasdaq called up 0.4%.

"Overnight reports that the US is preparing to offer to remove USD112 billion of Chinese tariffs in order to get a deal over the line on phase one, a clear sign that Trump is keen to get a win after years of talk...it's a massive win and further alleviates recession fears that gripped the markets earlier this year," said Erlam. "If the two sides can get this deal over the line in the coming weeks, the Santa rally may well come early this year."

London-listed miners extended gains on hopes of progress between the US and China, with Glencore up 2.6%, Antofagasta up 2.3% and BHP Group 1.8% higher.

Also helping to push the FTSE 100 higher on Tuesday was Associated British Foods, up 4.5%.

"The key takeaway from the full year results concerns the margin guidance for Primark in 2020 which was materially better than feared," commented Russ Mould, investment director at AJ Bell.

For the year ended September 14, pretax profit fell 8.6% to GBP1.17 billion from GBP1.28 billion the year prior. This was despite revenue rising 1.6% to GBP15.82 billion from GBP15.57 billion the year before.

Adjusted pretax profit came in at GBP1.41 billion, up 2% year-on-year.

Primark sales were up 4.2% at actual exchange rates and 4.1% ahead at constant currency, driven by an increase in selling space, which was partially offset by a 2.0% like-for-like decline in sales. The low-cost fashion chain's operating margin increased to 11.7% from 11.3%, leading adjusted operating profit to grow 8% to GBP913 million.

Looking ahead, AB Foods said: "The sterling exchange rate is currently very volatile but, at current exchange rates, we now expect margin in the second half to be in line with the same period this year and margin for the full year to be only a small reduction on that achieved this year."

In the FTSE 250, John Wood Group rose 3.3% after Goldman Sachs raised the oilfield services firm to Neutral from Sell.

Engineering firm Weir was up 2.2% after reporting a rise in third quarter sales.

Orders from continuing operations in the quarter ended September 30 rose by 4% from last year, though Weir added they were flat on a like-for-like basis. In the Oil & Gas division, orders were 32% lower year-on-year, with the FTSE 250 firm attributing this to a tough market conditions in North America.

Defence firm Babcock International slipped 3.1% after Barclays started the stock with an Underweight rating.

To come in the economic calendar on Tuesday, there is a US Markit services PMI at 1445 GMT following by an ISM non-manufacturing PMI at 1500 GMT.

Released this morning, data showed the all-important UK services sector stagnated in October.

The seasonally adjusted IHS Markit/CIPS UK Services purchasing managers' index ticked up to 50.0 in October, from September's reading of 49.5. Any reading below 50 indicates contraction, while one above expansion, so October's reading suggests no change at all.

New work has declined seven times in the first 10 months of 2019, and the rate of contraction in the latest period was "the fastest since April, but modest overall". Firms linked lower new work to Brexit uncertainty, said IHS Markit.

"With this data being released just over 48 hours before the Bank of England’s rate decision it takes on a greater significance and while it is highly unlikely to lead to any change to interest rates it will no doubt play on the mind of rate-setters during their policy discussions," said David Cheetham at XTB.

Meanwhile, eurozone producer prices modestly rebounded in September as the energy sector saw prices recover from a steep fall in the month prior.

The producer prices index from Eurostat on Tuesday showed prices in the euro area - composed of the 18 countries using the euro currency - rose 0.1% in September on the month prior. Eurostat explained the energy sector experienced a 0.5% rise in prices in September compared to the month prior. In August, energy prices had fallen by 1.9% month-on-month.

By Lucy Heming; lucyheming@alliancenews.com

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