LONDON MARKET MIDDAY: Mood Recovers From Post-Fed Rate Cut Shakiness

(Alliance News) - The mood appeared to have steadied by midday on Wednesday, with European stocks posting gains and US futures pointing higher after being rattled by a surprise interest rate cut from the Federal Reserve.

The FTSE 100 index was up 104.50 points, or 1.6%, at 6,822.70 on Wednesday. The mid-cap FTSE 250 index was up 154.10 points, or 0.8%, at 19,836.75. The AIM All-Share index was up 0.5% at 887.25.

The Cboe UK 100 index was up 1.7% at 11,546.07. The Cboe 250 was up 0.6% at 17,745.82, and the Cboe Small Companies up 0.7% at 11,630.40.

In mainland Europe, the CAC 40 in Paris and the DAX 30 in Frankfurt were both up 1.2% in early afternoon trade, having started the session lower.

"Market sentiment certainly seems to have stabilised after a historic US session which saw the role of monetary policy undermined as traders sold into an extraordinary bout of easing from the Fed," said Joshua Mahony, senior market analyst at IG.

"The US economy is actually yet to feel a significant economic impact from this virus, and thus the decision to take such drastic action provided markets with a warning of exactly how big this threat is," said Mahony.

The Fed slashed interest rates by 50 basis points on Tuesday, noting that coronavirus "poses evolving risks to economic activity".

The Fed cut the federal funds rate to 1.00% to 1.25%, having stood at 1.50% to 1.75% previously. The move saw Wall Street tumble, with the Dow Jones closing down 2.9%, while European stocks closed off their highs.

To come on Wednesday is an interest rate decision from the Bank of Canada, at 1500 GMT, with analysts expecting a rate cut.

Wall Street is on course for a higher start on Wednesday following the post-rate cut slump. The Dow Jones was pointed up 2.1%, S&P up 2.0% and Nasdaq up 2.1%.

US futures were helped as a resurgent Joe Biden seized the momentum in the race to become the Democratic challenger to President Donald Trump with a string of Super Tuesday victories.

Sanders, a 78-year-old leftist, had been the clear leader and was looking for a knock-out blow on the most consequential voting day on the primary calendar. Instead, the results signalled a remarkable comeback for moderate Biden.

Just one week ago the 77-year-old senior statesman saw his campaign teeter on the edge of collapse. Now he is vying once again for frontrunner status.

"Market wisdom is that Mr Biden would fare better against President Trump than Mr Sanders would, while Mr Sanders' policies are potentially more harmful for financial markets. Either way though, if the Democrat contest is now a two-horse race, markets are likely to think more carefully about the possible outcomes looking forwards," said Kit Juckes at Societe Generale.

In the US economic calendar on Wednesday is an IHS Markit services PMI at 1445 GMT followed by the ISM's non-manufacturing report at 1500 GMT. Before both of these is US ADP employment change, at 1330 GMT.

In the UK, the services sector recorded another month of solid growth, though at a slightly slower pace than that seen in January amid the coronavirus outbreak.

The IHS Markit/Chartered Institute of Procurement & Supply services business activity index registered 53.2 in February, well above the no-change mark of 50 but slower than 53.9 in January. The latest reading was the second-highest since September 2018.

"The main headwind to growth cited by service providers was the impact of the coronavirus outbreak, through cancellations of bookings and delays to new projects among clients in Asia," IHS Markit commented.

The composite output index - a weighted average of the manufacturing and services indices - fell to 53.0 in February from January's 16-month high of 53.3.

The pound was quoted at USD1.2796 on Wednesday after the data, down compared to USD1.2809 at the close on Tuesday.

The euro stood at USD1.1148 on Wednesday, down from USD1.1173 at the same time on Tuesday. Against the yen, the dollar was trading at JPY107.47, higher compared to JPY107.33 late Tuesday.

Brent oil was quoted at USD52.32 a barrel, flat on USD52.37 late Tuesday. Gold was quoted at USD1,643.50 an ounce, up from USD1,636.30.

In London, DS Smith topped the FTSE 100 after saying trading has continued to "progress well".

Like-for-like corrugated box volume growth has increased during the second half of its financial year, with good performances in Iberia, eastern Europe and the UK. The domestic US business remains "robust", though lower US paper export prices are ongoing amid reduced demand from China.

"The group has delivered a robust performance during the period within a challenging macro-economic environment. Whilst we continue to monitor events and work closely with all our suppliers and customers, we have not to date seen any material impact to our business from coronavirus," said Chief Executive Miles Roberts.

The packaging firm was up 4.3% at midday. Peer Smurfit Kappa was up 2.8%, with Mondi up 2.4%.

Rio Tinto was also among the blue-chip risers, up 3.2% after Societe Generale raised the miner to Buy from Hold.

In the FTSE 250, Hill & Smith was up 5.4% as it attributed an increase in 2019 earnings to "strong progress" in UK and US markets.

The company, which designs, manufactures and supplies products for the construction industry, reported pretax profit of GBP61.8 million on revenue of GBP694.7 million. In 2018, it posted pretax profit of GBP59.8 million on revenue of GBP637.9 million.

Wizz Air rose 4.1% after saying it has implemented measures "to address the financial implications of Covid-19".

The outbreak of Covid-19, a form of coronavirus which originated in China, has reduced air travel demand in Europe in March, especially in areas most affected by the virus. Consequently, Wizz Air said it has adjusted its flight schedule from March 11 to April 2, predominantly to destinations in Italy.

Measures taken so far to address Covid-19's "financial implications" have included cutting overhead and discretionary spending significantly, as well as leveraging staff across its network so as to pause recruitment along with "non-essential travel".

Elsewhere in London, intu Properties slumped 28% as it warned that it has not been able to launch a fundraise.

The retail property owner said it has been in talks with new and existing investors for "several months" about the possibility of an equity raise between GBP1 billion and GBP1.5 billion.

It said: "While a number of intu's shareholders and potential new investors indicated their support for an equity raise, the board believes the current uncertainty in the equity markets and retail property investment markets precluded a number of potential investors from committing capital into the business, and intu was therefore unable to reach the target quantum at the current time."

Alongside the funding update, intu said its EPRA net asset value stood at just 147p at the end of 2019, half the 293p reported at the end of 2018.

Sirius Minerals gained 17% as its rescue deal got approved by shareholders.

Following a tense investor meeting in London on Tuesday morning, the stock markets closed with shareholders remaining in the dark over the result.

The vote, meeting and long wait came after Sirius failed to raise the funds it needed for a fertiliser mine, forcing the board to recommend the GBP405 million rescue package from Anglo American. Announcing the result, Sirius said the resolutions had been passed "by the requisite majorities".

Anglo American shares were up 2.1%.

By Lucy Heming; lucyheming@alliancenews.com

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