LONDON MARKET MIDDAY: Pound weakness props up FTSE 100 as oil fades

(Alliance News) - The FTSE 100 remained in the green on Tuesday at midday on account of a weaker pound, but gains ebbed as oil prices retreated from morning highs.

The FTSE 100 index was up 9.43 points, or 0.1%, at 7,436.74 on Tuesday. The mid-cap FTSE 250 index was up 135.37 points, or 0.7%, at 19,305.09. The AIM All-Share index was down 1.2 points, or 0.1%, at 895.58.

The Cboe UK 100 index was up 0.2% at 742.94. The Cboe 250 was up 0.8% at 16,573.70 and the Cboe Small Companies flat at 14,025.50.

Sterling was quoted at USD1.1727 on Tuesday, lower than USD1.1764 at the London equities close on Friday.

"A weak pound is typically good news for a FTSE 100 index which is heavily dominated by overseas earners," explained AJ Bell investment director Russ Mould. Sales denominated in dollars will be worth more when translated into sterling, for example.

Lenders also were advancing on the prospect of a higher interest rates globally, after hawkish remarks from the head of the US central bank on Friday. Barclays was towards the top of the FTSE 100, up 3.4%, while Standard Chartered rose 3.2% and HSBC gained 2.7%.

Dechra Pharmaceuticals rose 3.6% after buying California-based veterinary pharmaceutical manufacturer Med-Pharmex for USD260.0 million. Med-Pharmex has been a "long-term acquisition target", it said, and will bolster Dechra's operations in the US.

This was all helping to counter a decline for Bunzl, the stock sitting at the bottom of the list of London blue-chips. Shares were down 5.8% at midday.

This was despite the distribution firm reporting that pretax profit in the six months to June 30 grew 7.6% to GBP296.6 million from GBP275.7 million.

Inflation was "somewhat supportive" to margins, Bunzl said, though the reduction of Covid-19 sales meant they still narrowed to 7.3% from 7.5%. Still, Bunzl now expects its full-year operating margin to be higher than historical levels and only slightly below 2021.

Retailers were another group advancing in London, supported by the dangled possibility of a VAT cut.

Tory leadership hopeful Liz Truss's team over the weekend said she is leaning towards targeted support over help-for-all, amid the cost-of-living crisis in the UK, but maintained she is not "ruling anything out", while it was also reported she is considering slashing VAT by five percentage points across the board.

The UK VAT rate currently is 20%. It was raised to that level from 17.5% back in 2011.

Shares in JD Sports rose 3.3%. FTSE 250-listed Asos was up 4.2%. Made.com added 9.1%.

However, one retailer struggling on Tuesday was Joules, down 8.1%. The retailer insisted it continues in "positive" discussions with Next over a possible investment, despite Sky News on Sunday reporting that talks had stalled.

Citing "City sources", Sky News said the two companies are not close to agreeing the terms of an investment from Next, and the FTSE 100-listed retailer had not received enough financial information to allow it to make a formal offer to the Joules board.

There were also doubts that Next would want to proceed with a deal at 33p per share or more given Joules shares closed at 25.5p on Friday, Sky said. The stock has fallen 82% since the start of 2022, and shares had closed at 33p the day before the companies confirmed they were in talks over the potential equity investment.

Joules on Monday said: "There can be no certainty that these discussions will lead to any agreement, and further announcements in this regard will be made if and when appropriate."

Next was up 2.8%.

In mainland Europe, the CAC 40 in Paris was up 1.2%, while the DAX 40 in Frankfurt was up 1.9% on Tuesday. The two were rebounding after sharp losses across Friday and Monday.

In New York, stocks were set to rebound after Fed-driven losses. Federal Reserve Chair Jerome Powell said Friday that taming US inflation will inflict "pain" on American families and businesses, but failure to wrestle prices down from their current 40-year high would be even more harmful.

This sparked a sell-off across Friday and Monday, but the mood has recovered on Tuesday. The Dow Jones was called up 0.7%, the S&P 500 up 0.9%, and the Nasdaq Composite up 1.2%.

However, Swiss bank UBS issued a note of caution: "We noted that investors had started to underestimate the willingness of central banks to tighten policy at current rates of inflation. The market's reaction to Powell's comments is consistent with this observation...With rates likely to stay higher for longer, our base case is for further volatility, earnings downgrades, and higher-than-expected default rates over the course of the next year."

The euro traded at USD1.0031, up against USD0.9997 late Friday. The single currency was finding some support after the European Central Bank's chief economist said it should continue to raise interest rates at a "steady pace".

Lifting interest rates in increments that were "neither too slow nor too fast" was important due to the "high uncertainty" around future inflation, as the war in Ukraine and rocketing energy prices shake the eurozone, ECB Chief Economist Philip Lane said in a speech in Barcelona.

Influential ECB board member Isabel Schnabel called for policymakers to show "determination" in the fight against inflation in a speech at the annual central banking symposium in Jackson Hole last week.

The ECB unveils its latest interest rate decision on Thursday next week.

Against the yen, the dollar was quoted at JPY138.31, up from JPY137.31.

Gold was quoted at USD1,734.81 an ounce, lower than USD1,736.54 on Friday. Brent oil was trading at USD102.46 a barrel, up from USD99.59 late Friday but off a morning high above USD105 a barrel.

To come in Tuesday's economic calendar is German inflation at 1300 BST.

By Lucy Heming; lucyheming@alliancenews.com

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