LONDON MARKET MIDDAY: Risk-On Ahead Of Yellen Hearing, US Bank Results

(Alliance News) - Equities in London were in the green at midday on Tuesday ahead of incoming US Treasury secretary Janet Yellen's hearing, with investors also looking towards another load of bank earnings prior to the New York open.

The FTSE 100 index was up 16.82 points, or 0.3%, at 6,737.47 on Tuesday. The mid-cap FTSE 250 index was up 51.41 points, or 0.3%, at 20,690.75. The All-Share index was slightly higher at 1,174.73.

The Cboe UK 100 index was up 0.2% at 670.59. The Cboe 250 was up 0.5% at 18,033.39, and the Cboe Small Companies up 0.1% at 12,320.68.

In mainland Europe, the CAC 40 in Paris was up 0.1%, while the DAX 30 in Frankfurt was trading 0.4% higher in the afternoon.

"It's green across the board in both FX and equity markets today with mood clearly tilted to risk-on ahead of Janet Yellen's confirmation hearings on Capitol Hill," said BK Asset Management. "Yellen who returns to government as Treasury Secretary after a stint as Fed chief is expected to have a very smooth confirmation hearing in which she is likely to encourage lawmakers to pass the proposed package given the low level of interest rates."

Ahead of US President-Elect Joe Biden's inauguration on Wednesday, markets will be watching Yellen's hearing, where the former Federal Reserve chief is expected to tell lawmakers the world's top economy could suffer if they do not approve a big spending plan.

"Economists don't always agree, but I think there is a consensus now: without further action, we risk a longer, more painful recession now – and long-term scarring of the economy later," she was expected to say, the Wall Street Journal reported.

"Over the next few months, we are going to need more aid to distribute the vaccine; to reopen schools; to help states keep firefighters and teachers on the job."

Yellen's hearing will come after Biden last week proposed a bumper USD1.9 trillion stimulus package to revive the US economy. However, his plan has been marred by concerns that it will be watered down as it goes through Congress.

Wall Street is on course for a higher start after Monday's Martin Luther King Jr Day holiday. The Dow Jones is called up 0.6%, the S&P 500 up 0.8% and the Nasdaq up 1.0%.

After an underwhelming start to earnings season on Friday - with JPMorgan's chief executive cautious on the outlook and Wells Fargo missing revenue expectations - Goldman Sachs and Bank of America report before the bell on Tuesday.

BofA reported a 21% annual decline in fourth-quarter net income and 34% decline in net income for all of 2020. More positively, it said it will return USD4.8 billion to shareholders in the first quarter of this year.

Video streaming giant Netflix will report after the New York close.

Amid's Tuesday's buoyant mood ahead of Yellen's appearance, the US dollar was on the back foot.

Sterling was quoted at USD1.3613 midday Tuesday, higher than USD1.3570 at the London equities close on Monday. The euro traded at USD1.2129, up from USD1.2075 late Monday.

The safe-haven Japanese yen, however, fell against the dollar. Against the yen, the dollar was quoted at JPY104.00 versus JPY103.70.

Gold was trading at USD1,844.53 an ounce on Tuesday, rising from USD1,836.71 on Monday amid the weaker dollar. Brent oil was priced at USD55.52 a barrel, up on USD54.90.

In London, AO World shares were slumped 6.6%. The FTSE 250-listed online electrical retailer boasted a record peak trading period, though added it has incurred higher costs as well, due to the "operational challenges" of working in a Covid-secure environment.

In the three months ended December 31, its third-quarter, AO's UK revenue rose 67% to GBP457.3 million, with Germany revenue jumping 77% to EUR73.6 million.

"The significant increase in demand for AO's products and services since the start of the pandemic has continued throughout our third quarter as we experienced our strongest ever peak trading period over the Black Friday period and in the run up to Christmas," AO added.

However, AO said it has seen costs rise "significantly" due to "some of the operational challenges of working in a Covid compliant environment". The company has also seen higher rates of cancellation of long-term mobile contracts and warranties, it added.

Russ Mould at AJ Bell commented: "A key question for investors to weigh is the extent to which these costs and benefits are a one-off. Will the structural changes accelerated by the pandemic continue to support growing market share for the business? Or will shoppers decide they'll 'AO let's go' somewhere else once we have returned to a measure of a normality?"

Premier Foods was down 3.6% despite posting sales growth for its third quarter.

The Kipling cake brand owner said total sales for the 13 weeks ended December 26 were up 9.0% at GBP285.8 million from GBP262.2 million a year before. This included a 12% increase in Branded sales to GP231.5 million but a 2.7% drop in Non-Branded sales to GBP54.3 million.

For its 2021 financial year as a whole, Premier Foods now expects to post a trading profit in the GBP145 million to GBP150 million range, up as much as 13% from GBP132.6 million in financial 2020.

In the FTSE 100, Glencore rose 1.1% as subsidiary Carlisa Investments agreed to sell its 90% interest in Mopani Copper Mines to ZCCM Investments for a nominal sum of USD1, as well as transaction debt of USD1.5 billion.

The Swiss commodities trader owns an 81% stake in Carlisa, which in turn holds a 90% interest in Mopani, which operates the Mopani copper mine in Zambia. ZCCM - a mining and energy investment holding company - holds the remaining 10% interest in Mopani. This means that Glencore will be selling an underlying stake of 73% in Mopani.

Elsewhere in London, Superdry shares sank 16%. The clothing retailer's loss widened as lockdowns hit trading.

For the 26 weeks ended October 24, Superdry reported a pretax loss of GBP18.9 million, widened from GBP4.2 million the same period the year before. This was on revenue that declined by 23% year-on-year to GBP282.7 million from GBP369.1 million, as 23% of owned-store trading days were lost due to lockdown restrictions. What's more, footfall was crippled by social distancing rules even when open.

Trading has continued to be tough in the third quarter to date, with 38% of store days lost due to further lockdowns in the 11 week period ended January 9, leading to a 27% revenue decline.

By Lucy Heming; lucyheming@alliancenews.com

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