LONDON MARKET MIDDAY: Stock gains despite fears of new virus lockdowns

(Alliance News) - Stock markets in Europe were brushing off worries about the reimposition of Covid-19 lockdowns around the continent.

"European markets have kicked off the week on a surprisingly positive footing, with the fears around a fresh bout of Covid restrictions serving to damage the euro more than stocks," Joshua Mahony, senior market analyst at IG, said.

The FTSE 100 index was up 13.80 points, or 0.2%, at 7,236.00 midday Monday.

The FTSE 250 index was up 10.72 points at 23,504.42. The London mid-cap index was being held back by a sell-off in shares of Hochschild Mining, after it warned of regulatory trouble in Peru.

The AIM All-Share index was down 4.87 points, or 0.4%, at 1,227.27.

The Cboe UK 100 index was up 0.2% at 717.41. The Cboe 250 was flat at 20,939.00, and the Cboe Small Companies was down 0.2% at 15,355.92.

In mainland Europe, the CAC 40 in Paris was up 0.2%, while the DAX 40 in Frankfurt was up 0.1% midday Monday.

The euro continued to slide at the start of the new week. It traded at USD1.1277 midday Monday, down sharply on USD1.1320 late Friday.

"Weekend protests turned violent in Europe this weekend, with Austria imposing a full lockdown and Belgium requiring people to work from home 4 days a week. Rising cases in Germany threaten to restrict economic activity in Europe’s largest economy, with their tourism commissioner warning that compulsory vaccinations appear 'unavoidable'. The apparent increased protection provided by a third jab does point towards a race to boost those most at risk segments of the population," IG's Mahony said.

"With the UK's having already provided a booster job to 22% of the population, the 6% rate seen across the EU does signal how the key to keeping a lid on cases could lie in that third top-up. Nonetheless, the risk of further lockdowns in the UK and further afield does point towards likely volatility for 'reopening' stocks as the 2020 pandemic winners hope to come back into fashion."

The FTSE 100 was higher thanks to strength among banks, miners and telecoms stocks, the latter sector helped by a private equity takeover approach for Milan-listed Telecom Italia.

BT Group was up 3.0% and Vodafone was 1.8% higher.

US investor Kohlberg Kravis Roberts is seeking to take over Italian telecommunications company TIM, formerly Telecom Italia, and has filed its interest in buying the business. KKR's interest is "non-binding and indicative", TIM said in a statement after an extraordinary board meeting on Sunday evening.

KKR seeks to take over 100% of TIM's shares then delist the group, and is offering EUR0.505 per share. Shares in TIM closed 3.6% higher at EUR0.35 on Friday, valuing the company at EUR7.55 billion. The stock was up another 28% in Milan on Monday to EUR0.44.

Barclays was up 1.8%, HSBC up 1.2%, Lloyds up 1.1%.

Among London midcaps, Hochschild Mining sunk 33%, rebounding from its more than 50% drop at the open Monday. The miner warned of a regulatory threat to its mines in Peru.

The Peruvian government may close two of its three running mines, one of which is its largest in terms of ounces and has represented near three quarters of its cashflow.

Hochschild said it had become aware that the Peruvian head of Cabinet is potentially looking to close some mining projects in southern Ayacucho, including Hochschild's Pallancata and Inmaculada mines, due to "alleged environmental complaints".

"The company has not received any formal communication from the government regarding this matter," the miner said. It learnt through various media outlets of the minutes of the meeting, which say that a commission has been constituted to negotiate the closure of mines. The head of Cabinet subsequently indicated that approvals will no longer be granted for additional mining or exploration activities, Hochschild said.

"The company believes this conduct by the Peruvian head of Cabinet is not in accordance with Peruvian law and is wholly without merit," it said. "Accordingly, Hochschild will vigorously defend its position and take all action necessary to ensure that the rights of the company and its wholly-owned subsidiaries under Peruvian and international law are respected."

Diploma added 6.0%. It reiterated its full-year guidance for next year after posting a strong annual profit rise, driven by organic growth initiatives and better demand.

For the financial year that ended September 30, the seal and cables maker reported that pretax profit jumped 45% to GBP96.6 million from GBP66.7 million the year before. Revenue increased 46% to GBP787.4 million from GBP538.4 million. The contribution from recent acquisition Windy City Wire was hailed by Diploma for improving results.

Chief Executive Johnny Thomson said: "We have delivered strong results, including underlying growth and margin well ahead of our financial model. We have made significant strategic progress, including a record year for acquisitions, as we continue to develop high-quality scalable businesses for organic growth."

Diploma declared an annual dividend of 42.6 pence, up 42% from 30.0p the year before.

Diploma reaffirmed its previous guidance for financial year 2022, expecting revenue growth of around 10% including mid-single digit underlying revenue growth and a margin between 18% and 19%.

On AIM, Frontier Developments shares tumbled as the video games developer cautioned that early PC sales of an eagerly anticipated video game disappointed.

Sales of Jurassic World Evolution 2 on the PC platform "have been lower than expected" over the initial period following its release.

"We believe this is potentially a short-term effect from a more crowded release window than expected, with a number of other highly anticipated titles launching in the same window. Simultaneous release on PlayStation and Xbox consoles of both digital and physical versions went ahead smoothly, and console sales numbers are largely as expected," Frontier Developments said.

The title will be its largest revenue contributor for the financial year ending May 31, Frontier said.

Elsewhere, sales of Elite Dangerous: Odyssey "have been more muted".

Due to slower PC sales of Jurassic World Evolution 2 and the "underperformance" of Elite Dangerous: Odyssey, Frontier Developments lowered its full-year revenue guidance to between GBP100 million and GBP130 million from between GBP130 million and GBP150 million. Revenue in the previous financial year amounted to GBP90.7 million.

Sterling was quoted at USD1.3445 midday Monday, lower than USD1.3460 at the London equities close on Friday. Against the yen, the dollar rose to JPY114.21 versus JPY113.86.

Wall Street futures were pointed to open higher at the start of a holiday-shortened week. The Dow Jones was called up 0.5% and the S&P 500 up 0.4%, while the tech-heavy Nasdaq Composite was seen 0.9% higher, as investors rushed back to lockdown-beneficiary tech stocks.

AvaTrade's Naeem Aslam said: "The potential rally in stocks this week would likely set the stage for the year-end Christmas rally. Stock markets performed well last week with the S&P 500 rising 0.3% and Nasdaq climbing 1.2% because of strength seen in retail data and earnings reports of established retailers. However, the biggest event of the week will likely be President Biden's nomination for the Federal Reserve's next chair."

The New York market is closed on Thursday for the Thanksgiving Day holiday and open for a half day on Friday.

Gold was quoted at USD1,840.00 an ounce early Monday, lower than USD1,859.72 on Friday. Brent oil was trading at USD79.07 a barrel, broadly flat from USD79.05 late Friday.

By Paul McGowan; paulmcgowan@alliancenews.com

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