LONDON MARKET MIDDAY: Stocks gain ahead of make-or-break US CPI print

(Alliance News) - Cheer over the path of economic recovery in Europe was helping to buoy stocks on Wednesday, but traders are braced for US inflation data out shortly that has the potential to derail the day's rebound.

The FTSE 100 index was up 60.19 points, or 0.9%, at 7,008.18 midday Wednesday after a 2.5% slump on Tuesday.

The mid-cap FTSE 250 index was up 107.51 points, or 0.5%, at 22,274.65. The AIM All-Share index was up 0.3% at 1,238.78.

The Cboe UK 100 index was up 1.0% at 698.96. The Cboe 250 was up 0.5% at 20,052.64, and the Cboe Small Companies up 0.5% at 15,044.34.

In mainland Europe, the CAC 40 in Paris was up 0.1% and the DAX 30 in Frankfurt up 0.3%.

Indications of economic recovery were helping stocks rebound on Wednesday, said Oanda market analyst Sophie Griffiths.

In the UK, data showed that the economy shrank at the start of 2021 - but exited the first quarter of the year with encouraging momentum.

Gross domestic product is estimated to have contracted 1.5% in the quarter to March on a sequential basis, reversing 1.3% growth in the final quarter of 2020. However, Wednesday's figure was better than consensus, according to FXStreet, of a 1.6% fall.

The UK economy is now 8.7% smaller than its pre-pandemic size, the statistical body added.

Positively, though, the UK economy is estimated to have grown 2.1% in March, the fastest monthly pace since August 2020 as lockdown measures started to ease.

"With a further reopening step now formally approved for Monday, we think GDP growth could come in just shy of 5% in the second quarter," commented James Smith, an economist at ING.

There was also cause for optimism over the eurozone's economic recovery, with the EU sharply revising up its growth forecasts for this year and next.

According to the European Commission, growth in the 19 countries that use the euro currency will hit 4.3% in 2021 and 4.4% in 2022, compared with 3.8% for these years in its previous estimate given in February. For the full 27 members of the EU, the commission said the economy will expand by 4.2% in 2021 and by 4.4% in 2022.

The pickup in growth confirms forecasts by the IMF and other data that showed a sudden increase in manufacturing and greatly improved confidence by consumers who see a happy end to the long winter of Covid-related restrictions.

Sterling was quoted at USD1.4138 midday Wednesday, soft on USD1.4150 at the London equities close on Tuesday, and the euro traded at USD1.2136, falling from USD1.2165.

Against the yen, the dollar rose to JPY108.72 from JPY108.50.

Gold was quoted at USD1,834.84 an ounce on Wednesday, up on USD1,829.77 on Tuesday.

Brent oil was trading at USD69.22 a barrel, up from USD68.08 late Tuesday as fears the shutdown of a major fuel pipeline network would cause a gasoline shortage led to some panic buying. This prompted US regulators on Tuesday to temporarily suspend clean fuel requirements in three eastern states and the nation's capital.

While European stocks were trading higher on Wednesday, the US consumer price index for April, due at 1330 BST, could put the rebound under pressure.

"The next move for the markets could be determined by US inflation figures out this afternoon. If these come in ahead of expectations then investors may need to prepare themselves for more pain but a lower than forecast reading could help calm tensions over rising prices," said AJ Bell investment director Russ Mould.

The US annual inflation rate is expected to tick up sharply to 3.6% in April, according to FXStreet, from 2.6% in March. However, the month-on-month rate is set to ease to 0.2% from 0.6%.

Wall Street was pointed for another session of losses as traders brace for the inflation print. The Dow Jones was called down 0.3%, the S&P 500 down 0.4% and the tech-heavy Nasdaq Composite down 0.6%.

Leading the FTSE 100 higher was Diageo, shares rising 4.0% after the drinks firm reported strong trading and a restart of its share buyback programme.

The brewer of Guinness and distiller of Johnnie Walker said its performance in North America has remained "particularly strong", while Europe has benefited from robust off-trade sales. Diageo said it now expects organic operating profit growth to be at least 14% in the current financial year, which ended June 30, slightly ahead of organic net sales growth.

As a result of its trading performance, Diageo said it will restart the return-of-capital programme of up to GBP4.5 billion to shareholders that was first announced back in July 2019 but suspended in April 2020. It is initiating the second phase of the programme of up to GBP1.0 billion to be completed by the end of the 2022 financial year. As such, it has entered into an agreement with UBS to buyback shares worth up to GBP500 million until November 12. The programme completion date was extended by two years to June 2024.

In second place in the blue-chip index was Spirax-Sarco Engineering, up 3.4% after a better-than-expected performance at the start of the year.

The Cheltenham-based company, which makes engineering equipment, said organic sales growth beat the 7.4% year-on-year rise in global industrial production in the first four months of 2021. Global industrial production itself was better than Spirax-Sarco had predicted as the economy recovered faster than expected.

The company now expects full-year organic sales growth from most of its businesses to be above the 8.5% forecast rise in global industrial production. It had previously guided for sales growth of around 7%. In 2020, Spirax-Sarco reported revenue of GBP1.19 billion.

Glencore shares rose 2.3% after Bank of America raised the miner and commodities trader to Buy from Neutral.

At the top of the mid-cap FTSE 250 was UDG Healthcare, jumping 21% to 1,020 pence after agreeing to be taken over in a deal that values the healthcare services provider at GBP2.78 billion.

Nenelite, an affiliate of private equity manager Clayton, Dubilier & Rice, offered to buy UDG for 1,023 pence per share, representing a premium of 22% to Tuesday's closing price of 842.0p.

This values FTSE 250-listed firm's share capital at GBP2.61 billion and implies an enterprise value of GBP2.78 billion. It also implies a 17.2x enterprise value multiple to UDG's adjusted earnings before interest, tax, depreciation and amortisation.

UDG directors unanimously recommended the offer to shareholders. Kabouter Management LLC, with a 5.5% stake, has provided a letter of intent to vote in favour of it.

Tui shares slipped 2.7% after the tour operator said its half-year loss swelled as the pandemic grounded the tourism industry.

The Hanover, Germany-based firm's loss widened to EUR1.50 billion for the six months to the end of March from EUR815.0 million a year before. Revenue dropped by 89% to EUR716 million from EUR6.64 billion, as a result of extended travel restrictions imposed across Tui's key European markets.

Tui said it has a pipeline of 2.6 million customers booked for summer 2021 season. It said this was down slightly from its last update, as customers defer travel due to a lack of clarity over government travel restrictions.

The UK government's planned re-opening of the travel industry has come under fire this week with just 12 countries on England's quarantine-free 'green list'.

Tui said it plans capacity of 75% for its upcoming peak summer months, with re-opening portfolio focused on destinations such as Greece, Balearics and Canaries.

By Lucy Heming; lucyheming@alliancenews.com

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