LONDON MARKET MIDDAY: Stocks rebound ahead of US Fed minutes

Wed, 06th Jul 2022 12:04

(Alliance News) - European equities reversed some recent heavy losses in morning trade, though a darkening economic outlook and UK political uncertainty being thrown into the mix could mean Wednesday's bounce is of the dead cat variety.

Stocks had made a decent start to the third quarter before a recession fear-driven sell-off on Tuesday saw the FTSE 100 lose nearly 3%.

Share price gains on Wednesday may offer only temporary relief, as equities face a wall of worries.

The release of the latest US Federal Reserve minutes at 1900 BST later is a major risk event, with the central bank expected to affirm its hawkish stance as it bids to quell rampant inflation.

The FTSE 100 index was up 120.50 points, or 1.7%, at 7,145.97 midday Wednesday. The FTSE 250 index was up 275.49 points, or 1.5%, at 18,590.80. The AIM All-Share index was up 4.21 points, or 0.5%, at 871.67.

The Cboe UK 100 index jumped 1.8% to 712.97. The Cboe 250 was up 1.6% at 16,145.47, while the Cboe Small Companies was 0.6% higher at 13,196.53.

In mainland Europe, the CAC 40 stock index in Paris the DAX 40 in Frankfurt were both up 1.6%.

"Don't be fooled into thinking this is the start of a big recovery. Markets are likely to stay volatile for the near-term," AJ Bell analyst Russ Mould cautioned.

Stocks in New York are called narrowly higher. The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite are all called up 0.1%.

The Fed raised the stakes last month with 75 percentage point interest rate hike, taking the benchmark funds rate to a range of 1.5% to 1.75%. It was the first 75-basis-points increase since November 1994.

"Powell indicated that evidence of rising longer-term inflation expectations among consumers partly justified the bigger hike. However, that measure of inflation expectations has since been revised lower. Nevertheless, given the Fed's imperative to meet its inflation objective, the tone of the minutes is still likely to be 'hawkish' with the likelihood of further aggressive tightening flagged," analysts at Lloyds Bank commented.

The euro stood at USD1.0200 midday Wednesday London time, down from USD1.0240 at the European equities close on Tuesday and edging ever closer below the USD1.02 mark. The euro last traded below USD1.02 in December 2002.

Against the yen, the dollar was trading at JPY135.37, down from JPY135.90.

The pound was quoted at USD1.1927 midday Wednesday in London, up from USD1.1900 at the London equities closed on Tuesday, but remaining below the USD1.20 level.

UK Prime Minister Boris Johnson has insisted he will not leave number 10, despite a mounting revolt against his leadership.

Ministers and aides have continued to submit their resignations, while support is ebbing away from the PM among previously-loyal MPs.

Will Quince quit as children and families minister, saying he could not accept being sent out to defend the PM on television with inaccurate information over the Chris Pincher row.

Laura Trott resigned as a ministerial aide, saying "trust in politics is – and must always be – of the utmost importance, but sadly in recent months this has been lost".

Their resignations followed a string of departures from the government on Tuesday evening, led by Rishi Sunak and Sajid Javid, as chancellor and health secretary, respectively.

In London, Just Eat Takeaway was among the standout performers, jumping 20%, as it agreed a deal to potentially shift a slice of its Grubhub unit - which was recently put up for sale.

Amazon has taken up a 2% stake in the US unit, as part of a wider deal which will see users of the e-commerce titan's Prime service being able to sign up for a free year of Grubhub membership.

"The agreement is expected to expand membership to Grubhub+, while having a neutral impact on Grubhub's 2022 earnings and cash flow, and be earnings and cash flow accretive for Grubhub from 2023 onwards," Just Eat Takeaway said.

Amazon will take a 2% Grubhub stake and also receive warrants allowing it to lift its holding by a further 13%, subject to performance conditions being met.

"The company, together with its advisors, continues to actively explore the partial or full sale of Grubhub," Just Eat Takeaway said.

Just Eat Takeaway in April had said it was exploring a partial or full sale of Grubhub, which it had agreed to purchase for USD7.3 billion in June 2020. The deal was completed a year later.

Amazon shares were down 0.1% in pre-market activity in New York, having risen 3.6% on Tuesday.

The FTSE 100 and FTSE 250 were supported by hefty share price gains for investment manager abrdn and rail ticketing platform Trainline respectively. abrdn rose 8.2%, while Trainline surged 22%.

abrdn unveiled a GBP300 million share buyback, with a first GBP150 million phase being conducted by with Goldman Sachs International.

Trainline reported a "faster than anticipated recovery in rail passenger volume across Europe". It said net ticket sales in the four months to June 30 were up 16% from pre-Covid times.

Trainline now expects net ticket sales growth between 18% and 27% versus pre-Covid levels. It expects revenue to be 22% and 31% above pre-virus levels.

It had previously expected net ticket sales in a GBP3.8 billion to GBP4.2 billion range, between 2.0% and 13% above the pre-Covid figure. Revenue was expected to land between GBP280 million and GBP300 million, which would have been between 7.3% and 15% above pre-virus levels.

A reversal of fortunes in London's heavyweight mining sector also lifted the FTSE 100.

Anglo American, Rio Tinto and Antofagasta all added 3.2%. The trio had lost 8.7%, 4.1% and 7.2% respectively on Tuesday.

Elsewhere in London, ten-pin bowling operator Ten Entertainment Group added 6.5% as it said sales soared in the first half, and it is in line to resume dividend payouts.

In the 26 weeks to June 26, Ten Entertainment recorded 53% sales growth on the same period in 2019, before the coronavirus pandemic.

As a result of its strong cash generation, Ten plans to repay financing received as part of the UK's Coronavirus Large Business Interruption Loan Scheme this month, allowing it to resume dividends.

Gold stood at USD1,761.79 an ounce midday Wednesday in London, down from USD1,767.88. Brent oil was quoted at USD103.68 a barrel, down from USD105.18.

Still to come in the economic events calendar on Wednesday, alongside the Fed minutes, is a US services PMI at 1445 BST.

By Eric Cunha; ericcunha@alliancenews.com