LONDON MARKET MIDDAY: Stocks Rise As China Calms Tensions With US

(Alliance News) - Stocks in London were sharply higher at midday on Tuesday as fears about the US-China tensions eased and optimism rose over the prospects of a fiscal stimulus deal from US political leaders.

There was some relief that China did not include any members of US President Donald Trump's administration in a group of 11 Americans hit with sanctions, in retaliation to a similar US move last week linked to the Hong Kong row.

The US-China stand-off has been a major headache for investors, with the two sides butting heads on several issues that have fanned worries they could renew their damaging trade war. However, there is some confidence they will stick to their commitments after talks at the weekend to review their January tariffs pact.

The FTSE 100 index was up 144.06 points, or 2.5%, at 6,194.32. The mid-cap FTSE 250 index was up 283.20 points, or 1.8%, at 18,009.62. The AIM All-Share index was up 0.6% at 944.00.

The Cboe UK 100 index was up 2.5% at 617.69. The Cboe 250 was up 1.8% at 15,390.68, and the Cboe Small Companies was up 1.1% at 9,447.65.

In mainland Europe, the CAC 40 in Paris was up 2.8%, while the DAX 30 in Frankfurt was up 2.7%.

"All European benchmarks are trading significantly higher on Tuesday, keeping up with the pace of Asian markets, as a 'risk-on' trading stance is clearly back on track. The surprising positive change in tone from Beijing about its relationship with Washington, as well as some improvement seen recently in coronavirus hotspots in the US, has boosted bullish momentum. Chinese leaders expressed their wish to ease tensions with the US, despite the recent retaliation measures taken by Beijing, lifting market sentiment overnight," said analysts at ActivTrades.

In the FTSE 100, InterContinental Hotels Group was up 6.5%. The hotel operator said it saw signs of a tentative recovery in demand, as Covid-19 lockdown restrictions eased in major markets, despite swinging to a loss.

IHG reported a pretax loss of USD275 million for the six months ended June 30, swinging from a USD375 million profit a year before, as revenue dropped 45% to USD1.25 billion from USD2.28 billion. Revenue per available room - a key metric in the hotel industry - was down 52% in the six-month period, and was down 75% in the second quarter as occupancy at comparable hotels dropped to 25%.

Looking ahead, IHG said "small but steady" improvements in occupancy and RevPAR through the second quarter continued into July, with RevPAR expected to be down 58% on a year before - compared to the second quarter's 75% decline - and occupancy rising to around 45%.

"With a tentative recovery in the sector, travellers are showing preference towards more budget-friendly hotels such as Holiday Inn, and with more openings coming along the feeling is that IHG will do well to capture some pent-up demand from travellers and holidaymakers as long as lockdowns are not too stringent," the Share Centre said.

Prudential was up 3.0% after the 172-year old insurer hailed its "resilient" first-half, despite seeing a sharp profit drop, and said it now plans to fully demerge its Jackson unit in the US.

The six months to June 30 was "challenging", with the period hit by Covid-19 disruption. Prudential's pretax profit slumped 43% year-on-year to USD663 million from USD1.16 billion. Gross premiums earned slipped 5.9% to USD19.84 billion from USD21.08 billion a year earlier.

Annual premium equivalents - a measure of the new policies sold - fell 27% to USD2.64 billion from USD3.64 billion. Prudential cut its dividend by 74% to 5.37 cents per share from 20.29 cents a year ago.

In addition, Prudential said it has decided to pursue the full separation and divestment of Jackson to enable it to focus exclusively on its high-growth Asia and Africa businesses. This would result in two separately listed companies with "distinct investment propositions", the company said.

The group would have primary listings in both London and Hong Kong and secondary listings in Singapore and the US. Jackson is expected to be solely listed in the US, Pru added.

Interactive Investor's Richard Hunter said: "Proceeds from the IPO, followed by further sales of Prudential's stake over time, should provide a drip-feed of capital which the group could use, inter alia, to pay down debt or invest in the Asian and African units which will constitute the new Prudential. It is within the Asian markets in particular where a renewed focus makes strategic sense.

"The savings and investment market is developing rapidly given the ongoing growth of an emerging middle class, while in general terms insurance penetration remains low, providing a gilt-edged opportunity for the group. Indeed, the recent pandemic has sharpened the focus of customers who now have more of a propensity to insure against health or employment impacts following such an outbreak."

At the other end of the large caps, gold miners Fresnillo and Polymetal International were down 3.1% and 3.7%, tracking spot gold prices lower, quoted at USD1,996.63 on Tuesday at midday, down sharply from USD2,033.00 late Monday in London.

Midcap peers Centamin and Hochschild Mining were down 4.5% and 4.0% respectively.

"Gold prices have slid sharply overnight on the back of a firmer US dollar, and yields, as well as a brighter outlook for stocks. This decline isn't altogether that surprising given we've come off the back of a nine-week rally," explained CMC Markets analyst Michael Hewson.

In the FTSE 250, Cineworld continued its impressive rise, up 27% to lead the midcap index, as a US court ruling prompted renewed takeover speculation.

Late Friday, a judge in New York agreed to terminate the Paramount Decrees - a set of competition rules introduced in the late 1940s that were designed to end Hollywood's stranglehold on the distribution of blockbuster movies. The move means one of the major movie studios could look to buy up cinema chains. Cineworld shares have risen 47% over the past to days alone.

Gamesys was up 11% after the software development and gaming business announced excellent results for the first half of 2020, driven by a big increase in customer growth in the Asian markets as well as solid customer retention.

The London-based software development and gaming business said pretax net income widened in the six months ended June 30 to GBP26.7 million from GBP6.3 million a year before. Gamesys saw revenue double to GBP340.0 million from GBP169.5 million a year before. The jump in revenue reflected a strong performance in all of the company's brands, with growth actually accelerating over the second quarter. The company also saw good player retention, which will help drive growth in the future.

Gamesys declared a first-ever interim dividend of 12 pence per share. Looking towards the future, and after a strong performance in the first half, Gamesys expects its revenue and adjusted earnings before interest, tax, depreciation and amortisation to be "comfortably" ahead of its own expectations.

The pound was quoted at USD1.3102 at midday, up from USD1.3083 at the London equities close Monday. Sterling recovered from an intraday low of USD1.3054 against the greenback following the release of UK unemployment data.

The UK unemployment rate held steady in June, despite the biggest jump in people out of work in over a decade, with many workers electing not to actively seek employment, the Office for National Statistics said.

The UK unemployment rate in the three months to June was 3.9%, unchanged from the three months to May, the ONS said. The market consensus forecast, cited by FXStreet, was for a rise to 4.2%.

The ONS said that in July 730,000 fewer people were in paid employment when compared with March and 114,000 fewer when compared with June. The decrease in employment in the quarter to June was the largest quarterly decrease since May to July 2009, the ONS said.

Explaining why the jobless rate has remained flat, the ONS said that to be counted among the unemployed, workers need to be actively looking for a new job, which many have decided not to do yet.

Since the start of the coronavirus crisis, the UK labour market has been propped up by the furlough scheme introduced by Chancellor of the Exchequer Rishi Sunak. However, the scheme looks set to end in October with Sunak saying the support cannot go on "indefinitely".

Last week, the Bank of England forecast that the UK jobless rate would hit 7.5% at the end of 2020.

Robert Alster, chief investment officer at Close Brothers Asset Management, said: "Although employment in the UK fell by the greatest amount in over a decade, the reality is that the true effects of Covid-19 are still obscured by the protection of the furlough scheme. As we inch closer to the scheme drawing to a close, employment prospects are looking increasingly uncertain across all sectors, with the Bank of England forecasting a 7.5% unemployment rate in the near future.

"A wave of recent job cuts across the retail and hospitality industries highlights the ongoing impact of the lockdown, as businesses nationwide struggle to battle with the damage wrought by the pandemic. As consumer habits transform and with health policy at the forefront of the government's mind, it remains to be seen how the labour market will evolve to adapt to our new way of life. With flexible working now a necessity rather than a privilege, the UK's productivity puzzle could get even more complex."

However, investor's nerves were pacified after Bank of England policymaker Dave Ramsden told The Times in an interview the central bank could expand its quantitative easing programme if needed.

The pace of purchases under the QE programme would accelerate if "we saw signs of [market] dysfunction", Ramsden said, adding the central bank has "significant headroom to do more QE".

Analysts at BK Asset Management commented: "For now sterling remains impermeable to any bad news, but the market will eventually lose patience especially if demand does not rebound soon and the BoE is forced to consider negative rates as the ultimate form of monetary stimulus."

The euro stood at USD1.1797 at midday, up from USD1.1761 at the European equities close Monday. Against the yen, the dollar was trading at JPY106.08 in London, up from JPY105.81 late Monday.

Brent oil was quoted at USD45.46 a barrel at midday, up from USD44.84 at the London close Monday.

Stocks in New York look set to open higher after US President Trump said he is "very seriously" considering a capital gains tax cut, which would "create a lot more jobs", as he bids for re-election in November.

The DJIA was called up 0.7%, the S&P 500 index up 0.6% and the Nasdaq Composite up 1.0%.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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