LONDON MARKET MIDDAY: Stocks Rise As Investors Bet On Economic Rebound

Mon, 06th Jul 2020 11:59

(Alliance News) - Stocks in London were sharply higher at midday on Monday, with housebuilders in the green, as investors grew more optimistic over a global economic recovery.

The easing of lockdowns is providing hope the global economy will bounce back from an expected recession this year, with England's pubs reopening at the weekend and tourist attractions around Europe now either open or planning to.

The FTSE 100 index was up 137.05 points, or 2.2%, at 6,294.35. The mid-cap FTSE 250 index was up 273.19 points, or 1.6%, at 17,575.22. The AIM All-Share index was flat at 894.07.

The Cboe UK 100 index was up 2.3% at 626.41. The Cboe 250 was up 1.7% at 14,985.10, and the Cboe Small Companies was up 1.5% at 9,367.59.

In mainland Europe, the CAC 40 in Paris was up 1.7%, while the DAX 30 in Frankfurt was up 1.6%.

The Japanese Nikkei 225 index closed up 1.8%. In China, the Shanghai Composite ended up 7.8%, while the Hang Seng index in Hong Kong ended up 3.8%.

Analysts at BK Asset Management said: "Equity markets were sharply higher while currencies were far more subdued on the first trading day of the week as risk-on sentiment out of Asia helped lift all assets. The Shanghai compose rose more than 5% today - it's best performance since 2015. In fact turnover in Chinese equities has also reached levels not seen since that year as those indices are coming out of their long slumber.

"It's difficult to pinpoint why investor sentiment in China has turned so positive except to note that bulls are clearly betting that the worst of the pandemic global slowdown may be behind us."

On the London Stock Exchange, Barratt Developments was the best blue-chip performer, up 8.0% after the housebuilder said it has seen a recovery in the business since the UK government's restrictions on housing market activity were lifted in mid-May.

Barratt's forward order book ended June at 14,326 homes at a value of GBP3.25 billion, up from GBP2.60 billion at the same point the year before.

"Any kind of optimism is welcome in the current climate, cautious or otherwise, so the tenor of today's trading update from Barratt Developments struck a chord with the market. This optimism is not founded on thin air. The company has a growing order book, has seen high customer interest levels since the reopening of its sales centres, and it now has all its sites up and running," said AJ Bell's Russ Mould.

Sentiment in the sector was also lifted following a Times newspaper report that UK Chancellor of the Exchequer Rishi Sunak has drawn up plans to exempt most homebuyers from paying any stamp duty.

Large-cap rivals, Taylor Wimpey, Persimmon and Berkeley were up 4.5%, 5.7% and 4.0% respectively. In the FTSE 250, Vistry Group was up 7.7%, Redrow was up 7.2%, Crest Nicholson was up 8.1% and Countrywide was up 6.0%.

"Post financial crisis experience has shown us that the housing sector is typically well supported in times of crisis, and hopes of a stamp duty holiday or help-to-buy extension are providing another element of hope for investors in the sector," said analysts at IG Group.

At the other end of the FTSE 100, DS Smith was the worst performer down 3.9% after Jefferies downgraded the paper and packaging firm to Hold from Buy.

On AIM, Boohoo Group was down 13% after the online fashion retailer pledged to investigate how its products came to be made by a Leicester garment factory where workers were paid just 350 pence an hour in conditions that allegedly put them at greater risk of catching Covid-19.

Around GBP500 million was wiped off Boohoo's total market value in morning trade. On Friday, Boohoo's market capitalisation had stood at around GBP4.7 billion.

Boohoo distanced itself from a purported supplier after an undercover reporter from the Sunday Times newspaper observed working practices at a Leicester factory which violated government-required social distancing measures and minimum wage requirements.

The fast-fashion retailer responded to findings by saying that its early investigations revealed that Jaswal Fashions is not a declared supplier and is also no longer trading as a garment manufacturer. It stated it believes a different company is using Jaswal's former premises, adding that its currently trying to establish the identity of this company.

Boohoo, which owns brands such as Pretty Little Thing and Nasty Gal, said conditions at the Jaswal Fashions factory in Leicester were "totally unacceptable and fall woefully short of any standards acceptable in any workplace".

In addition, Liberum cut the stock to Hold from Buy.

The pound was quoted at USD1.2500 at midday, up from USD1.2478 at the London equities close Friday, after data showed UK construction sector activity rose sharply in June as more sites began to reopen following the easing of coronavirus lockdown measures, IHS Markit said.

The IHS Markit/CIPS UK Construction Total Activity Index rose to 55.3 in June, from 28.9 in May. The score was back above the 50.0 mark which separates expansion from contraction. The reading also beat market expectations of 47.0.

Markit said the June print was the fastest rise in construction activity for nearly two years and indicated a strong increase in total construction output.

Further, the June data pointed to a sharp turnaround in the performance of the UK construction sector as the phased restart of work on site helped to lift output volumes and boost business confidence. At the same time, new orders stabilised after three months of sharp declines and purchasing activity expanded at the fastest rate since December 2015, Markit added.

The euro stood at USD1.1298 at midday, up from USD1.1242 at the European equities close Friday, after data showed construction in the eurozone was sharply higher in June.

The IHS Markit Eurozone Construction Total Activity Index rose sharply to 48.3 in June from 39.5 in May. The reading remained below the 50.0 mark which separates expansion from contraction. June's contraction was the weakest drop since February, IHS Markit noted. France and Italy recorded construction output growth, while Germany posted a further marked decline.

Overall sentiment among eurozone building companies remained negative in June. Turning to the bloc's largest economy, Germany's construction sector improved slightly but was still mired in a downturn in June.

Elsewhere, eurozone retail sales were sharply higher in May, data from Eurostat showed, as Covid-19 lockdown measures across the bloc began to ease.

Sales in the euro area rose 18% month-on-month in May, rebounding from a 12% drop in April. Within the EU, sales grew 16%. Versus the previous month, euro area retail trade increased by 38% for automotive fuels, by 35% for non-food products and by 2.2% for food, drinks & tobacco.

Against the yen, the dollar was trading at JPY107.55, flat from JPY107.52 late Friday.

Stocks in New York are set for a higher open on Monday, playing catch up after being closed on Friday to commemorate Independence Day.

The DJIA was called up 1.1%, the S&P 500 index up 1.2% and the Nasdaq Composite up 1.3%.

Brent oil was quoted at USD43.40 a barrel at midday, up from USD42.66 at the London close Friday.

"Oil prices seem evenly balanced between opposing forces at the moment. On the one hand, the procession of economic data released last week is emphasising that a global recovery is underway for now. On the other, having rallied so far on so little since mid-March, nagging doubts over the recovery's longevity are capping gains," commented OANDA analyst Jeffery Halley.

Gold was quoted at USD1,775.20 an ounce at midday, flat from USD1,775.00 at the London equities close Friday.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com