LONDON MARKET MIDDAY: Stocks Rise As UK House Prices Hit Record Highs

(Alliance News) - Stocks in London were sharply higher at midday on Wednesday with housebuilders among the blue-chip risers after some encouraging UK house price data.

In London, the blue-chip FTSE 100 index was up 100.62 points, or 1.7%, at 5,962.67. The mid-cap FTSE 250 index was up 211.55 points, or 1.2%, at 17,816.15. The AIM All-Share index was up 0.8% at 971.55.

The Cboe UK 100 index was up 1.8% at 593.69. The Cboe 250 was up 1.3% at 15,139.68, and the Cboe Small Companies was up 0.3% at 9,433.65.

In mainland Europe, the CAC 40 index in Paris was up 2.3%, while the DAX 30 in Frankfurt was up 2.5%.

In addition, indications from global central banks that interest rates will stay low for the foreseeable future and stimulus measures that have already been pumped into financial markets have facilitated demand for riskier assets such as equities.

"Stock markets continue to soar, with even the FTSE 100 adding 100 points, building on yet another impressive session from US markets and gains for Asia overnight. The apparent disconnect between markets and the real world gets wider and wider, fuelled by low-interest rates, the prospect of more easing, but also the hope that the overall situation will continue to improve," said IG Group's Chris Beauchamp.

In the FTSE 100, Barratt Developments was best performer, up 7.6% with the UK's largest housebuilder seeing green shoots of recovery in the housing market after the coronavirus crisis hit its annual results.

In addition, the wider homebuilding sector was supported by data from Nationwide showed UK house price growth picked up to 3.7% in August from 1.5% in July. On a monthly basis, house prices rose by 2.0% in August, after taking account of seasonal factors, following a 1.8% rise in July. Buyers shrugged off continued uncertainty in the economy and social distancing to send the average price of a home to GBP224,123.

For the financial year ended June 30, Barratt's revenue fell 28% to GBP3.42 billion from GBP4.76 billion last year and pretax profit almost halved to GBP491.8 million from GBP909.8 million.

Total completions fell 29% to 12,604 homes from 17,856 last year, while Covid-19-related costs came to GBP74.3 million.

In terms of current trading, Barratt said it has seen a substantial increase in home completion volumes in the eight weeks to August 23, which were up 62% compared to the prior period at 1,439 homes due to "pent up demand" in the sector.

"House sales have rebounded incredibly strongly in the past two months, a sign of how much demand there is present in the current market. That demand has pushed house prices to a new record high in August, according to Nationwide. But the future of Barratt and other housebuilders will be very much linked to the health of the wider economy and the UK jobs market. If we can avoid mass unemployment and falling into recession again, the demand for property should remain and property firms should benefit," said eToro analyst Adam Vettese.

Fellow blue-chip housebuilders Taylor Wimpey, Persimmon and Berkeley Group were up 4.8%, 4.3% and 3.4% respectively.

At the other end of the large-caps, Mexican gold miner Fresnillo was the worst performer, down 3.3%, tracking spot gold prices lower.

Gold was quoted at USD1,967.64 an ounce midday on Wednesday, down from USD1,974.90 at the London equities close Tuesday.

"The US dollar is recovering and consequently gold is losing ground. Bullion's decline is proportional to the recovery of the greenback, confirming that the current movement is mostly related to what is happening on the currency markets," explained analysts at ActivTrades.

In the FTSE 250, Computacenter was up 11% after the IT services provider said it expects results for 2020 to be "materially above" its previous expectations. The stock hit a record high of 2,238.00 pence in early trade.

At the other end of the midcaps, Aggreko was the worst performer, down 5.7% after Morgan Stanley started coverage on the temporary power generation supplier with an Underweight rating.

The pound was quoted at USD1.3361 on Wednesday at midday, down from USD1.3414 at the London equities close Tuesday.

The euro stood at USD1.1873 at midday Wednesday, lower from USD1.1946 late Tuesday. The single currency briefly touched the USD1.20 mark for the first time since 2018 on Tuesday.

"EUR/USD and GBP/USD are in the red because of the continued rebound in the greenback. Yesterday, the dollar index saw a lot of volatility as in early trading it dropped to a 28 month low, but it rallied in the afternoon, and finished in positive territory. The dollar is building on yesterday's gains as bargain hunting is pushing up the currency," said CMC Markets analyst David Madden.

In economic news, German retail sales fell unexpectedly in July, according to official data, as hopes of a swift economic recovery from Covid-19 faltered.

Retail sales were down 0.9% month-to-month in real terms in July, Destatis said. Although this compared favourably to the revised 1.9% month-on-month drop in June, consensus tipped retail sales to return to monthly growth in July. FXStreet-supplied consensus forecast a 0.5% monthly rise in July.

Against the yen, the dollar was trading at JPY106.07, flat from JPY106.00.

Elsewhere in commodities, Brent oil was quoted at USD45.57 a barrel, lower from USD45.86.

US stock market futures were pointed higher on Wednesday after the S&P 500 set its 21st record close for this year on Tuesday, amid concerns equity markets are rising too fast given wider economic concerns.

The Dow Jones Industrial Average was called up 0.7%, the S&P 500 up 0.7%, and the Nasdaq Composite was called up 1.1%, based on futures trading.

"Several analysts have pointed out that the current valuations in equities stand at near all-time highs as the total capitalization of the stock market is quickly approaching 200% of GDP. It's extremely difficult to remain short in such strong momentum conditions but with every tick higher stocks are setting themselves up for a quick and vicious correction if the economic data does not confirm the sanguine scenario," said analysts at BK Asset Management.

Meanwhile, investors look ahead to important employment data from the US, starting with the ADP private payrolls on Wednesday afternoon. Employment change for July US private payroll estimated to be 950,000 workers.

The ADP data comes ahead of the closely-watched US jobs report for August on Friday.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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