LONDON MARKET MIDDAY: Two votes cast to start BoE tapering

(Alliance News) - Stock prices in London were slightly higher, even as both the US and UK central banks edged toward tapering economic stimulus.

The Monetary Policy Committee of the Bank of England voted by a majority of 7-2 to maintain quantitative easing at the current pace of GBP895 billion. Dave Ramsden and Michael Saunders cast dissenting votes to cut gilt QE to GBP840 billion. All 9 MPC members voted to keep interest rates unchanged, with the Bank Rate at 0.10%.

The pound was quoted at USD1.3674 on Thursday after the midday decision by the BoE, up from USD1.3659 at the London equities close Wednesday.

The FTSE 100 index was up 8.36 points, or 0.1%, at 7,091.71. The mid-cap FTSE 250 index was up 53.25 points, 0.2%, at 23,837.79. The AIM All-Share index was up 6.03 points, 0.5%, at 1,274.16.

The Cboe UK 100 index was up 0.2% at 705.40. The Cboe 250 was flat at 21,622.30. The Cboe Small Companies was 0.1% lower at 15,528.00.

In mainland Europe, the CAC 40 stock index in Paris and the DAX 40 index in Frankfurt were both up 0.8%.

Analysts at ActivTrades said investors welcomed Wednesday's policy statement from the US Fed. "[Chair] Jerome Powell confirmed tapering is on its way and will start sooner than expected. The Fed added it wouldn't need 'a very strong jobs report to go ahead with taper', which can be seen as a message to the market that the party will finally come to an end, mentioning November as a potentially good moment to scale back asset purchases.

"However, the market hasn't bought the rumour of any potential tapering to come but instead preferred to stick to the reality of the current extremely dovish environment that will remain for some time at least."

In the FTSE 100, Rolls-Royce was the best performer, up 3.4% at 126.26 pence after Berenberg raised its price target on the stock to 160p from 150p and reiterated its Buy rating.

Reckitt Benckiser was up 0.3%. The hygiene and home cleaning products firm said trading since its half-year results in July has been in line with management expectations.

Reckitt said it continued to be confident in delivering 2021 like-for-like net revenue growth in a range of 0% to 0.2% and an adjusted operating profit margin between 22.7% to 23.2%. Reckitt posted like-for-like net revenue growth of 12% and an adjusted operating profit margin of 23.6% for 2020.

Royal Mail shares were flat after the UK postal operator lifted its profit guidance and expressing confidence in its outlook.

In the five months to the end of August, total revenue grew by 8.2% year-on-year and by 18% compared to the same period in 2019.

In the domestic Royal Mail arm, revenue increased by 7.2% year-on-year and by 12% against the same period in 2019. The company said domestic parcel volumes are up by around third compared to pre-Covid levels and that it is maintaining its share of the UK market.

At its GLS international logistics unit, revenue rose 9.3% from the same time last year and by 31% versus the same period in 2019.

Looking ahead, Royal Mail expects adjusted operating profit for the six months to the end of September to be around GBP395 million to GBP400 million, with at least GBP230 million from the Royal Mail unit. This compares to profit of just GBP37 million a year ago, and would even exceed the GBP165 million posted for the same period in 2019.

At the other end of the large-caps, Entain was the worst performer, down 2.8%. The gambling firm was giving back some of its strong recent gains after it received a takeover approach from US peer DraftKings. The stock is up 22% this week alone.

Hargreaves Lansdown was down 2.0%, after the wealth manager's shares went ex-dividend, meaning new buyers no longer qualify for the latest payout.

GlaxoSmithKline was down 0.1% after Bloomberg reported on Wednesday that activist investor Bluebell Capital Partners has bought a stake in GlaxoSmithKline and criticised Chief Executive Officer Emma Walmsley.

In a letter seen by the news outlet, Bluebell called for a "thorough and robust process to identify the best (internal or external) candidate" to lead the company after it spins off its consumer division to focus on pharmaceuticals.

"The lack of Walmsley's industry knowledge was also very evident during the latest investor update," the letter said, echoing criticism from Elliott Investment Management.

Meanwhile, Marley Group confirmed its plans to list on London's Main Market, after saying earlier this month it was considering an initial public offering.

The Burton Upon Trent-based pitched roofing business did not disclose the number of shares to be issued, offer price or expected market capitalisation, but said it hopes to raise gross proceeds around GBP75 million. The IPO is likely to take place in October.

On the economic front, the UK private sector lost momentum in September with the rate of expansion in both output and new orders the weakest in seven months.

The IHS Markit-CIPS flash UK composite purchasing managers' index print was 54.1 points in September, below August's reading of 54.8.

The UK services PMI score was 54.6 points in September, down slightly from 55.0 in August and missed the market forecast, cited by FXStreet, of 55.0.

The UK manufacturing PMI reading was 56.3 points in September, sharply lower from 60.3 in August and missed the market estimate of 59.0.

All three UK PMI prints were the lowest seen in seven months.

"September's flash PMIs suggest that the economy is losing momentum a little faster than we originally anticipated, posing a downside risk to our view that the economy will return to its pre-pandemic level by November," commented analysts at Capital Economics.

The euro was priced at USD1.1715, down from USD1.1738.

A survey of eurozone business activity pointed to slower growth in September, Markit said, as bottlenecks curb activity and the input price gauge hit 21-year high. The flash headline composite purchasing managers' index fell sharply in September to 56.1 points from 59.0 points in August.

Any score above 50 represents growth, but the latest increase in business activity was the weakest since April, albeit still well above the survey's pre-pandemic long-run trend.

The flash services activity index read 56.3 points in September versus 59.0 points in August. The flash manufacturing output index fell back to 55.6 points in September from 59.0 points in August.

Against the Japanese yen, the dollar was trading at JPY109.87, up from JPY109.57.

Brent was quoted at USD75.94 a barrel Thursday at midday, higher against USD75.44 a barrel late Wednesday. Gold stood at USD1,771.22 an ounce, down from USD1,778.80.

US stock market futures were pointed to a higher open after the US Federal Reserve said the tapering of economic stimulus may "soon be warranted" as the economy edges closer to its employment and price stability goals.

The Dow Jones Industrial Average was called up 0.5%, the S&P 500 up 0.4%, and the Nasdaq Composite up 0.5%.

The Fed left its benchmark rate unchanged in the range of 0.00% to 0.25%. Chair Jerome Powell said the US economy has made progress towards the Fed's goals, and if things continue to advance at a speed that the Federal Reserve Open Market committee expects, a "moderation in the pace of asset purchases" may occur.

The Fed is currently buying at least USD80 billion in Treasury securities and USD40 billion in agency mortgage‑backed securities every month as part of its stimulus efforts.

Powell said that if the US economy continues to improve, "a gradual tapering process that concludes around the middle of next year is likely to be appropriate".

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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