LONDON MARKET MIDDAY: US-China Squabble, UK-EU Deal Date Recedes

(Alliance News) - Stocks in London were higher at midday on Thursday with the FTSE 100 boosted by upbeat earnings from Unilever, as investors continue to monitor brewing tensions between the US and China.

Washington and Beijing added to their long list of bones of contention when the US ordered the closure of the Chinese consulate in Houston within 72 hours. This came a day after two Chinese nationals were indicted for allegedly hacking hundreds of companies worldwide seeking to steal vaccine research.

China slammed the US move, and threatened retaliation, while Trump said "it's always possible" more consulates could be closed.

Meanwhile, the UK's chief Brexit negotiator said Thursday it was clear that London's goal of striking a preliminary deal on the UK's exit from the EU will not be reached in July, AFP reported.

"It is unfortunately clear that we will not reach in July the 'early understanding on the principles underlying any agreement'," David Frost said, adding that "we must face the possibility that one will not be reached" at all before the post-Brexit transition period ends in December.

In London, the flagship FTSE 100 index was up 37.89 points, or 0.6%, at 6,244.99 at midday. The mid-cap FTSE 250 index was up 61.08 points, or 0.4%, at 17,526.81. The AIM All-Share index was flat at 887.98.

The Cboe UK 100 index was up 0.6% at 622.68. The Cboe 250 was up 0.1% at 14,865.10, and the Cboe Small Companies was up 0.1% at 9,188.11.

In mainland Europe, the CAC 40 in Paris was up 0.4%, while the DAX 30 in Frankfurt was up 0.5%.

Analysts at ActivTrades said: "Stocks opened slightly higher in most European markets on Thursday, retracing some of yesterday's losses while market sentiment remains mixed and directionless on a very short-term basis. Even if most bullish trends remain valid on European benchmarks so far, especially on the DAX-30 Index, lingering concerns over the uncertainty on the timing of the next US stimulus package combined with simmering US-Sino tensions is making stocks a less attractive asset class.

"While investors welcomed recent progress made by healthcare companies in the struggle against the pandemic, most of them are becoming increasingly worried that the relationship between Washington and Beijing will worsen prior to the US election in November and put further pressure on riskier assets."

On the London Stock Exchange, Unilever was the best blue-chip performer, up 8.0% after the Anglo-Dutch consumer goods firm maintained its dividend and said the effect of Covid-19 has varied widely across all its channels, regions and categories.

The maker of Dove soap and Domestos household cleaner said it increased its hand sanitiser capacity by 600 times across several brands and rolled out its Lifebuoy hygiene brand to more than 50 markets.

For the half-year ended June 30, revenue was EUR25.71 billion, down 1.6% from EUR26.13 billion the year before, but pretax profit rose 4.1% to EUR4.53 billion from EUR4.35 billion.

Unilever's second-quarter organic sales declined 0.3%, which was better than analysts' forecast for a 4.3% drop. In addition, Unilever maintained its quarterly shareholder dividend at EUR0.4104 per share.

Unilever confirmed that after exploring sale options for its tea business, it had decided to keep its operations in India and Indonesia and partnership interests in ready-to-drink tea joint ventures. The rest of the tea business will be separated into an independent entity, the Lipton and PG Tips maker added.

"Business resilience is a much sought-after attribute in the current economic climate, and Unilever has certainly got the right ingredients. While it failed to deliver any sales growth on a group basis during its first-half period, its performance was considerably better than expected," said AJ Bell's Russ Mould.

Ad agency WPP was up 2.5% following positive earnings from French peer Publicis Group, which said it has strong fundamentals to weather the coronavirus crisis. Publicis added that it continued to record significant wins in new business across the world, such as Sephora in North America, McDonald's in China and Francaise des Jeux in France.

For the half-year to June 30, Publicis said revenue rose by 9.7% to EUR5.28 billion from EUR4.87 billion last year. EBITDA rose to EUR923 million from EUR885 million.

Publicis shares were up 13% in Paris.

Gold miners Fresnillo and Polymetal International were up 3.8% and 3.6% respectively in London, tracking spot gold prices higher.

Gold was quoted at USD1,882.47 an ounce midday, sharply higher from USD1,861.40 late Wednesday. The precious metal touched an intraday high of USD1,888.65 in early trade - its highest level since September 2011.

"Gold hit fresh multi-year highs today rising for the fifth day in a row as the rally in the yellow metal is taking on the look of a breakout. As we noted yesterday gold is benefiting from the decline in real rates in the US as Federal Reserve continues to crush the yield curve in order to offset the negative impact of the coronavirus curve which continues to remain stubbornly high in the US," said analysts at BK Asset Management.

At the other end of the large-cap index, SSE was the worst performer down 5.5% followed by Pennon Group, down 3.5%. The utility stocks went ex-dividend meaning new buyers no longer qualify for the latest payout.

RELX, down 3.3% after the Anglo-Dutch information, events and analytics company posted lower interim revenue and profit as its exhibitions business was significantly dented by Covid-19.

For the half-year ended June 30, revenue fell 10% to GBP3.50 billion from GBP3.89 billion the year before and adjusted pretax profit dropped 25% to GBP858 million from GBP1.14 billion.

RELX highlighted that its Exhibitions unit, which accounted for 16% of revenue and 13% of adjusted operating profit in 2019, has been hurt significantly by Covid-19, as the pandemic forced countries to block public events and gatherings.

In the Exhibitions arm, first-half revenue of GBP201 million was less than a third of GBP684 million last year, and the business swung to an adjusted operating loss of GBP117 million from a profit of GBP231 million. The outlook for the remainder of 2020 for Exhibitions remains highly uncertain, it said, adding it does not intend to resume the suspended 2020 share buyback programme this year.

NatWest Group, down 2.5%. Credit Suisse cut the majority state-backed lender to Neutral from Outperform. Royal Bank of Scotland Group changed its name to NatWest Group on Wednesday.

The pound was quoted at USD1.2721 at midday, soft from USD1.2731 at the London equities close Wednesday.

The euro stood at USD1.1587 at midday in London, little changed from USD1.1585 at the European equities close Wednesday. Against the yen, the dollar was trading at JPY107.17 at midday in London, unchanged from late Wednesday.

Brent oil was quoted at USD44.58 a barrel at midday, up from USD43.72 at the London close Wednesday.

"Oil markets appear to be setting the stage for a push higher to test the current end of the near-term bookends. Not only are the Saudis confident that resuscitating oil supply will not hurt prices.. traders are warming up to the same idea supported by the incredulous amounts of stimulus that will send Oil market flying once the epi curve flatlines or a vaccine is in hand, and it is all systems go," said AxiCorp's Stephen Innes.

Stocks in New York look set to open higher amid optimism about the prospects for a new US stimulus package and the strength of quarterly results of some US companies such as Tesla.

The DJIA was called up 0.5%, the S&P 500 index up 0.4% and the Nasdaq Composite up 1.0%.

Republicans have been struggling to come up with a bill to counter a USD3.5 trillion Democrat proposal, fanning concerns they will not come up with anything ahead of an August break.

However, reports said Senate Majority Leader Mitch McConnell would soon unveil a USD1 trillion plan after overcoming some differences with the White House.

Tesla shares will be in focus after the electric carmaker posted its fourth sequential quarter of profitability despite its main factory in Fremont, California being closed for half the period due to Covid-19 restrictions.

The stock was up 5.5% in pre-market trade in New York.

For the three months to June 30, Tesla reported net income of USD104 million, a substantial swing from a loss of USD408 a year ago. For the first quarter of 2020, Tesla reported net income of USD16 million.

In addition, Tesla reported its fourth quarterly profit in a row, paving the way for the stock to join the S&P 500 index. The Palo Alto, California-based firm became the world's most valuable carmaker by market capitalisation earlier this month, overtaking Japan's Toyota.

Ahead in the US earnings calendar on Thursday, e-commerce giant Amazon.com, social media platform Twitter and telecoms firm AT&T will report second-quarter results.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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