LONDON MARKET MIDDAY: US Stimulus Hint Fails To Excite As Pound Jumps

(Alliance News) - Stock prices in Europe were on the back foot midday Wednesday, as equities investors failed to take heart from a hint of progress in talks over a US economic stimulus package.

The FTSE 100 was faring worse than European counterparts. London's large-cap index was faced with a stronger pound, which was boosted by positive signals on Brexit talks and data that showed UK consumer inflation quickened in September.

Sterling surged despite official numbers showing the pile of government debt in relation to the size of the UK economy is now at its highest in 60 years.

The FTSE 100 was down 60.19 points, or 1.0%, at 5,829.03 midday Wednesday.

The mid-cap FTSE 250 index was down 88.47 points, or 0.5%, at 17,840.73. The AIM All-Share index was down 0.3% at 970.36.

The Cboe UK 100 index shed 1.2% at 579.06. The Cboe 250 fell 0.7% at 15,070.47, but the Cboe Small Companies rose 0.5% to 9,407.87.

In mainland Europe, the CAC 40 index in Paris was down 0.8% and the DAX 30 in Frankfurt was down 0.7%.

"The London crowd is asking if the latest US stimulus talks are for real? There seems to be a loud expression of 'no' entering the fray as more than a few traders think neither side is negotiating in good faith," AxiCorp analyst Stephen Innes said.

"US House of Representatives Speaker Pelosi and US Treasury Secretary Mnuchin have both sent out positive signals. Still, Senate majority leader McConnell has reportedly advised the White House not to do a deal. On the other side of the coin, it is hard to see Pelosi handing President Trump a victory so close to election day."

Stock prices in the US closed higher on Tuesday but futures are largely flat on Wednesday. The S&P 500 and Dow Jones Industrial Average are called marginally higher but the Nasdaq Composite is pointed 0.1% lower. Shares in streaming entertainment firm Netflix, which reported after the New York market close on Tuesday, were down 5.4% in pre-market trade.

The pound was quoted at USD1.3058 on Wednesday morning, up sharply from USD1.2958 at the London equities close Tuesday.

Michel Barnier has insisted that both sides in the post-Brexit trade negotiations must be willing to compromise as efforts continued to restart the stalled process. The EU's chief negotiator insisted an agreement was "within reach" despite being rebuffed in efforts to continue formal discussions this week.

Barnier and his counterpart David Frost, UK Prime Minister Boris Johnson's Europe adviser, have remained in touch, but the negotiations have been in limbo since last week's European Council summit failed to produce a breakthrough.

Sterling also was supported after data from the Office for National Statistics showed UK consumer inflation quickened in September, as the 'Eat Out to Help Out' scheme drew to a close.

Consumer prices rose 0.5% annually, in line with forecasts and accelerated from 0.2% in August.

The month-on-month rise was 0.4%, "less punchy" than expectations of a 0.5% increase, said Gain Capital's Fiona Cincotta, though the analyst added the pound was "unfazed" by the underperformance.

The currency also shrugged off data from the ONS which said the UK's borrowing soared in September.

The ratio of debt to gross domestic product now at the highest level since 1960 at 103.5%.

The ONS said public sector net borrowing was estimated at GBP36.1 billion in September, a sharp climb of GBP28.4 billion annually and the "third-highest borrowing in any month since records began in 1993".

At the moment, borrowing is trending below the Office for Budget Responsibility's GBP372.2 billion annual forecast, though rising Covid-19 restrictions could mean the UK government may be forced to bolster its coffers again.

Prime Minister Boris Johnson imposed stringent Tier 3 rules, the highest at the UK government's disposal, on the Greater Manchester area on Tuesday. South Yorkshire will be the latest region placed into Tier 3 coronavirus restrictions, the Sheffield City Region mayor has announced on Wednesday.

In commodities, a barrel of Brent fetched USD42.62 a barrel, up from USD42.48 at the London equities close on Tuesday.

Gold fetched USD1,918.62 an ounce on Wednesday morning, up from USD1,908.45 at the London equities close on Tuesday.

Despite prices for the yellow metal rising, gold miners in London were largely lower, following a poor set of quarterly output reports.

Blue-chip miner Fresnillo shed, 5.0%, the FTSE 100's worst-performer. Fresnillo lowered its full-year gold guidance "marginally" as working restrictions due to the virus at the Herradura mine in Mexico hurt production.

The gold and silver miner now expects annual gold production in the range of 745,000 to 775,000 ounces. Its previous guidance range was between 785,000 and 815,000 ounces.

Gold output in the three months ended September was down 6.3% quarter-on-quarter and 18% annually.

FTSE 100 constituent and Fresnillo peer Polymetal International lost 1.8%.

Among the mid-caps, Centamin plunged 20%.

The gold miner reaffirmed its 2020 guidance but expects an output fall in 2021. During the third quarter, gold production fell 2% quarter-on-quarter to 128,240 ounces from 130,994 ounces.

Gold sold in the quarter dropped 9% to 118,617 ounces from 130,745 ounces. It expects total 2020 output between 445,000 ounces to 455,000 ounces of gold produced but forecasts the 2021 figure to come in between 400,000 ounces to 430,000 ounces.

Russian gold miner Petropavlovsk was also among the FTSE 250 index's worst performers, down 3.2%.

Elsewhere on the London Stock Exchange, Metro Bank climbed 2.6%. The challenger bank said its loan book grew in the third quarter, driven by the UK-supported lending schemes rolled out amid the Covid-19 pandemic.

At September 30, Metro's loan book stood at GBP15.09 billion, which is up 2% from GBP14.86 billion at June 30 and 1% higher from GBP14.89 billion at the same point the year before.

Metro has extended more than GBP1.3 billion in government-backed business loans to over 33,000 customers, primarily through the UK's Bounce Back Loan Scheme.

Metro said its CET1 remains "materially in excess of regulatory minima". Its total capital plus MREL ratio of 20.2% remains above the minimum MREL requirement, but below the firm's MREL requirements plus buffers, pending the outcome of the Bank of England MREL framework review.

Broker Jefferies resumed coverage of Metro Bank with a Buy rating.

The euro stood at USD1.1855 midday Wednesday, improved from USD1.1825 late Tuesday.

Against the yen, the dollar was trading at JPY104.84, down sharply from JPY105.57 at the London equities close on Tuesday.

Over in New York, attention on Wednesday turns to electric vehicle maker Tesla's third-quarter results.

"To say expectations are high would be an understatement. We know that 139,000 vehicles were delivered in Q3, the big question is whether full year guidance of 500,000 remains intact? Profitability has always been a big theme for Tesla, mean expectations are for earnings per share of USD0.56 a 51% jump from a year earlier," Gain Capital's Cincotta said.

By Eric Cunha; ericcunha@alliancenews.com

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