LONDON MARKET OPEN: FTSE Up 2.5% As Construction Stocks Get Trump Bump

(Alliance News) - Stock prices in London opened sharply higher on Tuesday as investors reacted positively to ramped-up central bank support, while construction stocks surged amid a report of a huge US infrastructure proposal.

The US Federal Reserve on Monday said it will start purchasing individual corporate debt instruments, in a bid to ensure liquidity for loans to the private sector, in the latest market intervention by the central bank since the coronavirus pandemic shook the country.

The Fed said it "will begin buying a broad and diversified portfolio of corporate bonds to support market liquidity and the availability of credit for large employers".

The US central bank has been buying up private sector bond index funds since March, but the latest announcement means it will move to buying individual bonds if company's meet certain criteria, including on ratings and maturities.

The FTSE 100 index was up 152.57 points, or 2.5%, at 6,217.17.

The mid-cap FTSE 250 index was up 375.32 points, or 2.2%, at 17,464.41. The AIM All-Share index was up 11.56 points, or 1.7%, at 874.42.

The Cboe UK 100 index was up 2.5% at 10,517.43. The Cboe 250 was up 1.6% at 14,938.10, and the Cboe Small Companies was up 0.3% at 9,678.59.

In mainland Europe, the CAC 40 in Paris was up 2.5% while the DAX 30 in Frankfurt was up 2.7%.

On the London Stock Exchange, Ashtead Group was the best blue-chip performer, up 17%. The equipment rental firm increased its total dividend, as it expressed confidence in the strength of its balance sheet despite the market turmoil caused by Covid-19.

For the year to the end of April, the Ashtead recorded a 7% drop in pretax profit to GBP982.8 million from GBP1.06 billion the year before.

Earnings before interest, taxes, depreciation and amortisation increased by 5% to GBP2.38 billion from GBP2.11 billion the prior year. This was on total revenue that increased by 9% to GBP5.05 billion from GBP4.50 billion.

Ashtead generates a bulk of its revenue in the US via its Sunbelt division.

Segmentally, Ashtead's Sunbelt US unit recorded revenue of GBP4.34 billion, up 14% from GBP3.82 billion the prior year.

Ashtead declared a final dividend of 33.5p per share, bringing its total payout for financial 2020 to 40.65p, up 1.6% from 40.0p the year before. It has suspended all current and prospective M&A activity, and paused its share buyback programme to preserve cash.

"There will be investors who see a sea of minus figures for the fourth quarter and get spooked, but it must be remembered that the firm was on course for a record year before Covid-19 struck. On top of that, its decision to increase its dividend is incredibly welcome when many others have slashed or scrapped theirs and reflects the strength of Ashtead's balance sheet," eToro analyst Adam Vettese said.

In addition, construction and infrastructure stocks were in the green after Bloomberg reported that the Trump administration is preparing a nearly USD1 trillion infrastructure proposal as part of its push to spur the world's largest economy back to life.

US-focused plumbing and heating products supplier Ferguson was up 5.1% and Irish building materials firm CRH up 7.7%.

Analysts at Davy said: "Media reports overnight suggest that the Trump administration is preparing a USD1 trillion infrastructure package in an effort to kick-start the US economy. That could see another round of stimulus combined with a new multi-year highway bill to replace the FAST Act (which expires at the end of September). The president has often talked about infrastructure stimulus but, to this point, that has been just that - talk.

"However, given the impact of the pandemic and the looming election, we believe the odds of getting something over the line are growing. While each of the building material names has a US exposure, CRH would be, by some distance, the largest beneficiary in the sector."

International Consolidated Airlines Group was up 8.0%, after the British Airways owner hit back at "unjustified" criticism it received from MPs last week.

MPs accused the airline of a "calculated attempt to take advantage" of the crisis by cutting up to 12,000 jobs and downgrading the terms and conditions of the bulk of its remaining employees.

However, Willie Walsh, chief executive of IAG, wrote on Monday to Tory MP Huw Merriman, who chairs the committee, saying the government had "no plans" to help restart the aviation sector and that BA employees had been "betrayed" by trade union leaders and elected representatives.

The Japanese Nikkei 225 index closed up 4.9% on Tuesday. In China, the Shanghai Composite closed up 1.4%, while the Hang Seng index in Hong Kong is up 3.0%.

Japan's central bank on Tuesday ramped up aid for businesses struggling with the fallout from the coronavirus pandemic, as it attempts to ease the recession in the world's third-largest economy.

The Bank of Japan expanded its zero-interest loan programme to firms to JPY90 trillion from JPY55 trillion. Its total war-chest for companies amounts to JPY110 trillion when corporate bond purchases are taken into account.

The BoJ made no change to its ultra-loose monetary policy framework, which involves unlimited purchases of government bonds and a negative interest rate.

The pound was quoted at USD1.2664 Tuesday morning, up sharply from USD1.2554 at the London equities close Monday, on Brexit deal optimism.

UK Prime Minister Boris Johnson now believes it is possible to reach an agreement in principle on post-Brexit arrangements by the end of next month, following months of fruitless talks between negotiators.

"We see no reason why you shouldn't get that done in July," he told reporters from Downing Street following a video conference with European Commission President Ursula von der Leyen and the heads of the European Council and European Parliament.

With just over six months left to strike a deal before EU rules cease to apply in Britain, both sides agreed to step up their timetable of talks in July and introduce "new momentum", according to a rare joint statement.

Brussels and London say they want to avoid a "no-deal" Brexit - Britain leaving the EU's regulatory system without an agreement in place - but have so far made little progress in striking a crucial trade deal. The partners have set a new timetable for their negotiations in July, holding talks every week for five weeks, with a mix of formal rounds and smaller face-to-face groups in London and Brussels.

The UK unemployment rate held steady at 3.9% in the three months to April, the Office for National Statistics said. The figure beat the market consensus forecast, cited by FXStreet, for a rise to 4.5%.

"Whilst the government's furlough scheme offers an unprecedented amount of support to the UK labour market, we can expect to see this start to unravel in the coming months as the scheme is gradually withdrawn," said City Index analyst Fiona Cincotta.

The euro was quoted at USD1.1346, up from USD1.1266. Against the yen, the dollar was trading at JPY107.39 in London, flat from JPY107.40 late Monday.

Brent oil was at USD39.80 a barrel Tuesday morning, up from USD39.04 at the London close Monday. Gold was priced at USD1,728.21 an ounce, higher against USD1,720.80.

In Tuesday's economic calendar, there are US retail sales at 1330 BST, while Federal Reserve Chair Jerome Powell testifies to Congress at 1500 BST.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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