LONDON MARKET OPEN: London Stocks Shake Off US Stimulus Disappointment

(Alliance News) - Despite falls on Wall Street overnight after US President Donald Trump called off stimulus talks, London stocks started Wednesday with modest gains.

The FTSE 100 index was up 10.97 points, or 0.2%, at 5,960.91 early Wednesday. The mid-cap FTSE 250 index was also up 0.2%, or 27.23 points, at 17,824.67. The AIM All-Share index was up 0.1% at 973.95.

The Cboe UK 100 index was up 0.3% at 593.05. The Cboe 250 was up 0.3% at 15,159.38, and the Cboe Small Companies up 0.2% at 9,441.85.

In mainland Europe, the CAC 40 in Paris was flat while the DAX 30 in Frankfurt was up 0.1% early Wednesday.

US President Donald Trump said Tuesday he was calling off talks on a new stimulus plan until after the election, accusing Democrats of not negotiating in good faith.

"I have instructed my representatives to stop negotiating until after the election," he wrote in a tweet.

The afternoon tweet undid optimism that had developed in recent days after House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin resumed talks on a follow-up measure to the USD2.2 trillion CARES Act passed to blunt the coronavirus downturn.

Trump accused the Democratic House leader of negotiating in bad faith, and said he had asked Senate Majority Leader Mitch McConnell to instead focus on confirming his appointed judge to an opening on the Supreme Court.

But Trump struck a more conciliatory tone that night, tweeting he would immediately sign a Congressional bill guaranteeing a second round of USD1,200 stimulus checks and USD135 billion for small businesses – two elements that were already included in the negotiations.

The dollar was higher early Wednesday.

Sterling was quoted at USD1.2921 Wednesday morning, off its overnight lows but still down from USD1.2956 at the London equities close on Tuesday.

The euro traded at USD1.1757 early Wednesday, lower than USD1.1787 late Tuesday. Against the yen, the dollar was quoted at JPY105.75 versus JPY105.60.

Gold was quoted at USD1,896.92 an ounce early Wednesday, falling from USD1,909.10 on Tuesday. Brent oil was trading at USD42.23 a barrel, lower than USD42.58 late Tuesday.

"On the one hand the safe haven greenback is pushing higher and oil prices are pushing lower, however, on the other European markets are showing some defiant resilience...This could be down to the idea of certainty. We know markets don't like uncertainty and now that a line has been drawn in the sand the markets can move forward, until the data starts showing the negative impact Trump's decision!" said Fiona Cincotta at City Index.

In Asia, the Japanese Nikkei 225 index ended flat. Financial markets in China are closed to commemorate 'Golden Week', though the Hang Seng index in Hong Kong was up 1.0% in late trade on Wednesday.

At the top of the FTSE 100 in opening dealings was Rolls-Royce, continuing this week's rebound. The stock was up 6.6% early Wednesday, after rising 22% on Tuesday and 8.6% on Monday.

Last week, the jet engine maker shed over 25% as it set out plans for a balance sheet boosting GBP2 billion rights issue, a GBP1 billion bond offering and the possibility of GBP2 billion more in loans.

In second place was Tesco, rising 3.6% on an increase in interim profit and a 21% boost to its dividend.

Separately, the grocer has appointed Imran Nawaz as its new chief financial officer, who will join in April 2021. Nawaz is currently CFO at FTSE 250-listed Tate & Lyle.

Turning to the results, revenue for the 26 weeks to August 29 rose 0.7% to GBP28.72 billion from GBP28.51 billion a year ago, while pretax profit jumped 29% to GBP551 million from GBP428 million.

The rise in profit came despite GBP533 million of Covid-19 costs taken in the half, though this was largely offset by business rates relief of GBP249 million and a contribution from higher-than-expected food sales. For the full-year, these costs are estimated at GBP725 million.

Group like-for-like sales in the half grew 6.5%, with the UK & Ireland up 7.2%.

Looking ahead, the supermarket chain said it expects a "broadly even balance" to the year in terms of retail profitability in the first and second half. Retail operating profit in the current financial year is now expected to be "at least" the same level as the year before on a continuing operations basis.

Tesco added: "We continue to expect to report a loss for the Bank of between GBP175 million and GBP200 million for the 2020/21 financial year. We will review any changes made to macro-economic forecasts and this could result in releases from or further additions to the bad debt provision. Whilst headline profitability is impacted in the short term, the Bank's capital ratios and liquidity remain strong."

The FTSE 100 constituent boosted its dividend by 21% to 3.20 pence.

John Moore, senior investment manager at Brewin Dolphin, said: "Tesco's core operations have successfully managed a highly challenging period for supermarkets as a whole and the additional costs that have come with that. Despite the exceptions mentioned, Tesco appears to be in a good position to continue building on positive momentum from its core platform."

Diageo advanced 2.6% after Jefferies boosted the distiller to Buy from Underperform.

Mid-cap Firstgroup was also benefiting from a ratings upgrade, rising 5.1%, after Citigroup lifted the transport operator to Buy from Neutral.

In the economic calendar on Wednesday, there are US FOMC meeting minutes at 1900 BST.

Already out, German industrial production slipped in August, falling below market expectations.

On a seasonally and calendar adjusted basis production in industry was down by 0.2% in August compared to July, when it rose by 1.4%. Market consensus, according to FXStreet, was hoping for a 1.5% rise.

By Lucy Heming; lucyheming@alliancenews.com

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