LONDON MARKET OPEN: Omicron fears ease again but uncertainty lingers

(Alliance News) - December started on an upbeat note as the investment mood swung back to risk-on Wednesday, with the Omicron coronavirus variant continuing to cause volatility in financial markets.

The FTSE 100 index rallied 72.53 points, or 1.0%, to 7,131.98 early Wednesday. The mid-cap FTSE 250 index was up 173.34 points, or 0.8%, at 22,693.06. The AIM All-Share index was up 1.34 points, or 0.1%, at 1,188.90.

The Cboe UK 100 index was up 0.7% at 706.94. The Cboe 250 was up 0.5% at 20,141.97, and the Cboe Small Companies up 0.1% at 14,695.90.

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

"UK markets continue to blow hot and cold in the face of Omicron uncertainty, in terms of both the medical and economic impact. Taking the lead from a more positive overnight session in Asia, shares were marked higher in opening exchanges in something of a relief rally," said Richard Hunter, head of markets at interactive investor.

However, he warned, volatility is likely to remain as further details of the variant emerge.

"In the meantime, the main indices are holding onto decent gains," said Hunter.

Tokyo's Nikkei 225 index ended up 0.4% on Wednesday. In China, the Shanghai Composite closed up 0.4%, while the Hang Seng index in Hong Kong ended up 0.8%. The S&P/ASX 200 in Sydney, however, ended down 0.3%.

Investors continue to follow the latest twists in the Omicron saga, with the latest news being data from the Netherlands showed the coronavirus variant that has spooked markets was present in Europe before the first cases were reported in South Africa.

The new variant – whose high number of mutations the WHO believes may make it more transmissible or resistant to vaccines – was found in two Dutch test samples from November 19 and 23, with one having no travel history.

But providing some hope, Moderna, US drugmaker Pfizer and the backers of Russian vaccine Sputnik V are already working on an Omicron-specific vaccine. On the treatment front, meanwhile, a panel of US health experts voted Tuesday to endorse Merck & Co's Covid pill for high-risk adult patients, which is already authorised in Britain.

Amid Wednesday's more upbeat, albeit still volatile, environment, the dollar eased and the safe-haven Japanese yen handed back some recent gains.

Sterling was quoted at USD1.3292 early Wednesday, higher than USD1.3245 at the London equities close on Tuesday.

The euro traded at USD1.1312 early Wednesday, up from USD1.1280 late Tuesday. Against the yen, the dollar was quoted at JPY113.47, up from JPY113.38.

The greenback softened despite US Federal Reserve Chair Jerome Powell warning the threat of "persistently high inflation" has increased.

It was a distinct change of tone for the central bank chief who for months has tried to assuage fears by saying the recent inflation spike would be "transitory", and pledged to be patient before raising interest rates. He now says it is time to retire that term.

Powell pledged that the Fed "will use our tools to make sure that higher inflation does not become entrenched" and signalled that it may be appropriate to speed up the pace of the pull-back in monthly asset purchases.

Gold was quoted at USD1,779.27 an ounce early Wednesday, up from USD1,776.50 on Tuesday.

Sectors in London such as hospitality and oil stocks made gains on Wednesday after a difficult few sessions in the wake of Omicron panic. Premier Inn-owner Whitbread topped the FTSE 100, up 3.6%, while Holiday Inn owning peer InterContinental Hotels Group rose 2.5%.

Oil major BP advanced 2.9% as crude prices made a recovery. Brent oil was trading at USD72.05 a barrel early Wednesday, higher than than USD70.75 late Tuesday.

Royal Dutch Shell 'A' and 'B' shares rose 2.7% and 2.9% respectively.

In the FTSE 250, Redde Northgate shares rallied 6.9% after the commercial vehicle hire business said interim trading was ahead of expectations and full-year profit is seen "at least" in line with consensus.

Total revenue for the half-year to October 31 rose 10% to GBP612.9 million from GBP556.0 million year-on-year, and pretax profit jumped to GBP71.7 million from GBP25.9 million. Redde will pay out an interim dividend of 6.0p, up 77% on a year ago.

"We are pleased to have delivered a strong H1 performance driven by high demand for our products and services and underlying margin gains," said Chief Executive Martin Ward.

Drax rose 5.4% after guiding to full-year earnings to be around the top end of analyst forecasts.

Drax said its biomass and pumped storage generation assets in the UK have played an important role as the nation's power system came under stress from higher gas prices, European interconnector issues, and periods of low wind. Drax said it has been able to increase forward hedged prices in 2022 and 2023.

Drax continues to expect the Customers business will return to profitability at the adjusted earnings before interest, tax, depreciation and amortisation level for 2021.

Drax now expects group adjusted Ebitda for 2021 around the top of the range of current analyst expectations, subject to a good performance in December. It placed consensus at GBP380 million with a range of GBP374 million to GBP391 million. In 2020, Drax booked adjusted Ebitda from continuing operations of GBP366 million, down from GBP371 million in 2019.

Elsewhere in London, Pendragon rose 5.7%. The car dealership now expects 2021 underlying pretax profit to be GBP80.0 million, up from October's guidance of GBP70.0 million. This, in turn, had been raised from a prior guidance range of GBP55.0 million to GBP60.0 million.

Behind the latest upgrade was a strong performance in the fourth quarter so far. Demand for new vehicles continues to outstrip supply, but the shortfall in October and November was lower than feared and performance supported by strong margins, Pendragon said.

Used vehicles continue to perform well, it said, with strong margins underpinned by favourable market conditions.

The economic events calendar on Wednesday has manufacturing PMI readings from Germany, the eurozone, UK and the US at 0855 GMT, 0900 GMT, 0930 GMT and 1445 GMT respectively. There is also US ADP employment data at 1315 GMT.

By Lucy Heming; lucyheming@alliancenews.com

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