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LONDON MARKET CLOSE: Stocks green as financial instability fears ebb

14th Mar 2023 16:55

(Alliance News) - Stocks in London ended in the green on Tuesday, as easing fears around the financial sector joined market positivity off the back of lower US inflation data.

"The demise of the Silicon Valley Bank brought concerns of further contagion throughout regional banks, leading to widespread calls over who could be the next to fall. However, while there are likely to be others which will have to write down bond market investments, parallels to the global financial crisis should be limited. With US banking stocks seeing widespread gains, there is distinct feeling of confidence that we will not see widespread issues arise throughout the financial sector," said Joshua Mahony, senior market analyst at IG.

The FTSE 100 index closed up 88.48 points, or 1.2% at 7,637.11 on Tuesday. The FTSE 250 ended up 304.58 points, or 1.6%, at 19,129.66. The AIM All-Share closed up 7.94 points, or 1.0%, at 827.10.

The Cboe UK 100 ended up 1.0% at 763.32, the Cboe UK 250 closed up 1.3% at 16,711.62, and the Cboe Small Companies ended up 1.0% at 13,366.66.

According to Bureau of Labor Statistics, US annual price inflation ebbed to 6.0% last month, from 6.4% in January.

The figure was in line with FXStreet-cited market consensus and was the weakest yearly inflation rate since September 2021.

Excluding food and energy, the annual core inflation rate slowed slightly to 5.5% in February from 5.6% in January, again in line with expectations.

The figures come as investors question what the collapse of Silicon Valley Bank means for the US monetary policy.

US authorities pulled the plug on SVB last Friday, marking America's biggest banking failure since the 2008 financial crisis and raising fears of potential spillovers across the banking system.

Prior to the SVB turmoil, the Federal Reserve had been expected to lift interest rates by 50 basis points next week. It is now expected to enact another quarter-point hike.

Stocks in New York were firmly higher at the London equities close, with the Dow Jones Industrial Average up 1.1%, the S&P 500 index up 1.7%, and the Nasdaq Composite up 2.1%.

In local news, the UK's tight labour market showed signs of cooling.

According to the Office for National Statics, the UK jobless rate was 3.7% in the three months to January, unchanged from the three months to December.

The reading topped an FXStreet cited forecast of a slight rise in the unemployment rate to 3.8%. This time last year, the jobless rate was 4.0%.

Oanda analyst Craig Erlam said that while the data is not a massive game changer for the BoE, it does offer the central bank some "good news".

"The UK jobs data was largely in line with what markets were expecting and didn't really shift the dial in any significant way... All told, I don't think either aspect of the report will fuel or ease concerns at the Bank of England about inflation and the path for interest rates. Meanwhile, markets are still pricing in a 25 basis point hike over the next couple of meetings," Erlam added.

The pound was quoted at USD1.2150 at the London equities close on Tuesday, down slightly from USD1.2157 at the close on Monday.

In the FTSE 100, Rolls-Royce was Tuesday's best blue-chip performer, finishing 7.0% higher after a statement from the UK government said it and BAE Systems have been chosen to build the UK and Australia's SSN-AUKUS submarines.

UK Prime Minister Rishi Sunak said that Australia and the UK will both build new submarines to the SSN-AUKUS design, with construction of the UK's submarines taking place principally in Barrow-in-Furness.

The UK government confirmed the SSN-AUKUS submarines will be built by BAE Systems and Rolls-Royce and are set to be delivered in the late 2030s in the UK and in the early 2040s for Australia.

BAE Systems finished 0.5% higher.

Centrica closed up 3.2% after it said it plans to extend the lives of its Heysham 1 and Hartlepool nuclear power stations.

The British Gas owner said the power stations are expected to remain in operation until March 2026, two years later than previously forecast. The two power stations had been scheduled for defuelling and decommissioning in March next year.

The company said the extensions would add 6 terawatt hours to its electricity generation volumes between 2024 and 2026, representing about 70% of Centrica's total nuclear volumes in 2022.

In the FTSE 250, Close Brothers finished 5.6% lower after it reported its half-year profit declined significantly amid provisions at its litigation finance business Novitas.

The merchant banking group reported pretax profit in the six months to January 31 plunged 91% to GBP11.7 million from GBP128.9 million.

Investment losses increased to GBP162.2 million from GBP48.3 million a year before, and Novitas provisions totalled GBP114.6 million.

Novitas was acquired by Close Brothers for around GBP31 million in 2017. It is a provider of loans for legal proceedings. In 2021, Close Brothers decided to permanently cease the approval of lending to new customers across all the products offered by Novitas and withdraw from the legal services financing market.

Excluding Novitas, adjusted operating profit decreased to GBP117.5 million from GBP160.5 million a year before.

Elsewhere in London, Costain finished 7.7% higher as it returned to profit in 2022 and increased its annual revenue on the back of higher volumes in complex programme delivery.

In 2022, the infrastructure construction firm reported a pretax profit of GBP32.8 million, swinging from a loss of GBP13.3 million the previous year. Revenue totalled GBP1.42 billion, up 25% from GBP1.14 billion the year prior.

Costain said the increase in revenue was driven by increased volumes in complex programme delivery and the impact of inflation, as well as increased revenue in its consultancy-led sectors, predominantly in Energy and Defence.

In European equities on Tuesday, the CAC 40 in Paris ended up 1.9%, while the DAX 40 in Frankfurt ended 1.8% higher.

The euro stood at USD1.0719 at the European equities close on Tuesday, lower against USD1.0737 at the same time on Monday. Against the yen, the dollar was trading at JPY134.45, higher compared to JPY133.25.

Brent oil was quoted at USD79.36 a barrel at the London equities close on Tuesday, down from USD81.23 late Monday. Gold was quoted at USD1903.01 an ounce, slightly lower against USD1,904.07.

In Wednesday's UK corporate calendar, there are full-year results from Prudential, Balfour Beatty and Ferrexpo.

In the economic calendar, UK Chancellor Jeremy Hunt will unveil his Spring Budget.

By Heather Rydings, Alliance News senior economics reporter

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