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LONDON MARKET MIDDAY: FTSE 100 rises as UK service sector impresses

5th Feb 2024 12:06

(Alliance News) - Stock prices in London were higher midday Monday, after data showed that the UK services sector kicked off the new year with its most robust performance since May.

The reading failed to stir the pound, however, which continued to struggle as traders digest Friday's dollar-boosting US jobs report.

The FTSE 100 index was up 30.67 points, 0.4%, at 7,646.21. A weaker pound is a tailwind to London's large-cap index, which is stacked with international earners.

The FTSE 250 was up 59.11 points, 0.3%, at 19,231.75, and the AIM All-Share was up just 0.24 of a point at 754.41.

The Cboe UK 100 was up 0.4% at 764.71, the Cboe UK 250 added 0.3% at 16,667.97, and the Cboe Small Companies was 0.2% higher at 14,672.33.

In European equities on Monday, the CAC 40 in Paris was up 0.1%, while the DAX 40 in Frankfurt was up 0.2%.

The S&P Global UK services business activity index posted 54.3 points in January, up from 53.4 points in December and the earlier 'flash' reading of 53.8 points. Stretching further above the 50.0 point no-change mark, the reading suggests that growth accelerated in January.

"The revival in UK service sector performance gained momentum at the start of 2024, with output growth accelerating to its fastest for eight months amid stronger business and consumer spending. New orders have also rebounded this winter as receding recession risks and looser financial conditions led to greater willingness-to-spend among clients," said Tim Moore, economics director at S&P Global Market Intelligence.

The seasonally adjusted S&P Global UK composite purchasing managers' index registered 52.9 points in January, up from 52.1 points in December.

The composite reading, a picture of the wider private sector, is calculated using a weighted average of the services and manufacturing PMIs.

It posted above the 50.0 no-change level for the third month in a row and signalled a moderate rate of expansion. Furthermore, the latest reading was up from the earlier 'flash' reading of 52.5 points.

Joshua Mahony at Scope Markets commented: "For all the talk of the UK underperforming under the weight of Brexit trade friction, the overreliance on the services sector has helped drive outperformance. For the Bank of England, this provides the basis for continued patience, with rates expected to remain on hold until June."

The pound was quoted at USD1.2594 at midday on Monday in London, lower compared to USD1.2639 at the equities close on Friday. Sterling traded at nearly a two-month low.

The euro stood at USD1.0753 midday Monday, down against USD1.0793 late Friday and similarly around its worst level since mid-December. Against the yen, the dollar was trading at JPY148.40 on Monday afternoon UK time, slightly higher compared to JPY148.35 at the time of the European equity market close on Friday.

Meanwhile, this week's US economy calendar kicks off with a pair of PMI readings at 1445 and 1300 GMT on Monday.

The data will give analysts another picture of the state of the US economy following a red-hot jobs report on Friday, which may have pushed the first Federal Reserve interest rate cut further into the future.

According to Bureau of Labor Statistics, nonfarm payroll employment rose by 353,000 in January, picking up speed from 333,000 in December. The latest figure defied the consensus forecast. Hiring was predicted to slow to 180,000 jobs, according to consensus cited by FXStreet.

What's more, Fed Chair Jerome Powell stated in a US television interview on Sunday that the US central bank would be cautious with cutting interest rates and that there would likely be fewer cuts than what the market was pricing in.

Stocks in New York are called to open lower at the start of the week. Both the Dow Jones Industrial Average and the S&P 500 are called down 0.2% and the Nasdaq Composite 0.1% lower.

In the FTSE 100, Burberry rose 1.7%, among the best performers on the index.

UK Chancellor of the Exchequer Jeremy Hunt has asked the Office for Budget Responsibility to review bringing back VAT-free shopping for international visitors, the Financial Times reported on Sunday.

The UK at the start of 2021 scrapped VAT-free shopping in an effort to boost government coffers, but the move has caused complaints by British businesses that say they have been put at a disadvantage compared to international peers.

The FT reported that OBR Chair Richard Hughes has been asked to mull "the costs and benefits" of the so-called 'tourist tax'.

Burberry previously hit out at the VAT measure. Back in November, it said its UK performance continued to lag its showing in Continental Europe when it came to "attracting tourism spend compared with pre-pandemic levels". It reflected the "withdrawal of VAT refunds in the UK since January 2021".

Vodafone lost 0.7%, as quarterly results underwhelmed.

"In recent years Vodafone has been a business with all the alacrity of a beached whale and there's nothing in its third quarter statement to get investors particularly excited," said AJ Bell investment director Russ Mould.

The telecommunications company said that total revenue for the quarter ended December 31 was EUR11.37 billion, a 3% decrease from EUR11.64 billion in the third quarter of 2022, but a 4.2% jump on an organic basis.

Among London's small-caps, CMC Markets shot up 12%.

The company, which operates an online trading platform for retail investors and financial institutions, said it plans to cut around 200 jobs, some 17% of its total workforce. The move is part of a cost review that was announced in November of last year.

CMC said it expects to incur a one-off cost of about GBP2.5 million in financial year 2024, which ends on March 31. This is expected to produce annualised savings of GBP21 million starting from financial 2025, an 18% reduction in staff costs.

On AIM, Helium One shares jumped 92%.

The primary helium explorer updated shareholders on the completion of the Itumbula West-1 well, which saw helium flow to the surface.

It said the Itumbula West-1 well, in Tanzania, has successfully completed all wireline logging and drill stem testing operations. Further, the well successfully flowed a high concentration of helium to the surface from basement, at a measured concentration up to 4.7% helium.

Crude prices continued to decline, despite ongoing geopolitical tensions. Brent oil was quoted at USD76.90 a barrel at midday in London on Monday, down from USD77.09 late Friday.

"The risk of escalation with Iran remains, but that risk is not being properly priced in. Trend and momentum indicators suggest that there is room for a further slide," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

Gold was quoted at USD2,025.33 an ounce midday Monday, lower against USD2,034.63 at the time of the European equities close on Friday.

By Sophie Rose, Alliance News senior reporter

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