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LONDON MARKET MIDDAY: Stocks rise amid dovish Fed, ECB expectations

6th Dec 2023 12:09

(Alliance News) - Stock prices in London were higher on Wednesday afternoon, with softer US employment data strengthening the conviction that the next move in Federal Reserve interest rates is a cut.

The DAX 40 in Frankfurt hit a record high, with dovish rate bets for the European Central Bank also increasing.

"The rate cut narrative continues to gather pace, leading to a fresh bond rally over the last 24 hours on both sides of the Atlantic. In the US, that was mostly driven by the latest [job openings and labour turnover survey] data, where fewer job openings suggested that the tightness in the labour market was continuing to ease. Clearly that could be very good news but the rapid normalising of labour market conditions will need to plateau at some point soon to ensure that the appearance of a potential soft landing is not just a path to a harder one," analysts at Deutsche Bank commented.

The FTSE 100 index traded 36.07 points higher, 0.5%, at 7,526.48. The FTSE 250 rose 97.80 points, 0.5%, at 18,585.33, and the AIM All-Share added 0.85 points, or 0.1%, at 717.53.

The Cboe UK 100 was up 0.5% at 751.57, the Cboe UK 250 traded 0.6% higher at 16,112.54, and the Cboe Small Companies shot up 1.9% at 13,701.58.

Stocks in New York are called to open higher, with the Dow Jones Industrial called up 0.1% and the S&P 500 and Nasdaq Composite 0.2% higher.

Sterling was quoted at USD1.2584 early Wednesday afternoon, lower than USD1.2613 at the London equities close on Tuesday. The euro traded at USD1.0779, lower than USD1.0809 late Tuesday. Against the yen, the dollar was quoted at JPY147.39, up from JPY147.10.

Bannockburn Global Forex analyst Marc Chandler noted the dollar has gathered some momentum, despite muted Fed rate expectations.

"We had anticipated a recovery of the dollar on ideas that the market has too aggressively pushed down US rates, and pricing in more Fed easing with higher confidence than seems to be warranted by the recent data. However, US rates have not recovered, but the dollar has. Partly, this reflects that rates have fallen as faster if not faster elsewhere, and especially in the eurozone after last week's preliminary [consumer price index]," Chandler explained.

Isabel Schnabel once one of the European Central Bank's more hawkish voices, told Reuters that the central bank can take further hikes off the table. Roughly a month ago, she said another hike may have been an option.

In Paris, the CAC 40 rose 0.5% while Frankfurt's DAX 40 climbed 0.3%.

Germany's DAX 40 shrugged off a hefty 12% share price slide for pharmaceutical company Merck KGaA.

The firm late Tuesday said evobrutinib did not meet primary endpoint in trials on its effectiveness in sufferers of relapsing multiple sclerosis.

Merck said the drug did not meet the primary endpoint of reducing annualised relapse rates in people with RMS, when compared with teriflunomide, an existing medication.

Less robust interest rate expectations for the ECB supported Frankfurt's DAX 40, as did weaker data out of Germany, in some "bad news is good news", Scope Markets analyst Joshua Mahony commented.

New manufacturing orders in Germany were lower than expected in October, in another sign of weakness for Europe's largest economy.

According to Destatis, factory orders fell 3.7% on-month in October, falling well short of the FXStreet cited consensus, which had predicted it would be flat from September. In September, orders rose 0.2% from August.

Year-on-year, new orders slid 7.3% in October, worsening from the 4.3% fall in September.

Scope's Mahony added: "European markets have started the day on a positive footing this morning with a concerning German factory orders figure bringing yet another reminder over the ECB's need to switch onto a more accommodative footing at the earliest opportunity."

Elsewhere in the central banking space, eyes will be on the Bank of Canada. It announces an interest rate decision at 1500 GMT. Before that, there is the latest ADP US jobs report at 1315 GMT and US trade data at 1330 GMT.

In London, shares in British American Tobacco slumped 7.2%, the stock rocked by a downbeat update where it predicted tepid revenue growth next year and announced a GBP25 billion impairment.

The London-based maker of tobacco and other nicotine products expects to achieve a mid-single rise in constant currency adjusted diluted earnings per share for 2023. However, organic revenue growth for the year is now expected at the low end of its 3% and 5% guidance range at constant rates.

But the company projects strong new category revenue growth amid incremental investment. Promisingly, It expects New Category to be broadly breakeven in 2023, two years ahead of its original target. New categories includes new innovative products like vapour, other tobacco products, and Modern Oral, which involves Lyft, Velo and other modern white snus.

It expects low-single digit revenue and adjusted profit from operations growth in 2024, both on an organic, constant currency basis. BAT said it is making "investment choices" to boost its US arm.

BAT added: "Looking forward, we expect accretive New Category growth and stable combustible revenue to continue to drive total nicotine industry revenue growth. This underpins our medium-term guidance where we expect a progressive improvement to a 3-5% revenue and mid-single digit adjusted profit from operations growth, on an organic basis at constant rates by 2026."

However, BAT said it will book a hefty impairment of GBP25 billion.

"This accounting adjustment mainly relates to some of our acquired US combustibles brands, as we now assess their carrying value and useful economic lives over an estimated period of 30 years. Accordingly, we will commence amortisation of the remaining value of our US combustibles brands from January 2024," it said.

Weir Group rose 3.3%, the best large-cap performer. It announced a 20% operating margin target for 2026, with the mining technology company upping its cost saving target.

It now targets GBP60 million in absolute savings in 2026, doubled from its previous GBP30 million aim.

Elsewhere in London, Paragon Banking surged 6.7%. It announced a new GBP50.0 million share buyback and reported healthy annual earnings.

The Solihull, West Midlands-based mortgage and loan provider reported total operating income of GBP466.0 million for the year ended September 30, up 19% from GBP393.0 million.

Pretax profit declined by 52% to GBP199.9 million from GBP417.9 million. Its bottom line was hurt by GBP77.7 million worth of fair value losses, compared to GBP191.9 million worth of gains a year prior. On an underlying basis, profit surged 25% to GBP277.6 million.

OSB Group added 3.8% in a positive read across.

Ten Entertainment shares jumped 31% to 407.80 pence. The ten pin bowling operator agreed to a GBP287 million takeover from a vehicle indirectly owned by investment funds advised by Trive Capital Partners.

Neon Buyer will pay 412.5 pence per Ten Entertainment share, a 33% premium to its 310p closing price on Tuesday.

On AIM, Ilika added 24% as it announced a milestone at its Goliath electric vehicle battery programme. It reached its technology development target of lithium-ion energy density parity.

The Romsey, England-based solid-state battery technology company explained that this means its Goliath solid-state pouch cell can now match the energy density of current lithium-ion pouch cells.

"This key achievement in our cutting-edge Goliath battery re-emphasizes the strength of our solution and further demonstrates Ilika's differentiation as we strive for a more sustainable future," Chief Executive Graeme Purdy said.

Brent oil was trading at USD76.50 a barrel early Wednesday afternoon, lower than USD78.49 late Tuesday. Gold was quoted at USD2,021.74 an ounce, higher than USD2,018.22 on Tuesday.

By Eric Cunha, Alliance News news editor

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