LONDON MARKET CLOSE: FTSE 100 Extends Rally Amid Encouraging Data

(Alliance News) - The FTSE 100 added more than 160 points on Wednesday as the week's global rally ...

Alliance News 3 June, 2020 | 5:05PM
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(Alliance News) - The FTSE 100 added more than 160 points on Wednesday as the week's global rally continued into a third session, with travel stocks leading the way on hopes the summer holiday season can be salvaged.

The pound made headway on Wednesday as data from IHS Markit showed UK private sector activity improved somewhat in May, while the euro cautiously edged up ahead of Thursday's European Central Bank decision.

The FTSE 100 index closed up 162.27 points, or 2.6%, at 6,382.41 on Wednesday - bringing its gain so far this week to 5.0%.

The FTSE 250 ended up 460.77 points, also gaining 2.6%, at 17,897.08, and the AIM All-Share closed up 3.82 points, or 0.4%, at 895.18.

The Cboe UK 100 ended 2.6% higher at 10,797.14, the Cboe UK 250 closed up 2.8% at 15,370.70, and the Cboe Small Companies ended up 1.5% at 9,622.20.

In European equities on Wednesday, the CAC 40 in Paris ended up 3.4%, while the DAX 30 in Frankfurt ended up 3.9%.

"Stock markets continue to make gains, rallying for a third day this week, with risk assets still in high demand," said Chris Beauchamp, chief market analyst at IG.

"Good news in the shape of the monthly ADP report provided a reason for markets to rally - a few weeks ago a loss of the best part of three million jobs in a moth would be a cause for concern, but in the strange world we live in now it passes without comment, particularly when last month's loss was almost 20 million and expectations for today's reading had been in the region of 9 million," said Beauchamp. "Coupled with upwardly-revised PMIs for Europe we have the recipe for further optimism."

US private sector employment decreased by almost 3 million jobs in May, according to figures published by payroll processor ADP.

Total US nonfarm private employment fell by 2.8 million in May, but outperformed consensus of 9.0 million, as cited by FXStreet. In April, 19.6 million jobs were lost; the April figure was revised after initial report of 20.2 million job losses.

Wall Street rallied in midday trade, with the Dow Jones up 1.2%, the S&P 500 up 1.0% and the Nasdaq Composite up 0.7%.

Data earlier in the morning, from Europe, showed an improved in private sector continues even if Covid-19 continues to damp activity.

The IHS Markit eurozone composite output index read 31.9 points in May, its best level in three months. It was higher than the flash reading of 30.5 and up on April's 13.6 and March's 29.7.

However, the purchasing managers' index remained well below the 50.0 no-change mark.

The four largest euro area economies registered slower - albeit still severe - contractions in activity. Italy was the best-performing, followed by Germany and France. Spain remained the weakest-performing nation.

The UK's private sector also saw improved conditions in May from April's record lows, but likewise continued to struggle.

The composite PMI for May rose sharply to 30.0 points from a score of 12.9 in April.

The services PMI rose to 29.0 in May from 13.4 in April, due to rising client demand as the UK economy started to reopen, especially in the construction sector. The UK manufacturing sector fared better, as the PMI score for May rose to 40.7 from 32.6 in April.

The pound was quoted at USD1.2604 at the London equities close Wednesday, trading at its best levels in a month, compared to USD1.2535 at the close on Tuesday.

However, the euro failed to gain much ground after the data as focus turns to the latest European Central Bank decision on Thursday. The euro stood at USD1.1223 at the European equities close Wednesday, up against USD1.1210 at the same time on Tuesday.

"How the ECB plays its cards tomorrow could be crucial in providing the EUR with near-term direction," said Rabobank.

"While it can be argued that the ECB could wait to announce an extension of its PEPP programme, this may be seen as a signal that ECB President Lagarde is not committed to reducing tail risks for peripheral debt," Rabobank said. "In turn this could lead to a widening of yield spreads and a coincident sell off in the value of the EUR. In our view the ECB is likely to announce a EUR250 bln addition to PEPP in additional to a 10 bps cut in the discount rate."

The ECB policy decision is due at 1245 BST and will be followed up with a press conference from ECB President Christine Lagarde.

Amid Wednesday's risk-on mood, safe haven assets suffered.

Gold was quoted at USD1,697.55 an ounce at the London equities close Wednesday against USD1,738.21 at the close on Tuesday. Against the yen, the dollar was trading at JPY108.95 compared to JPY108.55 late Tuesday.

Brent oil was quoted at USD39.52 a barrel at the London equities close Wednesday from USD39.20 late Tuesday.

In London, travel stocks led Wednesday's rally as investors bought back into the beleaguered firms, eyeing the easing of lockdowns across Europe amid hopes the summer holiday season can be salvaged.

Italy on Wednesday reopened its borders to visitors from the rest of the EU and dropped a ban on travel between its regions. Visitors from non-EU countries that are part of the Schengen zone, such as Switzerland and Norway, as well as the UK, can also freely travel to Italy.

Airlines International Consolidated Airlines and easyJet ended up 12% and 7.9% respectively, while jet engine maker Rolls-Royce rose 9.4% and Premier Inn owner Whitbread gained 5.6%. In the FTSE 250, Anglo-German tour operator TUI advanced 8.9%.

Ryanair shares rose 5.9% despite the budget airline on Wednesday reporting practically no passenger traffic at all in May, saying it expects little to change in June.

The carrier said traffic in May dropped by 99.5% to just 70,000 passengers versus the 14.1 million passengers it carried a year earlier, as Covid-19 airspace closures continue to ground flights.

Ryanair said it operated just 701 scheduled flights in May, including a number of rescue and medical flights on behalf of various EU governments, versus its budgeted schedule of 70,000 flights.

In the FTSE 250, Chemring shares surged 26% after posting an interim performance ahead of expectations.

The Romsey, Hampshire-based company reported 37% revenue growth in the six months to the end of April to GBP191.0 million from GBP139.3 million a year before, taking pretax profit up to GBP19.0 million from GBP4.3 million.

Chemring increased its interim payout by 8% to 1.3 pence a share.

Looking forward, the defence technology firm said all of its businesses have remained open despite the challenges presented by Covid-19. Its full-year expectations are unchanged, with about 95% of expected second-half revenue in the order book or delivered to date.

Marks & Spencer shares closed up 8.2% after Jefferies raised the clothing and food retailer to Buy from Hold.

Still to come on Wednesday are the results of the latest FTSE index review, due after the market closes. Centrica, Carnival, Meggitt and easyJet are all facing relegation from the FTSE 100 and Avast, GVC Holdings, HomeServe and Kingfisher are poised for a promotion from the FTSE 250.

The UK corporate calendar for Thursday has a trading statement from online trading firm IG Group and full-year results from water firm Pennon Group.

In the economic calendar on Thursday, there is an Irish services PMI at 0101 BST and eurozone retail sales at 1000 BST. US initial jobless claims are at 1330 BST with the trade balance due at the same time.

By Lucy Heming; lucyheming@alliancenews.com

Copyright 2020 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Rating
Rolls-Royce Holdings PLC 269.70 GBX 4.45
TUI AG 376.50 GBX 5.67 -
Chemring Group PLC 248.30 GBX 2.81 -
easyJet PLC 690.20 GBX 6.18 -
Whitbread PLC 2,366.21 GBX 5.35 -
Ryanair Holdings PLC 11.62 EUR 8.09 -
Marks & Spencer Group PLC 100.10 GBX 2.06
International Consolidated Airlines Group SA 223.70 GBX 8.02 -

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