LONDON MARKET MIDDAY: Stocks Rise As Formal US Power Transfer Begins

(Alliance News) - Stock prices in London were continuing their upward trend at midday on Tuesday ...

Alliance News 24 November, 2020 | 12:02PM
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(Alliance News) - Stock prices in London were continuing their upward trend at midday on Tuesday as fears over a disorderly transfer of leadership in the US were erased.

Investors reacted positively following news US President Donald Trump's team will now work with Joe Biden to begin his transition into the White House and on optimism that Covid-19 vaccines could soon be rolled out around the world.

The FTSE 100 index was up 74.10 points, or 1.1%, at 6,407.94. The mid-cap FTSE 250 index was up 195.50 points, or 1.0%, at 19,777.85. The AIM All-Share index was down 0.1% at 1,033.75.

The Cboe UK 100 index was up 0.9% at 637.76 points. The Cboe 250 was up 1.1% at 17,178.89, and the Cboe Small Companies up 0.4% at 11,538.50.

In mainland Europe, the CAC 40 in Paris was up 1.3%, while the DAX 30 in Frankfurt was up 1.1%.

"Stocks continued in their broadly positive frame of mind on Tuesday, making steady gains after another good session in Asia overnight and a US trading day that saw a late rebound on news that Donald Trump was finally allowing at least part of the transition to go ahead," IG Group's Chris Beauchamp said.

"Signs of movement in the US political deadlock have combined with the steady drip of vaccine news to underpin a market that has yet to breach the highs seen earlier in the month. But the trickle of good news stories has helped to hold markets near to those highs, leaving them well-placed to push higher into December," he added.

Trump came his closest yet to admitting election defeat Monday after the government agency meant to ease Biden's transition into the White House said it was finally lifting its unprecedented block on assistance.

Trump acknowledged it was time for the General Services Administration to "do what needs to be done." In the same tweet he insisted that he was still refusing to concede, saying: "Our case STRONGLY continues, we will keep up the good fight, and I believe we will prevail!"

But for the Republican to sign off on the GSA's decision to work with the Biden transition team signalled that even he sees the writing on the wall after three weeks of evidence-free claims that the November 3 election was stolen from him. This means that Biden's team will now have access to funds, office space and the ability to meet with federal officials.

Analysts at BK Asset Management said: "The formal announcement that the GSA will release transition funds to the incoming Biden administration helped calm the markets and caused a small rally in Asian and early European trade as the risk of a political standoff receded.

"Although the markets have long priced in Biden win and have been rallying ever since last night's action assured that there will not be any Constitutional standoff and that a peaceful transition of power - something that until this year was essentially assumed in the more than 200-year history of this nation - will take place."

US stock market futures were pointed to a higher open, with the Dow Jones Industrial Average called up 1.1%, the S&P 500 up 0.9% and the Nasdaq Composite up 0.3%.

In addition, reports that Biden plans to nominate Janet Yellen to become the next US Treasury head further boosted stocks on expectations the former Federal Reserve chair would pursue more conventional policies than the outgoing Steven Mnuchin.

"Topping up the current optimism, the President-elect lined up Janet Yellen, the former Chair of the Federal Reserve, to be the next Treasury Secretary. This move creates the prospect of greater harmony between the two institutions and is conducive to guaranteeing the coordination of fiscal and monetary stimulus, conditions which are likely to lead to further dollar weakness," said analysts at ActivTrades.

In the FTSE 100, travel and travel-related stocks, which have been hit hard by the pandemic, were once again in the green after UK Transport Secretary Grant Shapps said he wanted to phase out quarantines by replacing it with daily coronavirus tests.

Travellers arriving in England will be able to end their quarantine period with a negative coronavirus test after five days from December 15, Shapps announced. The travel industry welcomed the policy but described it as "long overdue".

Under the new rules, passengers who arrive from a destination not on the government's travel corridors list will still need to enter self-isolation. But they can reduce the 14-day period by paying for a test from a private firm on or after day five at a cost of GBP65 to GBP120. Results will normally be issued in 24 to 48 hours. This means people could be released from quarantine six days after arrival.

British Airways parent International Consolidated Airlines was up 6.1%, while midcap travel stocks TUI and easyJet were up 11% and 8.5% respectively.

Compass Group was up 5.6% after the contract caterer reported a sharp fall in annual earnings, but said it sees positive signs ahead.

For the 12 months ended September 30, revenue fell 20% to GBP20 billion from GBP24.9 billion in financial 2019, and pretax profit slumped 86% to GBP210 million from GBP1.49 billion last year. Operating profit dropped 82% to GBP294 million from GBP1.63 billion.

As such, Compass axed its annual dividend, having paid out 40.0 pence per share in financial 2019. The company said it will keep future dividends under review and will restart payments when it is appropriate to do so.

More encouragingly, Compass said in the fourth quarter it returned the business to profitability and is now cash neutral. This was achieved, it said, mainly through contract renegotiations to reflect the difficult trading environment, continued discipline in terms of costs, and improvement in volumes.

"With a significant amount of good vaccine news behind us and the gradual end to lockdown-measures approaching, hopefully, the company will be able to start trading normally again soon and begin to regain the strong revenue and profit levels it posted prior to March 2020," said Edison's Neil Shah.

Oil majors also were in the green. BP, Royal Dutch Shell 'A' and 'B' shares were up 7.4%, 5.0% and 4.9% respectively, tracking spot oil prices higher.

Brent oil was quoted at USD46.63 a barrel Tuesday midday, up from USD45.78 a barrel at the equities close in London on Monday. The North Sea benchmark hit an intraday high of USD46.71 in early trade - its highest level since March.

At the other end of the large caps, Mexican gold miner Fresnillo was the worst performer, down 6.0%, tracking spot prices lower.

Gold was trading at USD1,828.65 an ounce at midday, lower from USD1,833.31 late Monday, as demand for the safe-haven metal waned.

Intertek was down 4.5%, after the quality assurance provider reported a fall in third-quarter revenue.

For the quarter ended October 31, revenue was down to GBP941.0 million from GBP1.04 billion in the third quarter last year. Looking ahead, Intertek said it was on track to deliver a "resilient" financial 2020 performance, with a mid-single digit like-for-like revenue decline at constant rates.

On the currency front, Tuesday's risk-on sentiment sent the dollar lower against major counterparts for a second straight session.

The pound was quoted at USD1.3347 midday on Tuesday, up sharply from USD1.3289 at the London equities close on Monday.

The euro stood at USD1.1876, up from USD1.1821. Against the Japanese yen, the dollar was trading at JPY104.37, lower from JPY104.52.

By Arvind Bhunjun;

Copyright 2020 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
BP PLC 290.00 GBX -1.14
Fresnillo PLC 1,091.00 GBX 0.14 -
Intertek Group PLC 5,594.00 GBX 0.76
Compass Group PLC 1,394.50 GBX -1.10
Royal Dutch Shell PLC B 1,359.60 GBX -1.25
International Consolidated Airlines Group SA 151.60 GBX -3.41
Royal Dutch Shell PLC Class A 1,420.00 GBX -1.17

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