(Alliance News) - Stock prices in London inched marginally higher on Tuesday, with comments from US Federal Reserve Chair Jerome Powell lifting sentiment towards inflation and rising Brent prices boosting oil majors.
The FTSE 100 index was up 11.80 points, or 0.2%, at 7,074.09 early Tuesday. The mid-cap FTSE 250 index was up 39.00 points, or 0.2%, at 22,496.08. The AIM All-Share index was down 0.1% at 1,219.50.
The Cboe UK 100 index was up 0.2% at 704.82. The Cboe 250 was up 0.2% at 20,231.11, and the Cboe Small Companies rose 0.1% at 15,176.64.
Equity prices in mainland Europe were more muted, however.
Analysts at Lloyds Bank noted "further comments from Fed policymakers are keenly awaited".
In mainland Europe, the CAC 40 in Paris was trading flat and the DAX 30 in Frankfurt was down 0.3%.
"Monday moodiness didn't last long in equities. The bulls returned and reflation was on the menu for most traders," Swissquote analyst Ipek Ozkardeskaya commented.
Fed Chair Powell, in prepared remarks ahead of a House hearing Tuesday, reiterated that the central bank will continue its supportive stance to ensure that the "sustained improvement" since the depths of Covid-19 pandemic is extended.
Powell acknowledged that inflation has "increased notably in recent months" due in part to higher oil prices and the hit from supply chain disruptions. But he restated that higher prices are due to "transitory" factors, adding that "inflation is expected to drop back toward our longer-run goal."
US Fed Chair Powell testifies before Congress at 1900 BST on Tuesday.
The Nikkei 225 in Tokyo closed 3.1% higher on Tuesday, while the S&P/ASX 200 in Sydney rose 1.5%. The two benchmarks were among those worst-hit by inflationary panic on Monday.
In China, the Shanghai Composite closed 0.8% higher, though the Hang Seng in Hong Kong was down 0.3% in late trade.
The pound was quoted at USD1.3891 early on Tuesday morning in London, down from USD1.3915 at the equity market close on Monday.
UK government borrowing fell in May as Covid-19 curbs eased, figures from the Office for National Statistics showed on Tuesday.
The public sector net borrowing figure for the month remained stubbornly high, however, with the latest number being the second-highest May total on record.
According to the Office for National Statistics, public sector net borrowing was GBP24.3 billion in May, trimmed from GBP43.7 billion a year earlier. In April, the figure amounted to GBP28.3 billion.
In May, public sector net debt stood at GBP2.196 trillion, around 99.2% of gross domestic product. This was the UK's chunkiest debt to GDP ratio since recording 99.5% in March 1962. In April 2021, the figure stood at 98.5%.
Due to restrictions easing, fewer firms used the UK's furlough scheme. To compare, back in May 2020, the UK's first coronavirus lockdown meant activity all but ground to a halt.
Quilter Investors Portfolio Manager Paul Craig added: "From a market perspective, investors should be braced for the hangover that follows the borrowing binge. The jobs market is stable and the economy is ticking along nicely, but inflation is creeping up not so nicely. As we've seen in the US last week with the Fed's hawkish turn, the Bank of England could well be looking at tapering its monetary support to prevent the strengthening economy from becoming red hot."
The euro stood at USD1.1904, down from USD1.1915. Against the yen, the dollar was trading at JPY110.43, up from JPY110.15.
Brent oil was quoted at USD75.16 a barrel early Tuesday in London, up from USD74.21 late Monday.
"Oil prices rallied powerfully once again overnight, as the election of a new hard-line president in Iran reduced the possibility of a nuclear agreement and Iranian sanctions would ease," OANDA analyst Jeffrey Halley explained.
Royal Dutch Shell A shares were 2.2% higher, its B stock rose 2.5% and peer BP was up 2.0%.
Melrose Industries climbed 2.1% after the industrial turnaround firm unveiled a bumper GBP730 million cash shareholder return, equivalent to 15 pence per share, as it sealed the GBP2.62 billion sale of its Nortek Air Management unit.
Melrose said it is taking a prudent stance on the proposed capital return given "these unprecedented circumstances", but added that, should encouraging sector recoveries continue, the board expects to be able to make another "significant" return to shareholders next year.
In addition, the company noted trading so far in the first half ending June 30 has been in line with expectations.
At the other end of the large-caps, DS Smith was among the worst-performers, down 2.2%.
The packaging firm said revenue in the year ended April 30 fell 1.1% to GBP5.98 billion from GBP6.04 billion amid weaker paper prices.
"Despite higher box volumes, Packaging revenue saw a reduction in realised selling prices, largely reflecting the decline in paper price benchmarks in H2 2019/20 and H1 2020/21," the company explained.
Pretax profit fell 37% to GBP231 million from GBP368 million. Profit was "adversely impacted by Covid-19, particularly in Q1", though the company said its fortunes improved somewhat in the second half.
DS Smith proposed an 8.1p final payout, taking the annual total to 12.1p. It did not propose any dividends for the previous financial year.
Grafton Group surged 3.4% after the Dublin-based building materials distributor said it has struck a deal to acquire Isojoen Konehalli Oy & Jokapaikka Oy, or IKH, one of Finland's largest PPE wholesalers. Grafton will pay EUR199.3 million.
"IKH has a track record of over twenty years of uninterrupted revenue growth and has good opportunities for further organic development. A lean cost base, scale related benefits from the distribution centre in Kauhajoki and a strong product procurement strategy contributed to the adjusted operating profit margin of 13.2% in the year ended 28 February 2021," the company said.
At the other end of the mid-caps, Aston Martin Lagonda fell 2.2%. It said it has sued Swiss dealer Nebula Project for failing to pay some back some customer deposits for orders of the Valkyrie sports car.
"Both Aston Martin and its customers have been impacted by Nebula Project AG's and its board members' behaviour. Aston Martin is fully committed to supporting and working with those customers affected to ensure that they will still receive delivery of their Valkyrie programme vehicles as scheduled, prioritising customer relationships, despite the company not having received all the deposited funds," Aston Martin explained.
Going forward, Aston Martin said it will ensure all deposits for special vehicles go straight to the company, rather than through a third party.
The net financial impact will be "positive over time" but for 2021, cashflow and earnings before interest, tax, depreciation and amortisation will be hit by GBP15 million, which includes a GBP5 million provision of trade debtors.
Gold was quoted at USD1,780.52 an ounce early Tuesday, down from USD1,786.00 late Monday.
By Eric Cunha; ericcunha@alliancenews.com
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