LONDON MARKET CLOSE: Housebuilders send FTSE 100 higher as banks slide

(Alliance News) - Stocks in London ended higher on Wednesday with housebuilders leading the charge in the FTSE 100, while earnings season got underway in the US, fronted by JPMorgan.

The FTSE 100 index closed up 11.59 points, or 0.2%, at 7,141.82. The FTSE 250 closed up 216.93 points, or 1.0%, at 22,685.83 and the AIM All-Share closed up 5.58 points, or 0.5%, at 1,211.85.

The Cboe UK 100 ended up 1.3% at 708.90, the Cboe UK 250 closed up 1.1% at 20,465.30 and the Cboe Small Companies ended up 0.1% at 15,489.90.

The CAC 40 stock index in Paris ended up 0.8% and the DAX 40 in Frankfurt ended up 0.7%.

Stocks in New York were mostly lower at the London equities close following the release of key US inflation data.

The DJIA was down 0.5%, the S&P 500 index down 0.2% but the Nasdaq Composite was up 0.2%.

The US consumer price index in September rose 5.4%, ticking up ahead of expectations for price growth to be in line with the 5.3% reported for August. The latest print matched July and June's readings, but was the highest in 13 years.

With the world's top economy well on the recovery track, the US central bank has already signalled it will begin to wind back the massive financial support put in place at the start of the pandemic.

But supply chain bottlenecks, surging demand fuelled by reopenings and spiking fuel costs have sent inflation soaring in recent months, putting pressure on bank chiefs to act to prevent prices from running out of control.

An extended period of higher-than-targeted inflation is ramping up expectations that the Fed will have to lift interest rates after it has finished tapering its massive bond-buying programme.

On the corporate front, bank earnings season got underway as JPMorgan Chase & Co reported "strong" results with the bank brushing aside the Delta variant and global supply chain issues.

In the three months to September 30, the New York headquartered-investment bank and financial services firm recoded net income of USD11.69 billion, up sharply from USD9.44 billion in the same period the year before.

Diluted earnings per share improved to USD3.75 from USD2.92.

The stock was down 2.4% on Wall Street.

"A strong US CPI reading has hit the Dow, pushing it into the red, but the FTSE 100 has held some of its gains thanks to a bounce in homebuilders," said IG Group's Chris Beauchamp.

In the FTSE 100, Barratt Developments ended the best performer, up 6.3%, after the UK's largest housebuilder backed its outlook after seeing ongoing strength in demand for homes.

For the financial year to date, covering July 1 to October 10, it has seen net private reservations per average week of 281, down slightly from 288 in the same period a year ago but up on 262 two years ago.

Despite global supply chain issues, Barratt said it has not experienced any significant disruption to its build programme. It continues to expect build cost inflation of between 4% and 5% for the full-year.

In the period, the housebuilder delivered 3,699 home completions, down 8.3% on the year before but up on 3,252 homes delivered in the same period in 2019. The average selling price for its forward sales is GBP344,300, up from GBP331,400 last year and GBP316,000 two years ago.

Peers Persimmon, Taylor Wimpey and Berkeley ended up 3.6%, 4.0% and 1.7% respectively in a positive read-across. Midcap housebuilders Vistry and Crest Nicholson finished up 4.7% and 3.8% respectively.

"Barratt Developments continues to lead housebuilders higher... after a solid update that confirms a continued recovery in activity despite the end of Help to Buy and the stamp duty holiday. Prices are going up too, offsetting concerns about the inevitable supply chain disruptions. These gains in housebuilders today have helped keep the index in positive territory, offsetting weakness in bank shares in the wake of JPMorgan's results," said Beauchamp.

At the other end of the large-caps, banks ended among the worst performers. Standard Chartered closed down 2.5%, Barclays down 2.6%, Lloyds down 1.6%, HSBC down 1.0% and NatWest down 0.7%.

Elsewhere, Just Eat Takeaway.com lost 1.7%. The food delivery platform reaffirmed its annual guidance on the back of a healthy rise in orders as customer demand for takeaway food fails to lessen.

For the third quarter ended September 30, the food delivery firm processed 266 million orders, representing a 25% increase compared with the same period of 2020. Total gross transaction value grew 23% year-on-year to EUR6.8 billion for the period.

The company reiterated full-year guidance of order growth, excluding its Grubhub business, above 45% year-on-year and a gross transaction value in a range of EUR28 billion to EUR30 billion.

THG shares closed down 3.0%, extending Tuesday's 35% decline. Better known as The Hut Group, the company on Tuesday held its first capital markets day since it listed in September 2020. Though intended to reassure, the event ended up spooking shareholders.

In response, Liberum slashed its price target on the stock to 750p from 1,080p, but maintained its Buy stance.

"It seems that attendees didn't get the level of information they wanted, and messages were quickly fed back to HQ to dump the stock,” said Russ Mould, investment director at AJ Bell. "Having joined the stock market with a lot of fanfare, the market now seems to be taking the view that THG was grossly overvalued and that breaking the business up creates more questions than answers."

Noting the share price decline on Wednesday, THG stressed that it has "consistently" delivered ahead of its targets since floating last year, including a "strong first half performance across all divisions".

The pound was quoted at USD1.3565 at the London equities close, down from USD1.3595 at the close Tuesday, after UK economic growth disappointed expectations, with output growing less-than-expected in August.

Gross domestic product grew 0.4% month-on-month in August to bring economic output 0.8% below pre-virus levels. This was slightly below consensus for 0.5% growth, cited by FXStreet.

Services output grew by 0.3% in August, while manufacturing grew 0.8% and manufacturing 0.5%. Construction dipped 0.2%.

Further, July's reading was revised down to a contraction of 0.1% from growth of 0.1%.

In addition, investors were wary of political friction between the EU and UK over the Northern Ireland protocol.

EU proposals on Brexit's Northern Ireland protocol are expected to slash red tape on Irish Sea trade but fall short of a UK demand on axing the role of European judges.

European Commission Vice-President Maros Sefcovic will unveil a series of measures early on Wednesday evening aimed at addressing issues around customs paperwork and the movement of agri-food goods and medicines between Great Britain and Northern Ireland.

Sefcovic, who has promised the proposals will be "very far-reaching", has also pledged to offer more of a consultative role for politicians and civic society in Northern Ireland on how the contentious trading arrangements operate.

The EU plan is expected to significantly reduce the volume of paperwork and checks required under the protocol on goods being shipped into Northern Ireland from the rest of the UK.

Issues around looming bans on the import of some GB products into Northern Ireland, such as chilled meats, are also set to be addressed in the proposals. While the range of measures will potentially go some way to reducing everyday friction on trade caused by the protocol, they are unlikely to satisfy a UK government demand over the role of the European Court of Justice.

On Tuesday, UK Brexit minister David Frost made clear the removal of the ECJ's oversight function in policing the protocol is a red line for the government if a compromise deal is to be struck.

Analysts at Rabo Bank commented: "The backdrop of lagging economic growth in the UK combined with less monetary and fiscal accommodation is a concern for GBP investors. On top of this, Brexit continues to feature in the headlines given ongoing tensions with French fishermen and in view of the disagreements between the EU and the UK with respect to the Northern Ireland protocol. Northern Ireland politics tend not to have a significant impact on the pound.

"That said, on the margin this news-flow provides an additional disincentive to GBP investors. We expect EUR/GBP to hold close to the 0.85 level in a 3 month view. We expect USD strength to keep cable in the 1.36 area on a 3 month view."

The euro stood at USD1.1575 at the European equities close on Wednesday, up from USD1.1544 late Tuesday. Against the yen, the dollar was trading at JPY113.35, little changed from JPY113.34.

Brent oil was quoted at USD83.11 a barrel at the equities close, down from USD83.50 at the close Tuesday.

Gold stood at USD1,792.11 an ounce at the London equities close, higher against USD1,763.12 late Tuesday.

The economic events calendar on Thursday has China inflation readings overnight and US producer prices and jobless claims figures at 1330 BST.

The UK corporate events calendar on Thursday has trading statements from emerging markets-focused asset manager Ashmore Group, pizza delivery chain Domino's Pizza, recruiter Hays and transport operator National Express.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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