LONDON MARKET MIDDAY: Stocks rally as US Fed meeting gets underway

(Alliance News) - Stock prices in London were higher at midday rebounding after fears over conflict in in Ukraine sparked a sell-off on Monday, while focus turns to the US Federal Reserve which begins its monetary policy meeting on Tuesday.

The FTSE 100 index was up 60.29 points, or 0.8%, at 7,357.44 midday Tuesday in London. The mid-cap FTSE 250 index was up 256.50 points, or 1.2%, at 21,709.10. The AIM All-Share index was up 12.94 points, or 1.2%, at 1,090.97.

The Cboe UK 100 index was up 0.8% at 730.90. The Cboe 250 was up 1.1% at 19,456.55, and the Cboe Small Companies up 0.4% at 15,216.25.

In mainland Europe, the CAC 40 stock index in Paris was up 0.7%, while the DAX 40 in Frankfurt was up 0.8%.

"It's hard to see what's installed a sudden bout of confidence in investors unless they are simply judging share prices relative to recent highs and assuming they are now bargains following the sell-off...The FTSE 100 remains an outlier in global markets due to the construction of its index. For years it was criticised for lacking exciting fast-growth tech stocks, that's now worked to its advantage. Being dominated by 'value' stocks in the banking, energy and tobacco sectors means the FTSE 100 has been one of the best performing major indices globally this year," explained AJ Bell's Russ Mould.

"These sectors have been in demand because their stocks are cheap, the companies generate decent cash flow now as opposed to years into the future like many tech stocks, and they tend to do well in inflationary periods," Mould added.

In the FTSE 100, Royal Mail was up 3.8%. The postal operator said its third-quarter financial performance was in line with expectations, and it intends to restructure and streamline the business to sustain profitability.

The London-based letter and parcel delivery firm said its performance in October to December, its financial third quarter, was in line with expectations. The company said revenue was down 2.4% to GBP3.55 billion from GBP3.64 billion in the same period the previous year. Royal Mail said this was "broadly" in line with its expectations.

Revenue was up 17%, however, when compared to the same period in 2019 when revenue totalled GBP3.04 billion. The company noted that staff absences due to the Omicron wave of Covid-19 peaked at 15,000 within the UK domestic operation in early January, hurting service levels and delaying some planned cost efficiencies.

Royal Mail said it is set to axe around 700 management jobs as part of cost-cutting plans to deliver an annualised benefit of around GBP40 million, with around GBP30 million in financial 2023. The company will incur a restructuring charge of around GBP70 million charge to be taken in the fourth quarter of financial 2022.

The former state postal monopoly also cut its full-year outlook for the UK business and now expects adjusted operating profit of around GBP430 million for the year ending March, lower than previous guidance of GBP500 million.

NatWest was up 3.7% after UBS upgraded the state-backed lender to Buy from Neutral.

Abrdn was up 3.0% after Credit Suisse started coverage on the fund manager with an Outperform rating.

Rio Tinto was up 1.0%. The Anglo-Australian miner said it has reached agreement with the government of Mongolia to ramp up production at the massive Oyu Tolgoi copper mine.

Rio said the agreement on funding and power supply will allow the start of underground mining operations at the project, which is expected to be the fourth largest copper mine in the world by 2030.

Conversely, Unilever was down 1.0%. The London-based consumer goods maker announced significant changes to its business model, which is expected to lead to the cutting of 1,500 jobs at both a senior and junior management level.

The Dove soap and Ben & Jerry's ice cream maker is facing pressure from activist shareholders to improve its performance, following its failed attempt to buy the consumer healthcare business of GlaxoSmithKline.

Unilever, which made no mention of the GSK bid in its announcement on Tuesday, said it will shed its current matrix structure and become organised around five business groups: Beauty & Wellbeing, Personal Care, Home Care, Nutrition, and Ice Cream. Each group will take responsibility for their own strategy and growth; however they will be supported by Unilever Business Operations, which will provide technological support and services.

Unilever said that the new organisation model will lead to a reduction in senior management roles by 15% and junior management roles by 5%, equal to 1,500 jobs. However, factory teams are not anticipated to be affected by the changes.

In the FTSE 250, Capricorn Energy was up 7.5% after the oil and gas firm said it was encouraged by the initial operating performance of its newly acquired Western Desert assets in Egypt, with production growth ahead of expectations.

The company, formerly known as Cairn Energy, said that with the tax refund from the government of India due and active management of its asset portfolio, it is well positioned to continue delivery of its business model of returning value to shareholders, whilst building sustainable cashflow generation and growth.

Capricorn plans to return up to USD700 million of the India tax refund proceeds to shareholders. Of this, USD500 million will be returned to shareholders by way of tender offer, while USD200 million will be returned via an ongoing share repurchase programme.

The pound was quoted at USD1.3475 at midday on Tuesday, up from USD1.3451 at the London equities close Monday.

On the political front, UK Prime Minister Boris Johnson was facing fresh allegations of breaking coronavirus rules after it emerged a gathering to wish him a happy birthday was held inside Number 10 during the first lockdown.

Downing Street said staff "gathered briefly" in the Cabinet Room after a meeting, in response to a report from ITV News which suggested up to 30 people attended what it described as a birthday party. The broadcaster suggested the prime minister's wife, Carrie Johnson, had organised the surprise get-together complete with a chorus of "happy birthday" on the afternoon of June 19, 2020, when indoor social mixing was banned.

The euro was priced at USD1.1280, lower from USD1.1312. Against the yen, the dollar was trading at JPY114.13, up from JPY113.88.

Brent oil was quoted at USD87.15 a barrel Tuesday at midday, up sharply from USD85.51 late Monday. Gold stood at USD1,837.11 an ounce, higher against USD1,833.82.

New York was called sharply lower despite staging a late rally on Monday to end in the green, as the volatile start to 2022 continues.

The Dow Jones Industrial Average was called down 0.7%, the S&P 500 down 1.0%, and the Nasdaq Composite down 1.5%, based on futures trading.

IBM will be in focus after the technology consultancy late Monday posted fourth quarter earnings that topped Wall Street estimates, led by growth in its Software arm.

The New York-based firm said revenue in the fourth quarter of 2021 rose 6.5% to USD16.70 billion from USD15.68 billion a year earlier. Fourth-quarter revenue topped CNN-cited estimates of USD16.1 billion.

Shares in the Dow member were up 2.0% in pre-market trade.

Attention later will shift to Microsoft, as the software firm becomes the first mega-cap tech name to report earnings in the current cycle, providing financial second-quarter results after the market close on Tuesday. The stock was down 1.4% in the pre-market.

In addition, the US Federal Reserve's first monetary policy meeting of the year gets underway on Tuesday, with a policy announcement on Wednesday at 1900 GMT and press conference with Fed Chair Jerome Powell at 1930 GMT.

Analysts at OFX said: "There is a growing school of thought that March will likely also see the first of several rate hikes from the Fed to control soaring prices in the States. With borrowing costs set to rise this will not be welcome news for markets who have grown accustomed to the accommodative financial support since the pandemic. However it seems the chair of the Federal Reserve, Jay Powell, will likely again signal that this is coming to an end and we should expect borrowing costs to rise as we go deeper into 2022 and beyond."

The economic calendar on Tuesday has US consumer confidence at 1500 GMT.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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