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London stocks had maintained gains by midday on Tuesday, having taken their opening cue from a positive close on Wall Street, with Royal Mail pacing the advance after a well-received update.
The FTSE 100 was up 0.8% at 7,357.44, having slumped 2.6% on Monday amid growing tensions between Russia and Ukraine.
Russ Mould, investment director at AJ Bell, said: “Highly unusual movements on the US stock market yesterday are difficult to explain. While it is easy to say that the S&P 500 going from a 4% decline to a 0.3% gain in a single session was investors simply buying on the dip, nothing has changed in terms of the market headwinds. Therefore, we could be looking at a dead cat bounce rather than the start of a market recovery.
“The fact Asia was having none of it on Tuesday, with most of its major indices down sharply, suggests that risk appetite remains weak. Tensions between Ukraine and Russia appear to be getting worse, inflation and interest rate pressures are front and centre, and central banks are still in the very early stages of withdrawing stimulus measures and reducing liquidity.
“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. They might be overlooking the fact that a lot of stocks were priced too highly in 2021 so the current correction is deserved.
“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.
“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.”
Investors were digesting the latest figures from the Office for National Statistics, which showed that government borrowing fell more than expected in December thanks to improved tax revenues.
Public sector net borrowing, excluding state banks, fell by £7.6bn from December 2020 to £16.8bn, coming in below consensus expectations of £18.5bn, as tax receipts rose. This marked the fourth-highest December borrowing figure since monthly records began in 1993.
Tax receipts were up £6.2bn on the year, while government spending fell £1bn to £86.7bn. Meanwhile, interest payments increased by £5.4bn on the year to £8.1bn in December.
For the 2021/22 financial year so far, Britain has borrowed £146.8bn, down £129.3bn from the same point a year ago.
Away from home, investors were eyeing the latest policy announcement from the US Federal Reserve due on Wednesday.
Richard Hunter, head of markets at Interactive Investor, said: “An increasingly hawkish Federal Reserve is expected to be confirmed with a wind down of easing and an indication of interest rate hikes largely expected. At the same time, the persistently high level of inflation at present has led some observers to wonder whether the Fed is actually behind the curve, and whether any monetary tightening could be even more harsh than anticipated.
“More positively, the message may be delivered to reflect the likely improvement in economic fortunes as the variant subsides, allowing the recovery to resume and with the possibility of full employment, thus easing some of the inflationary concerns. Equally, the falls seen this year are enough to tempt in some buyers on the dips, on the basis of easing supply chain blockages and what is still hoped will be a strong earnings season.”
In equity markets, Royal Mail was the standout performer on the top-flight index after saying it was axing 700 managers at a cost of £70m, and lowering its annual profit outlook.
Capricorn Energy was also up as it said it was “very encouraged” by the initial operating performance of its newly-acquired Western Desert Assets in Egypt, with production growth ahead of expectations.
On the downside, Unilever lost ground after saying it was cutting 1,500 jobs in a management shakeup.
Rightmove was the worst performer on the FTSE 100 despite an initiation at ‘outperform’ at Davy.
Market Movers
FTSE 100 (UKX) 7,357.44 0.83%
FTSE 250 (MCX) 21,709.77 1.20%
techMARK (TASX) 4,361.62 0.67%
FTSE 100 – Risers
Royal Mail (RMG) 453.70p 3.92%
Standard Chartered (STAN) 506.40p 3.79%
NATWEST GROUP PLC ORD 100P (NWG) 238.10p 3.57%
Pearson (PSON) 620.20p 3.54%
Scottish Mortgage Inv Trust (SMT) 1,048.50p 3.35%
BP (BP.) 376.30p 3.35%
Pershing Square Holdings Ltd NPV (PSH) 2,680.00p 3.28%
Lloyds Banking Group (LLOY) 50.88p 3.27%
Shell ‘B’ (RDSB) 1,802.80p 3.15%
Shell ‘A’ (RDSA) 1,802.00p 3.14%
FTSE 100 – Fallers
Rightmove (RMV) 638.00p -2.12%
Auto Trader Group (AUTO) 646.80p -1.88%
Imperial Brands (IMB) 1,706.00p -1.73%
Halma (HLMA) 2,401.00p -1.72%
Intertek Group (ITRK) 5,208.00p -1.44%
Burberry Group (BRBY) 1,862.00p -1.27%
Reckitt Benckiser Group (RKT) 6,349.00p -1.20%
Experian (EXPN) 2,915.00p -1.15%
Spirax-Sarco Engineering (SPX) 12,555.00p -1.06%
Aveva Group (AVV) 2,786.00p -1.03%
FTSE 250 – Risers
Impax Environmental Markets (IEM) 452.50p 9.17%
Capricorn Energy (CNE) 199.80p 7.02%
Chrysalis Investments Limited NPV (CHRY) 192.50p 6.94%
Smithson Investment Trust (SSON) 1,662.00p 6.27%
Herald Investment Trust (HRI) 2,040.00p 5.81%
Cineworld Group (CINE) 40.50p 5.74%
Reach (RCH) 251.50p 5.67%
PureTech Health (PRTC) 272.00p 5.63%
Baillie Gifford US Growth Trust (USA) 224.00p 5.16%
Harbour Energy (HBR) 345.00p 4.55%
FTSE 250 – Fallers
Homeserve (HSV) 760.00p -2.12%
JPMorgan Japanese Inv Trust (JFJ) 560.00p -2.10%
Dr. Martens (DOCS) 307.20p -1.85%
Syncona Limited NPV (SYNC) 179.80p -1.53%
Diploma (DPLM) 2,640.00p -1.27%
Johnson Matthey (JMAT) 1,850.00p -1.15%
Vesuvius (VSVS) 451.60p -1.14%
Ibstock (IBST) 193.10p -1.13%
Spectris (SXS) 3,260.00p -1.09%
Clarkson (CKN) 3,375.00p -1.03%
