ADVFN Morning London Market Report: Wednesday 21 July 2021

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London open: Next surges after update as stocks rally


London stocks rose in early trade on Wednesday as investors mulled the latest UK borrowing figures, with an upbeat trading statement from Next helping to boost sentiment.

At 0840 BST, the FTSE 100 was up 0.9% at 6,943.25.

Figures released earlier by the Office for National Statistics showed that public sector net borrowing fell in June as the economy opened up again.

Net borrowing came in at £22.8bn last month, down £5.5bn from June 2020 and undershooting the Office for Budget Responsibility’s forecast of £25.2bn. Still, the figure was above consensus expectations of £20bn and marked the second-highest level for June on record.

Public sector net debt came in at £2.2bn at the end of June, or around 99.7% of GDP, which was the highest ratio since the 102.5% recorded in March 1961.

Ruth Gregory, senior UK economist at Capital Economics, said the fact that borrowing undershot the OBR’s forecast again in June reinforces her view that the economy can do more of the job in “fixing” the public finances than a fiscal tightening.

Gregory said that while debt service costs will probably stay higher than the OBR estimated over next few years, the public finances should continue to reap the benefits of a faster and fuller recovery in GDP than the OBR expects, meaning that the deficit should still fall faster.

“That said, we suspect the Chancellor will ‘bank’ any improvement in the deficit rather than scale back the planned tax hikes and spending cuts set to hit the economy. At least by 2022/23, the economy should be strong enough to cope with it.”

On the corporate front, fashion retailer Next surged to the top of the FTSE 100 as it lifted full-year profits guidance after a sales rebound in the second quarter. In an unscheduled trading update, the company said it now expected annual pre-tax profits of £750m, up £30m from previous forecasts and towards the top end of estimates.

Sophie Lund-Yates, senior equity analyst at Hargreaves Lansdown, said: “Overall, Next has proven to be one of the stronger names in retail. A bricks and mortar retailer that expects surplus cash at the end of the year, and is comfortable enough to pay special dividends is nothing short of a miracle.

“The rate of the spending slowdown will be one to watch from here, while Next is in a great position, if the last eighteen months have taught us anything, it’s that a lot can change in a short space of time.”

Future rallied after the magazine publisher and GoCompare owner said full-year profitability was set to be “materially ahead” of current market expectations amid a continued strong performance.

Computacenter gained after saying it expects adjusted pre-tax profit for the first half to be around 50% ahead of the same period a year ago.

Elsewhere, stocks with particular exposure to Covid-related restrictions rose, with catering group Compass, British Airways owner IAG, engine maker Rolls-Royce, Premier Inn owner Whitbread and InterContinental Hotels among the top performers.

On the downside, Royal Mail slumped after it said revenues rose 12.5% in the first quarter as people continued to shop online with Covid lockdown restrictions still in place, but that UK parcel volumes had started to slip as curbs were lifted.


Top 10 FTSE 100 Risers

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# Name Change Pct Change Cur Price
1 Next Plc +9.66% +714.00 8,108.00
2 Carnival Plc +6.99% +93.60 1,433.60
3 Rolls-royce Holdings Plc +5.93% +5.34 95.36
4 International Consolidated Airlines Group S.a. +5.73% +9.20 169.66
5 Easyjet Plc +5.33% +41.40 818.60
6 Compass Group Plc +4.88% +69.00 1,481.50
7 Whitbread Plc +4.19% +119.00 2,958.00
8 Tui Ag +4.14% +13.20 331.80
9 Associated British Foods Plc +4.13% +82.50 2,080.00
10 Marks And Spencer Group Plc +4.03% +5.30 136.85


Top 10 FTSE 100 Fallers

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# Name Change Pct Change Cur Price
1 Unilever Plc -0.21% -9.00 4,312.50
2 National Grid Plc -0.04% -0.40 921.60
3 Fresnillo Plc -0.03% -0.20 768.80
4 Nmc Health Plc -0.00% -0.00 938.40
5 Just Eat Plc -0.00% -0.00 861.00
6 Rsa Insurance Group Ld +0.00% +0.00 684.20
7 Standard Life Aberdeen Plc +0.00% +0.00 274.10
8 Royal Bank Of Scotland Group Plc +0.00% +0.00 120.90
9 Reckitt Benckiser Group Plc +0.00% +0.00 6,498.00
10 London Stock Exchange Group Plc +0.00% +0.00 8,620.00


Europe open: Shares rally on upbeat earnings, travel sector

European shares opened higher on Wednesday as upbeat earnings reports and a strong rise in travel stocks boosted sentiment.

The pan-European STOXX 600 index rose 0.94% in early trade with all major regional bourses higher.

In corporate news UK fashion retailer Next soared almost 10% to top the Stoxx after lifting annual profits guidance to the upper end of forecasts.

Travel stocks were also in favour, with cruise line operator Carnival up 6% after announcing more sailings in the summer/autumn season on Tuesday. British Airways owner IAG, and budget carrier easyJet were also higher.

Future rallied 9% after the magazine publisher and GoCompare owner said full-year profitability was set to be “materially ahead” of current market expectations amid a continued strong performance.

Dutch semiconductor equipment maker ASML rose 4% as it raised its 2021 sales outlook and announced a new share buyback plan.

Swiss drugmaker Novartis added 2.1% as its second-quarter core net income beat market expectations, boosted by its key drug brands.

Among decliners, German business software group SAP slid 3.9% despite raising its outlook for the second time this year.

Mercedes-Benz maker Daimler fell 1.1% after it warned that a global shortage of semiconductor chips will dent car sales in the second half of 2021.

Royal Mail slumped after it said revenues rose 12.5% in the first quarter as people continued to shop online with Covid lockdown restrictions still in place, but that UK parcel volumes had started to slip as curbs were lifted.


US close: Stocks manage positive finish after Monday plunge

Wall Street stocks finished firmer on Tuesday, as major indices crawled back some of the heavy losses recorded in the previous session.

At the close, the Dow Jones Industrial Average was up 1.62% at 34,511.99, while the S&P 500 added 1.52% to 4,323.06, and the Nasdaq Composite was 1.57% firmer at 14,498.88.

The Dow closed 549.95 points higher on Tuesday, more than halving losses recorded in the previous session, its worst performance in eight months, as concerns regarding the spread of the Covid-19 delta variant saw market participants offload equities en masse.

Rising coronavirus cases were in focus again on Tuesday, with the ‘Delta’ variant spreading primarily among the unvaccinated, and the US now averaging about 26,000 daily cases over the last seven days – more than double the average number seen in mid-June.

Also in focus, the yield on the benchmark 10-year Treasury note was still hovering around a five-month low at roughly 1.18%.

On the macro front, US homebuilding activity bounced back last month but forward-looking indicators pointed to weakness ahead.

According to the Department of Commerce, housing starts grew by 6.3% month-on-month in June to reach an annualised rate of 1.64m, ahead of consensus estimates for a print of 1.59m.

Going the other way, building permits fell by 5.1% to 1.59m, and May’s print for housing starts was revised lower to a pace of roughly 1.55m from 1.57m.

In the corporate space, Halliburton closed up 3.67% after posting a second-quarter net income of $227.0m, up from $170.0m recorded in the first quarter, while total revenues ticked up from $3.5bn to $3.7bn as both North America and international markets continued to improve.

Tobacco giant Philip Morris International was down 3.06% after it reported a second-quarter net income of $2.17bn on Tuesday, up from $1.95bn a year earlier, but also outlined adjusted revenues of $7.59bn which fell short of expectations for $7.67bn.


Wednesday newspaper round-up: UK public services, theatres, Apple

Rishi Sunak is poised to usher in cuts to public services of up to £17bn compared with the government’s pre-pandemic plans unless he takes action this summer to increase funding, a leading thinktank has warned. The Institute for Fiscal Studies said the government was on track to spend between £14bn and £17bn less each year on a range of public services from April 2022 than had been earmarked prior to Covid-19. – Guardian

Theatre unions and trade bodies claim the UK government has “let down a vital industry” by failing to back a Covid-19 insurance scheme to help their beleaguered sector. Since England’s venues reopened on 17 May, theatre workers who have Covid or receive a test and trace app “ping” have gone into self-isolation, with their colleagues required to follow suit even if they test negative. This has led to an increasingly widespread cancellation of performances, and in some cases entire productions, resulting in significant losses of box-office income. Andrew Lloyd Webber’s new musical Cinderella and a revival of Hairspray at the London Coliseum are among the shows that have had to halt performances this month. Hairspray reopens on Tuesday night after cancelling 17 shows from 4-18 July. – Guardian

Ministers have cut off taxpayer-funded payments to Britain’s biggest microchip factory after its sale to a Chinese-owned technology company. UK Research and Investment (UKRI) has suspended grants to Newport Wafer Fab under Government instructions after its sale to Nexperia, The Telegraph understands. – Telegraph

Apple is to delay plans to call office staff back to their desks this autumn amid rising concerns over a new wave of coronavirus cases. The American technology group, which employs about 147,000 full-time workers, is said to be postponing a mandated part-time return to offices by at least another month.- The Times

The government’s new Steel Council will meet tomorrow to consider an industrial policy – a “steel deal” – to determine whether troubled businesses like Liberty Steel should be saved. Kwasi Kwarteng, the business secretary, has admitted having doubts about whether a private sector refinancing of the company will be successful. – The Times


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