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(Alliance News) - Stocks in London ended higher on Wednesday with investors taking heart from positive US stimulus developments and Brexit deal optimism, ahead of the US Federal Reserve's interest rate decision later.
Congressional leaders on Wednesday said they were nearing a long-awaited agreement on a stimulus package for the US economy, while the Federal Reserve is set to provide updated forecasts that could show renewed optimism for the months ahead.
A federal relief package to aid struggling business and jobless workers is seen as essential in getting the world's largest economy back on its feet even as vaccines against Covid-19 are rolled out, and would also ease the pressure on the central bank, which has limited tools to help the economy.
"We made major headway toward hammering out a targeted pandemic relief package that would be able to pass both chambers with bipartisan majorities," Republican Senate Majority Leader Mitch McConnell said Wednesday.
The FTSE 100 index closed up 57.59 points, or 0.9%, at 6,570.91. The FTSE 250 ended up 244.17 points, or 1.2%, at 20,096.56. The AIM All-Share closed up 11.68 points, or 1.1%, at 1,082.03.
The Cboe UK 100 ended down 0.8% at 654.19, the Cboe UK 250 closed up 1.1% at 17,371.37, and the Cboe Small Companies ended up 0.6% at 11,400.50.
In Paris the CAC 40 ended up 0.3%, while the DAX 30 in Frankfurt ended 1.5% higher.
"European markets have continued in positive territory during the afternoon, but US indices are more mixed, remaining cautious in advance of the Federal Reserve meeting, but hoping that a stimulus deal can be cobbled together before Christmas," said IG Group's Chris Beauchamp. "A stimulus deal would represent almost the final piece of the puzzle for the year, and hoped of such a deal has certainly provided the foundation for gains over the past two sessions."
In the FTSE 100, Bunzl ended the worst blue chip performer, down 3.7% after the distribution firm issued a downbeat outlook.
Bunzl said it expects a "strong performance" for 2020, with continued growth in Covid-19 related orders during the fourth quarter of the year amid pandemic-driven restrictions in some markets. Bunzl said revenue for 2020 is expected to increase by 8% and its operating margin is expected to be higher than the prior year as it has "significantly" benefited from a mix of products being sold.
Looking ahead, Bunzl said it expects revenue in 2021 to be lower than the current year, with "minimal benefit" from larger Covid-19 related orders which have strongly supported the performance in 2020.
In the FTSE 250, Dixons Carphone ended the standout performer, up 12% after the electricals and mobile phone retailer swung to an interim profit on online sales strength.
Revenue for the half-year to October 31 rose to GBP4.86 billion from GBP4.71 billion a year ago, with Dixons turning to a pretax profit of GBP45 million from a GBP86 million loss.
At the other end of the midcaps, Petrofac ended the worst performer, down 5.6%. The oilfield services company said trading has been in line with expectations for 2020 in a "difficult" environment.
Petrofac said its performance in the second half of 2020 has continued to be hit by Covid-19, and it expects to report revenue of around USD4.0 billion for 2020 and full-year profitability "materially lower" than in 2019.
"Looking forward, it remains unclear how long business activity in our industry will be impacted by market conditions. Low order intake over recent years will result in a decline in revenue next year. The group has therefore announced a further set of measures to right-size the organisation. These will result in total estimated gross savings of USD250 million in 2021, which will seek to protect the business from lower revenues and ongoing pressures on margins," said Petrofac.
The pound was quoted at USD1.3500 at the London equities close, up sharply from USD1.3401 at the close Tuesday, on Brexit deal optimism.
UK and EU negotiators were closing in Wednesday on a deal to oversee fair competition in a post-Brexit trade deal, but remained deeply divided over fishing.
As intense talks continued in Brussels, European Commission President Ursula von der Leyen said "the next days are going to be decisive".
Many supposed deadlines have already been missed, the EU chief admitted. But, with two weeks until Britain leaves the EU single market, time is finally running out.
In London, all eyes were on parliament's lower House of Commons, which will have to decide when to meet to vote through any trade agreement reached by EU negotiator Michel Barnier and UK counterpart David Frost.
Addressing the European Parliament, Von der Leyen said: "The good news is that we have found a way forward on most issues."
She added that she and Barnier can now see a "narrow path to an agreement".
"But this is now a case of us being so close, and yet being so far away from each other, because two issues still remain outstanding, you know them: a level playing field and the fisheries," von der Leyen said.
A UK official close to the talks confirmed that "we've made some progress, but we are still very far apart in key areas".
Sterling hit an intraday day high of USD1.3554 against the greenback in early trade - its highest level since May 2018.
Analysts at Capital Economics said: "The recent swings in sterling triggered by shifts in sentiment towards the chances of a Brexit deal have left little room for the pound to appreciate if there's a deal, but plenty of room for it to depreciate if there's a no deal. As the markets appear to have largely priced in a Brexit deal, such a result by 31st December 2020 would be unlikely to push the pound much above the current levels of USD1.35.
"But as a no deal would come as something of a shock to the markets, there is more scope for it to fall sharply. The weakening in the US dollar in recent months suggests that if there is a 'cooperative' no deal, the pound may not fall quite as far as our forecast of USD1.15. But at this stage, the risks are firmly tilted towards the downside."
On the economic front, the UK annual inflation rate softened sharply in November amid virus restrictions, figures from the Office for National Statistics showed.
Year-on-year, consumer prices rose 0.3% in November versus October's inflation rate of 0.7%. Consensus, according to FXStreet, had expected inflation to ease more modestly to 0.6%.
Month-on-month, prices fell 0.1% in November after stagnation in October.
"Data-wise this morning UK inflation dropped to its second lowest level in over four years with benchmark CPI slipping to 0.3% y/y a far bigger drop than had been expected. The pound barely batted an eyelid on the release which highlights that the only news that any pound trader cares about is a UK/EU trade deal," said analysts at OFX.
The euro stood at USD1.2188 at the European equities close, up from USD1.2151 late Tuesday, following well-received PMI data.
Eurozone business activity neared stabilisation in December, IHS Markit said, as the manufacturing sector went from strength to strength and the battered services sector improved.
The flash eurozone composite purchasing managers' index strengthened to 49.8 in December from 45.3 in November, reaching a two-month high. Remaining under the no-change mark of 50.0 signals that the private sector continued to contract in December, though at a far more moderate pace than seen the month before.
This means the PMI has averaged 48.4 in the fourth quarter, Markit highlighted. While down from 52.4 in the third quarter, it is well above the second quarter's average of 31.3, suggesting that the economic hit from second waves of Covid-19 have been far less severe than the first wave.
The bloc's manufacturing PMI climbed to 55.5 in December from 53.8 in November, signalling faster growth. The services PMI, meanwhile, remained in contraction territory but did improve to 47.3 from 41.7.
Further, eurozone powerhouse Germany reported an expansion of output for the sixth successive month, its flash composite PMI rising to 52.5 from 51.7. France's composite reading registered 49.6, up from 40.6 in November.
Against the yen, the dollar was trading at JPY103.52, down from JPY103.72 late Tuesday.
Stocks in New York were mostly higher at the London equities close ahead of the US Federal Reserve interest rate decision and as investors monitor the latest news on congressional stimulus talks.
The DJIA was down 0.1%, the S&P 500 index up 0.2% and the Nasdaq Composite up 0.2%.
The Fed is not expected to announce significant shifts in monetary policy when its two-day meeting concludes, but Chair Jerome Powell will provide an update on the central bank's forecasts in light of surging coronavirus cases and faster-than-expected vaccine approvals.
On the economic front, US retail sales fell 1.1% in November compared to October, a much sharper decline than expected and a worrisome sign for a key period in the annual holiday shopping season.
Brent oil was quoted at USD50.62 a barrel at the equities close, flat from USD50.63 at the close Tuesday.
Gold was quoted at USD1,857.15 an ounce at the London equities close, higher against USD1,847.70 late Tuesday.
The economic events calendar on Thursday has eurozone inflation readings at 1000 GMT, the Bank of England's interest rate decision at midday and the latest US jobless claims figures at 1330 GMT.
The UK corporate calendar on Thursday has annual results from travel concessions operator SSP Group and interim results from luxury timepiece retailer Watches of Switzerland Group.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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