Stock markets were starting 2023 positively despite multiple reminders of the economic challenges facing the world this year, while the pound was faring less well, falling below $1.20.
The FTSE 100 index was up 115.51 points, 1.6%, at 7,567.26 midday Tuesday in London. The FTSE 250 was up 290.58 points, 1.5%, at 19,143.58, and the AIM All-Share was up 5.98 points, 0.7%, at 837.31.
The Cboe UK 100 was up 1.3% at 756.62 points, the Cboe UK 250 was up 1.3% at 16,573.04, and the Cboe Small Companies was up 1.3% at 13,407.25.
‘UK shares kicked off the New Year with a bang despite gloomy predictions from the head of the IMF that one-third of the global economy will be hit by recession this year,’ said Russ Mould, investment director at AJ Bell.
International Monetary Fund Managing Director Kristalina Georgieva said 2023 will be ‘tougher than the year we leave behind’.
This is due to a simultaneous slowdown in the three big economies: the US, the EU and China.
‘Even countries that are not in recession, it would feel like a recession for hundreds of millions of people,’ she said, speaking to a CBS news programme on Sunday.
The US may avoid a recession, she said, given its ‘remarkably resilient’ economy, and the continuing strength of its labour market. This is a ‘mixed blessing’, she maintained, given that this may prompt further interest rate hikes from the US Federal Reserve.
Half of the EU is likely to fall into recession, Georgieva predicted, and China faces a further slowdown.
Emerging markets face a dire outlook, suffering a double blow from rising interest rates on debts, and a stronger dollar.
‘This is unpleasant to hear but isn’t a shock to markets given the multitude of headwinds that gathered pace last year, namely high inflation and rising interest rates and the negative impact they have on business and consumer spending,’ Mould added.
In European equities on Tuesday, the CAC 40 in Paris was up 1.2%, while the DAX 40 in Frankfurt was up 1.3%.
Stocks in New York were called higher. The Dow Jones Industrial Average was called up 0.7%, the S&P 500 index up 0.8%, and the Nasdaq Composite up 1.0%.
‘With the lack of any major macro news today, it is...still hard to say if the current price action is being driven by real directional motivations from portfolio managers or if it is just a liquidity bull trap, covering some of last year’s short positions,’ ActiveTrades analyst Pierre Veyret considered.
The dollar was on the rise against the pound and euro but lower against the yen. Sterling was quoted at $1.1932 at midday on Tuesday, sharply lower than $1.2054 at the London equities close on Friday. The euro traded at $1.0527, lower than $1.0686. Against the yen, the dollar was quoted at JP¥130.69, down from JP¥131.84.
Meanwhile, new data showed the downturn in the UK’s manufacturing sector deepened in December.
The seasonally adjusted S&P Global/CIPS UK manufacturing purchasing managers’ index fell to 45.3 points in December from 46.5 in November. The reading was a 31-month low, but came in above the previous flash estimate of 44.7.
With readings remaining below the 50-point no-change mark, December was the fifth consecutive month of contraction in UK manufacturing activity.
‘Clients are increasingly downbeat and reluctant to commit to new contracts, not just in the UK but also in key markets like the US, China and the EU. The weakness in the latter is still being exacerbated by the constraints of Brexit, as higher costs, administrative burdens and shipping delays encourage increasing numbers of clients to shun trade with the UK,’ said Rob Dobson, director at S&P Global Market Intelligence.
The downbeat data comes as the UK economy faces further disruption from multiple rail strikes this week.
Members of the Rail, Maritime & Transport union at Network Rail and 14 train operators will stage two 48-hour walkouts from Tuesday and Friday, while drivers in the Aslef union will strike on Thursday.
In London, oil majors BP and Shell added 3.9% and 3.7% respectively, as the price of oil rose.
Brent oil fetched $85.31 a barrel at midday on Tuesday, higher than $83.21 late Friday.
Gold was quoted at $1,848.74 an ounce, up sharply from $1,818.60.
Wizz Air returned its morning gains, down 0.3% at midday despite a positive trading update.
The budget airline said it carried 4.2 million passengers in December 2022, a 58% increase year-on-year, with a load factor of 85%, compared to 75% a year prior. On a rolling 12-month basis, it carried 45.7 million passengers - over double that of 21.7 million in the previous 12-month period.
The strong annual growth failed to impress analysts at Citigroup, however. The bank cut Wizz Air to ’sell’ from ’neutral’.
Other stocks in the travel sector were faring better. British Airways-owner International Consolidated Airlines rose 5.7%, and Intercontinental Hotels added 2.7%. Cruise operator Carnival and holiday firm Tui both jumped 5.4%.
On AIM, GENinCode shares rocketed, more than doubling in value.
The cardiovascular disease-focused predictive genetics company won licensing approval in California state, as well CLIA certification for its Irvine laboratory in California. This allows its risk assessment products for CVD to be provided to patients in 49 US states.
The approval is a ‘major milestone’ in the commercialisation of its polygenic CVD products, CARDIO inCode and LIPID inCode, the firm said.
Still to come on Tuesday’s economic calendar, there is the manufacturing PMI from the US, as well as the consumer price index from Germany at 1300 GMT.
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