A promise of support for financial markets by the Chinese government gave Asian equities a boost that has fed into a surprising positive session in Europe on Wednesday.
The rally, also supported by hints of progress in peace talks between Ukraine and Russia, was occurring despite expectations of interest rate hikes in the US later Wednesday and the UK on Thursday.
London's blue-chip FTSE 100 index was trading nearly 100 points higher by midday, but this seemingly impressive performance paled in comparison with the hefty 3% gains seen elsewhere in Europe.
Capping the FTSE 100 were regulatory woes for Avast in its merger with NortonLifeLock, while oil majors suffered as energy prices eased after the International Energy Agency cut its world oil demand forecast for 2022.
The FTSE 100 was up 92.26 points, or 1.3%, at 7,267.96 midday Wednesday. The mid-cap FTSE 250 index was up 529.08 points, or 2.6%, at 20,786.74. The AIM All-Share index was up 12.60 points, or 1.3%, at 1,000.30.
The Cboe UK 100 index was up 1.3% at 722.73. The Cboe 250 was up 2.4% at 18,297.17, and the Cboe Small Companies up 0.3% at 14,453.44.
In mainland Europe, the CAC 40 in Paris rallied by 3.5% and the DAX 40 in Frankfurt by 3.2%.
‘After a big sell-off in Chinese stocks on Monday and Tuesday, Beijing has stepped in with pledges of support to try to stabilise markets. This has resulted in a big rebound in the Hong Kong Hang Seng index,’ said Russ Mould, investment director at AJ Bell.
The official Xinhua news agency said authorities will maintain capital market stability and adopt measures to handle risks for troubled property developers. The government guidance was announced after a committee meeting under China's State Council chaired by Vice Premier Liu He, Xinhua reported.
The meeting stressed the need to ‘effectively support the economy in the first quarter’, adding that monetary policy should be proactive and new loans should grow appropriately. In the real estate sector, authorities should also propose ‘effective response plans to prevent and defuse risks’, the meeting found, according to the agency.
One of the best large-cap performers in London at midday was Scottish Mortgage Investment Trust, up 5.9%. The trust holds investments in Chinese technology firms including WeChat owner Tencent and e-commerce titan Alibaba, with the pair surging 23% and 27% respectively in Hong Kong on Wednesday.
The wider Hang Seng index in Hong Kong gained 9.1%, while the Shanghai Composite closed up 3.5%.
Dual London- and Hong Kong-listed stocks also performed well, with Prudential one of the best performers in the FTSE 100, up 6.0%, Standard Chartered up 4.8% and HSBC up 2.2%.
FTSE 250-listed Fidelity China Special Situations topped the mid-cap index in midday trade, up 12%.
‘If that hasn't provided enough drama for the day, markets are also braced for the US interest rate decision later today. The Federal Reserve is widely expected to put up rates by a quarter of a percentage point, but anything more could knock the market for six,’ said AJ Bell's Mould.
The Fed, which unveils its latest monetary policy decision at 1800 GMT, is expected to lift interest rates by 25 basis points for the first time since 2018.
Such a move would take the federal funds rate to a range of 0.25% to 0.50%. This has become overwhelmingly priced in by markets after Fed Chair Powell earlier this month said he was inclined to support a 25 basis point hike.
Ahead of the Fed, the Dow Jones was pointed up 1.1%, the S&P 500 up 1.2% and the Nasdaq Composite up 1.7%. Also in the economic calendar on Wednesday are US retail sales, due at 1230 GMT.
The US has moved to summer time, so the Fed decision and US economic data are an hour earlier than normal London time.
The dollar softened heading into the Fed announcement, with an interest rate hike fully priced in. Sterling was quoted at $1.3084 midday Wednesday, firm on $1.3049 at the London equities close on Tuesday.
Central banks will remain in focus this week with an anticipated interest rate rise from the Bank of England as well on Thursday.
After slashing interest rates to a record low of 0.10% in March 2020 as the Covid-19 pandemic began to engulf Europe, the BoE is now on track for its third consecutive interest rate hike. Global supply chains have struggled to match post-pandemic demand, sending prices soaring across the globe. Energy prices also remain elevated, despite crude oil slipping back below $100 a barrel.
The euro traded at $1.1007 early Wednesday, up versus $1.0957 late Tuesday. Against the yen, the dollar was flat at JP¥118.27 versus JP¥118.26.
Back in London, Avast was tethered to the bottom of the FTSE 100, down 12% after the UK competition regulator took aim at its takeover by US cybersecurity peer NortonLifeLock.
The Competition & Markets Authority noted that Avast and NortonLifeLock are ‘close competitors, with few other significant rivals’. The regulator said NortonLifeLock and Avast now have five working days to submit proposals to address its concerns, or it will refer the merger to a in-depth phase 2 investigation.
The US company said it does not intend to offer any phase 1 remedies but promised to ‘engage constructively’ with the CMA. However, due to the impasse, the two companies said they now expect the acquisition to complete in ‘mid-to-late 2022’.
NortonLifeLock shares were up 7.3% in the New York pre-market.
Shares in Shell were down 1.7% and BP was 0.6% lower.
Brent oil was trading at $99.30 a barrel, retreating sharply from an intraday high above $105 and down from $101.36 late Tuesday.
The International Energy Agency cut its world oil demand forecast for 2022 on Wednesday, but warned that sanctions against Russia over its invasion of Ukraine could spark a global supply ‘shock’.
‘Faced with what could turn into the biggest supply crisis in decades, global energy markets are at a crossroads,’ the IEA said in a monthly report.
Elsewhere, mid-cap miner Centamin fell 5.5%. The owner of the Sukari gold mine in Egypt revealed that profit halved in 2021, as revenue declined on lower gold output and sales in a year that the company said marked its ‘peak reset’.
Centamin posted a pretax profit of £153.6 million in 2021, down 51% from £315.0 million in 2020, on revenue that dropped 12% to £733.3 million from a record $828.7 million.
Looking ahead, Centamin expects a rise in gold output for 2022, with guidance ranging from 430,000 to 460,000 ounces due to improving open pit grades. However, all-in sustaining costs also are expected to rise, to between $1,275 and $1,425 per ounce from $1,234.
Gold was quoted at $1,921.52 an ounce, lower than $1,926.06 on Tuesday.
Also among London mid-caps, Bytes Technology jumped 10% as it reported an upbeat financial year with results ahead of expectations amid double-digit income and profit growth.
The Surrey, England-based computer software firm said it delivered around 23% adjusted operating profit growth in the 12 months to February 28 from £37.5 million in the year prior. Gross profit is expected to have risen by around 20% from £89.6 million.
Copyright 2022 Alliance News Limited. All Rights Reserved.
