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FTSE 100 remains positive as service sector shows signs of recovery last month

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  • FTSE 100 adds 77 points
  • Service sector index up sharply
  • Persimmon upbeat on housing sales
  • Shell and BP boosted by oil rebound

9.55am: Rebound in services supports market

The latest UK service sector survey shows an improvement last month after hitting an eight month low in January.

The IHS Markit/CIPS PMI came in at 49.5 in February, up sharply from the previous month’s level of 39.5. A reading below 50 indicates contraction, so we shouldn’t get too excited. The survey has been below this key level since November last year, but the survey did indicate the slowest decline in service sector output over this period.

IHS Markit said: “February data indicated that a degree of stability returned to the UK service sector after the sharp downturn in output at the start of 2021. Restrictions on travel, leisure and hospitality due to the national lockdown continued to curtail overall activity, but there were some pockets of growth in technology and business services.

“Staffing levels decreased at the slowest pace since the coronavirus disease 2019 (COVID-19) pandemic first hit employment numbers last March. Furlough arrangements again softened the degree of job shedding among consumer service providers, while there were also reports that improving optimism towards the business outlook had helped to stabilise employment. Vaccine roll out progress and confidence about the prospect of looser restrictions on trade resulted in a fourth consecutive monthly rise in business expectations across the service economy.”

 

Leading shares are holding on to most of their gains following the data. The FTSE 100 is currently up 77.79 points or 1.18% at 6691.54.

9.17am: Market optimistic about Chancellor’s statement

The FTSE 100 is holding on to its gains ahead of the Budget and the latest UK service sector survey.

With the US markets down on Tuesday but Europe and Asia in a positive mood, the London market is taking its cue from the latter, with the leading index now up 80.44 points or 1.22% at 6694.19.

Investors will be looking to the Chancellor to see whether his expected help for the beleaguered hospitality and travel sectors will be enough to cope with the continuing shutdown. Michael Hewson, chief market analyst at CMC Markets UK, said: “While a lot of what we can expect looks to have been pre-leaked, including the extension of the furlough scheme through September, we can still expect to see significant movements in the likes of house builders, travel, pubs and the retail sector as he outlines a series of measures to support those sectors that have borne the brunt of the three lockdowns, and who will need further assistance into the summer months, and possibly beyond that.”

Housebuilder PersimmonPLC (LON.PSN) is already on the way up, its shares climbing 71p or 2.62% to 2781p despite a 25% fall in full year profits after it said housing demand remained strong.

Richard Hunter, head of markets at interactive investor, said: “Despite a spike of 75% since the March lows of 2020 as the pandemic kicked in, the shares remain down by 5% over the last year, as compared to a decline of 1.5% for the wider FTSE100.

“However, immediate comparisons with the previous year will become easier and there is little question that Persimmon is seeing the benefit of continued momentum from a strong end to 2020. As such, the market consensus of the shares as a strong buy is likely to remain in place, having also recently strengthened to make Persimmon as the preferred play in the sector.”

8.43am: Leading shares off to a flier

The FTSE 100 made a storming start to proceedings ahead of the Budget, which, despite weekend reports of a tax grab, looks likely to be largely fiscally supportive of the pandemic-ravaged UK economy.

Events on Wall Street, which endured another soft session after last week’s inflation wobble, were shrugged off again by London traders.

Crude oil prices helped, as some poise was recovered after the sell-off ahead of OPEC+ meeting Thursday. Royal Dutch Shell (LON:RDSA) and BP (LON:BP.) rose 1.8% and 1.7% respectively.

Polymetal’s (LON:POLY) prelims appeared to please the market as the gold miner topped the Footsie with a 3.3% gain – but for how long with the price of the yellow metal continuing to drift?

Covid bounce-back stocks Whitbread (LON:WTB) and IAG (LON:IAG) were ahead 3% and 1.9% respectively.

Micro Focus (LON:MCRO) was the pick of the FTSE 250 as it advanced 14.5% after inking a big commercial agreement with Amazon Web Services.

6.50am: Index expected to extend gains 

The FTSE 100 index is expected to extend its March gains on Wednesday, ahead of the big Budget announcement from Chancellor of the Exchequer Rishi Sunak this afternoon. 

London’s blue chip equity index was being called 40 points higher by spread-betters on the IG platform, having added 25 points or 0.4% to finish at 6,613.75 the day before. 

Overnight, Wall Street’s main indices all finished lower, with the Dow Jones down 0.5%, the S&P 500 falling 0.8% and the Nasdaq sliding 1.7%.

Allied to increasing coronavirus vaccine optimism, European and US stock futures are being lifted by hopes for the US stimulus package, after approval by the House and now awaiting a green light from the Senate.

“Most of the bets are on the positive side—meaning traders are hoping for support for the relief package from the Senate as well,” says Naeem Aslam at Avatrade.

Joe Biden has also assured Americans that the US will have a large supply of coronavirus available to help every individual in the country by the end of May, which also boosts confidence. 

But in the UK the focus is all on the Budget. 

“It is widely expected that the Chancellor will be using the budget to extend a vast package of covid-19 support, which is likely to last until the end of September. Of course, the Chancellor is betting on a hope that the economy will return from its coronavirus crisis by that time,” said Aslam.

“The furlough scheme was due to end in April, but now, it will run in its current form until the end of June. After that, it is expected to phase out slowly. The key idea over here is to avoid any cliff-edge by withdrawing the furlough support rapidly. 

“Obviously, all of this means a higher bill for the Treasury. The Chancellor will maintain the need to balance the budget once the economy is back on the recovery track. Traders expect to see a future tax rise path that could help repair the damage that has occurred to public financing.”

6.50am: Early Markets – Asia / Australia

Stocks in the Asia-Pacific region were higher on Wednesday as Australia’s GDP rose 3.1% in the December quarter.

The Hang Seng index in Hong Kong surged 2.01% while the Shanghai Composite in China rose 1.66%.

In Japan, the Nikkei 225 gained 0.51% and South Korea’s Kospi rose 1.03%.

Shares in Australia were up, with the S&P/ASX 200 closing 0.82% higher.

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