London midday: Stocks pare gains after services data, as sterling rallies

London stocks were a little higher by midday on Monday following a positive update on AstraZeneca’s Covid-19 vaccine, as investors digested news that UK business activity shrank in November as the second lockdown took its toll.

Vaccine news was helping to underpin sentiment after AstraZeneca said its Covid-19 vaccine was highly effective in preventing the virus and that it would move quickly to get approval for use. An interim analysis of clinical trials of AZD122 in the UK and Brazil showed the vaccine had an average efficacy of 70% with protection occurring 14 days or more after two doses. One of the dosing regimens was about 90% effective, putting it on a par with other vaccines.

However, the reaction to the vaccine news was a little muted, with the FTSE up just 0.2% at 6,363.65 and down from earlier highs. Sterling strength was a factor, as the currency rose 0.6% against the dollar to 1.3358 amid expectations a Brexit deal will be agreed this week.

A stronger pound tends to dent the index as around 70% of its constituents derive most of their earnings from overseas.

Meanwhile, the latest survey from IHS Markit/CIPS showed private sector output contracted sharply in November as the second national lockdown shuttered the leisure and hospitality sectors.

The flash UK composite output index fell to a six-month low of 47.4 in November compared to October’s final reading of 52.1. A reading above the neutral 50.0 mark indicates growth, while a reading below it suggests contraction.

It was, however, better than expected, with most analysts looking for a reading of around 42.5.

The biggest drag on the index was the services sector. The flash UK services business activity index fell to 45.8, also a six-month low, against October’s final 51.4.

In contrast, manufacturing proved more resilient, with output rising to 56.3 against 55.8 in October, and the flash UK manufacturing PMI index reaching 55.2 from October’s 53.7.

IHS Markit said the underperformance of the services sector in relation to manufacturing was the widest in nearly 25 years, and reflected the "severe impact" the second lockdown was having on business activity.

In equity markets, travel and leisure stocks were among the top performers, not just on the back of vaccine news but also ahead of an announcement later in the day in which Prime Minister Boris Johnson is expected to outline how England will come out of lockdown next week.

Johnson is expected to say that non-essential shops and gyms will be able to reopen in all areas once lockdown ends on 2 December. According to reports, parts of the three-tier system will be tougher, but the 2200 GMT closing time for pubs and restaurants will be relaxed. In addition, mass testing will be introduced in all tier three areas, with the rapid testing currently being used in Liverpool set to be part of the stricter system.

The travel sector also benefited from news that ministers have approved a plan to cut travel quarantine next week to just five days from 14 days. Under a 'test and release' scheme set to be introduced next month, travellers will have to quarantine for five days before being tested. If the test result is negative, their isolation will end immediately.

British Airways parent IAG, engine maker Rolls-Royce, caterer Compass, travel company TUI, pub group Mitchells & Butlers and budget airline easyJet were all in the black.

Neil Wilson, chief market analyst at Markets.com, said the market is not getting the boost it did from the Pfizer or Moderna updates.

"To a degree that’s because a large amount of market rotation has been priced with November’s gains, and a decent success rate was expected from the Astra/Oxford trials (shares in Astra fell over 1% on the news), but also because in the meantime we have seem soaring case numbers that means the economic recovery will struggle before vaccines take effect.

"European services PMIs for November are weaker due to the lockdowns, whilst manufacturing activity is broadly holding up and the US data due later today probably will just show expansion. But the outlook for 2021 is surely improving the more good vaccine news emerges - the key is how quickly the mass vaccination can occur and how quickly we are ‘back to normal’."

BP and Royal Dutch Shell gushed higher as oil prices rallied, with Brent crude hitting its highest level since early September.

Cineworld surged as the embattled cinema chain said it had secured a new $450m debt facility and that its lenders have agreed to waive its debt covenant until June 2022 to help see it through the Covid-19 pandemic.

The cinema chain, which announced in October that it was temporarily suspending operations at its 127 Cineworld and Picturehouse theatres in the UK, and 536 Regal cinemas in the US, has also extended the maturity of its $111m incremental revolving credit from December 2020 to May 2024.

Market Movers

FTSE 100 (UKX) 6,363.65 0.19%
FTSE 250 (MCX) 19,593.96 0.45%
techMARK (TASX) 3,949.16 -0.31%

FTSE 100 - Risers

International Consolidated Airlines Group SA (CDI) (IAG) 166.40p 5.42%
Rolls-Royce Holdings (RR.) 103.20p 3.78%
Lloyds Banking Group (LLOY) 37.08p 3.53%
Royal Dutch Shell 'B' (RDSB) 1,238.20p 3.46%
BP (BP.) 252.75p 3.42%
Royal Dutch Shell 'A' (RDSA) 1,286.00p 3.31%
Associated British Foods (ABF) 2,032.00p 2.63%
Glencore (GLEN) 199.64p 2.35%
Persimmon (PSN) 2,948.00p 2.29%
Aviva (AV.) 324.70p 2.11%

FTSE 100 - Fallers

Pearson (PSON) 620.20p -2.33%
Polymetal International (POLY) 1,645.00p -2.23%
Halma (HLMA) 2,328.00p -2.23%
Croda International (CRDA) 6,154.00p -2.01%
London Stock Exchange Group (LSE) 7,978.00p -1.92%
Spirax-Sarco Engineering (SPX) 11,535.00p -1.87%
Ocado Group (OCDO) 2,259.00p -1.87%
Just Eat Takeaway.Com N.V. (CDI) (JET) 7,936.00p -1.66%
British American Tobacco (BATS) 2,735.00p -1.62%
AstraZeneca (AZN) 8,191.00p -1.51%

FTSE 250 - Risers

Cineworld Group (CINE) 55.90p 21.28%
TUI AG Reg Shs (DI) (TUI) 466.80p 6.97%
easyJet (EZJ) 776.80p 6.00%
Capita (CPI) 45.01p 5.73%
Greencore Group (GNC) 119.10p 5.12%
Ferrexpo (FXPO) 205.80p 5.05%
Sirius Real Estate Ltd. (SRE) 87.70p 5.03%
Petrofac Ltd. (PFC) 152.35p 4.35%
C&C Group (CCR) 221.00p 4.25%
Murray International Trust (MYI) 1,100.00p 4.17%

FTSE 250 - Fallers

Shaftesbury (SHB) 506.50p -4.07%
The Renewables Infrastructure Group Limited (TRIG) 127.40p -3.78%
888 Holdings (888) 259.50p -3.17%
Energean (ENOG) 696.10p -2.94%
Petropavlovsk (POG) 25.95p -2.81%
Mediclinic International (MDC) 293.40p -2.78%
Rank Group (RNK) 143.60p -2.58%
Diploma (DPLM) 2,250.00p -2.43%
Centamin (DI) (CEY) 111.80p -2.19%
Just Group (JUST) 58.75p -2.08%