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LONDON MARKET CLOSE: FTSE 100 up; Unilever and Rolls-Royce downgraded

UK indices closed Monday in the green amid Canadian Prime Minister Justin Trudeau tendering his resignation and reports of a possible watering down of Trump’s tariff agenda.

The FTSE 100 index ended up 25.68 points, 0.3%, at 8,249.66. The FTSE 250 climbed 21.25 points, 0.1%, at 20,612.65. The AIM All-Share rose 3.55 points, 0.5%, at 728.95.

The Cboe UK 100 closed up 0.2% at 826.32, the Cboe UK 250 firmed 0.1% at 18,019.60, while the Cboe Small Companies rose 0.2% at 15,965.94.

In Europe on Monday, the CAC 40 jumped 2.1% in Paris while the Dax in Frankfurt advanced 1.6%.

Luxury goods stocks, seen as beneficiaries from a narrower focus for tariffs, rallied across Europe. Hermes firmed 4.5%, Kering 2.5% and Moncler 4.2%.

The Washington Post said aides to president-elect Trump are exploring tariff plans that would be applied to every country but only cover critical imports, a shift from his plans during the 2024 presidential campaign.

If implemented, the proposals would pare back the most sweeping elements of Trump‘s campaign plans, but still would be likely to upend global trade and carry major consequences for the US economy and consumers, the report said.

But president-elect Trump denied the claims.

‘The story in the Washington Post, quoting so-called anonymous sources, which don’t exist, incorrectly states that my tariff policy will be pared back. That is wrong,’ Trump said in a Truth Social post.

Nonetheless, the dollar lost ground.

The pound was higher at $1.2528 on Monday afternoon, up from $1.2414 at the time of the local equities close on Friday.

The euro rallied to $1.0397 against $1.0297. Versus the yen, the dollar was lower at JP¥157.22 from JP¥157.33.

Analysts at Brown Brothers Harriman called the dollar’s fall a ‘knee-jerk reaction’.

‘We look through this and believe dollar dominance to continue in 2025 due to the ongoing economic and monetary policy divergence themes. Simply put, the strong US fundamental story of strong growth, elevated inflation, and a more hawkish Fed continues to favour.... a higher dollar, regardless of the tariffs,’ BBH remarked.

In Canada, Prime Minister Justin Trudeau announced his resignation, saying he will leave office as soon as the ruling Liberal party chooses a new leader.

‘I intend to resign as party leader, as prime minister,’ Trudeau, who has been in power since 2015, told reporters in Ottawa following a protracted political crisis that saw top Liberal allies urge him to quit.

On Wall Street, US markets made strong gains. At the time of the London close, the Dow Jones Industrial Average was up 0.9%, the S&P 500 was 1.3% higher and the Nasdaq Composite was 1.9% to the good.

Tech stocks were in the spotlight ahead of the Consumer Electronics Show in Las Vegas this week.

Bank of America said: ‘AI will likely be a key theme at the conference, with companies highlighting plans to integrate augmented capabilities across a broadening set of consumer/edge products.’

BofA noted the CES will kick off with a keynote presentation from Nvidia Chief Executive Jensen Huang along with a press conference from Advanced Micro Devices.

Nvidia was 5.1% higher and AMD 3.1% to the good early Monday in New York.

The tech gains boosted technology investor Scottish Mortgage Investment Trust which rose 2.2% in London.

Ahead of a slew of data on the US labour market, a report showed the US private sector expanded by less than forecast in December, as a further decline in manufacturing offset strong growth in the service sector.

The S&P Global US Composite PMI Output Index increased to 55.4 in December from 54.9 in November. It was the fastest rate of expansion since April but came in below FXStreet consensus of 56.6, the same as a preliminary reading.

Commenting on Monday’s report, S&P Global said: ‘The overall expansion in activity reflected strong growth in the service sector, and was recorded despite a further decline in manufacturing production.’

New orders also rose at a faster pace, while employment increased for the first time in five months.

The Composite Output Index is a weighted average of the manufacturing output index and the services business activity index.

Last Thursday, S&P Global reported the US manufacturing purchasing managers’ index fell to 49.4 in December, down from 49.7 in November. December’s reading was slightly better than the preliminary ‘flash’ estimate of 48.3 but marked the sixth consecutive month of contraction.

The S&P Global US Services PMI business activity index rose for the second month running in December, reaching a 33-month high of 56.8 following a reading of 56.1 in November. It had been expected to increase to 58.5, as per a preliminary estimate, according to FXStreet consensus.

In the UK, figures painted a less rosy picture of economic growth.

The S&P Global composite UK purchasing managers’ index, calculated using the services and manufacturing readings, edged down fractionally to 50.4 in December from 50.5 in November. It was the lowest reading since October 2023 and just below the flash estimate, which was also 50.5.

‘December data indicated a marginal reduction in new order volumes, thereby ending a 12-month period of expansion. Subdued demand and rising payroll costs meanwhile contributed to the sharpest fall in private sector employment since January 2021. Overall cost pressures were the highest since April. This led to a robust and accelerated rise in prices charged by UK private sector companies at the end of 2024,’ S&P Global said.

Pantheon Macroeconomics analyst Elliott Jordan-Doak said the data, characterised by weaker economic growth and more robust inflation, puts the Bank of England ‘in a quandry’.

‘Rate setters highlighted the uncertainty over the outlook in the minutes of their last meeting and they will likely continue to be cautious until the hard data resolve precisely how much growth is slowing and inflation is rising. We expect the MPC to cut rates 25bp in February and then twice more this year, in August and November,’ the analyst said.

On London’s FTSE 100, Rolls Royce fell 2.3% as Citigroup downgraded to ’neutral’ from ’buy’.

‘Following a strong recovery from the depths of Covid, we believe Rolls-Royce shares are now approaching what we consider to be current fair value,’ the broker said.

Analyst Charles Armitage said there was still some upside to his increased share price target of 641 pence, ‘but insufficient to remain buyers.’

A broker downgrade also put Unilever in the red, down 2.6%.

RBC Capital Markets downgraded the Marmite maker to ’underperform’ from ’sector perform’ and reduced its price target to 4,000p from 4,800p.

‘While we can’t discern an overriding impending pitfall, we have sufficient reservations regarding Unilever’s resurgence to cast doubt on the sustainability of the shares’ feisty outperformance,’ the broker commented.

A barrel of Brent firmed to $76.65 on Monday afternoon, from $76.33 at the time of the London equities close on Friday. Gold eased to $2,638.63 an ounce from $2,641.67.

Tuesday’s global economic diary sees eurozone inflation and unemployment prints, the ISM services sector PMI in the US and house price data in the UK.

Tuesday’s local corporate calendar sees a trading statement from retailer Next.

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