FTSE 100 rises as HSBC boosts financials, investors digest budget

LONDON (Reuters) - Britain’s top share index was higher on Monday as HSBC led a rally in banking stocks after strong results, and investors digested finance minister Philip Hammond’s pledge to raise public spending and cut taxes for households in his annual budget.

People walk through the lobby of the London Stock Exchange in London, Britain August 25, 2015. REUTERS/Suzanne Plunkett/File photo

The FTSE 100 closed up 1.4 percent for its best daily performance in five weeks, recovering some of the ground lost last week after a heavy sell-off hurt shares around the world.

It was still set for its worst monthly drop since August, 2015 as overall investors and analysts remained pessimistic about earnings.

Hammond, who was still delivering his budget as trading closed, said he would be able to use money he has set aside to help the economy through the shock of a no-deal Brexit, holding out the prospect of an end to austerity.

Among the eye-catching policies he announced were plans to impose a duty on online platforms like Google and Facebook, knocking shares in British online retailers Boohoo Group PLC, formerly plc, and ASOS to their lows for the day.

Boohoo closed 0.6 percent down and ASOS ended up 2.6 percent.

He also pledged to hike taxes on offshore gambling companies, freeze short-haul air passenger duties and introduce a tax on the manufacture and import of some plastic packaging.

In Europe, markets were boosted by S&P keeping its rating on Italian sovereign bonds, sparking a relief rally in bonds and bank stocks there, and buoyed by a rally in the automotive sector after a Bloomberg report said China’s regulator was mulling a cut in car purchases taxes by 50 percent.

“HSBC was alright and there were a few earnings that weren’t as grim as they’ve been over the past few weeks,” said Ian Williams, analyst at Peel Hunt.

“But the crux is the tone of the statements from companies has been more cautious than everyone was hoping.”

Europe’s biggest bank by assets, HSBC, was the largest boost to the FTSE 100, jumping 4.8 percent after it reported a higher than expected 28 percent rise in quarterly profit, showing progress in its battle to control costs.

“Profit growth has been broad-based across HSBC’s main banking activities, and what’s positive is that’s coming from a rising top line rather than simply cost-cutting, which can only deliver results for so long,” said Laith Khalaf, analyst at Hargreaves Lansdown.

Overall financials drove the lion’s share of the FTSE 100 gains, with HSBC peer Standard Chartered up 2.6 percent and Barclays rising 2.9 percent.

Just Eat shares tumbled 1.2 percent after Peel Hunt analysts cut the stock to a “sell”, saying competition from Uber and Deliveroo could hurt the company.

“Prompted by rumours surrounding Uber and Deliveroo, we postulate that the two of them (merged or otherwise, let’s call them Uberoo), around the world, could create an Uberoo-esque wave that eventually sees the demise of Just Eat,” they wrote.

Among mid-caps, shares in vehicle fluid storage firm TI Fluid jumped 4.3 percent as the FTSE 250 gained 1.2 percent, tracking the jump in Europe’s autos and parts stocks.

Among smaller stocks, shares in flooring retailer Victoria sank 22.8 percent to their lowest level since June 2017 after a trading statement flagged higher costs and weaker margins - yet another sign of strain from UK consumers’ squeezed spending power.

Shares in the Blackrock Latin American Investment Trust rose 3.1 percent on the small-cap index after Jair Bolsonaro was elected president of Brazil in a result cheered by investors who see him as a business-friendly candidate.

Reporting by Josephine Mason and Helen Reid, Editing by Ed Osmond, William Maclean