MARKET REPORT: Nuclear submarine deal bolsters defence stocks

Defense groups boosted London’s stock market after the UK signed a landmark deal with the US and Australia to build nuclear-powered submarines.

Britain and America will send nuclear-powered submarines to Australia within the next decade as part of a multibillion-pound deal announced in San Diego by Rishi Sunak, President Biden and Australian Prime Minister Anthony Albanese.

The three nations joined forces two years ago to form Aukus, an alliance forged to combat China’s growing influence in the Indo-Pacific region.

The latest deal is expected to create thousands of jobs in Barrow, Cumbria, where Britain’s submarines are built.

Derby, where jet engine maker Rolls-Royce designs and manufactures nuclear submarine reactors, has also been highlighted as a key location.

Rolls added 7 percent or 10.2 pence to 155.2 pence, meaning shares are up nearly 60 percent year to date, while defense giant BAE Systems gained 3.3 percent or 30 pence to 938 pence.

Deutsche Bank said the deal is “long-term positive” for both companies, but that “reducing the financial impact will take more time, pending details on delivery volumes and timeline.”

The announcement of the nuclear submarine deal came along with Sunak’s commitment to increase defense spending by nearly £5bn over the next two years. But Defense Secretary Ben Wallace is said to have asked for up to £11bn.

Bernstein analyst George Zhao said the main debate is whether the UK can afford to increase its defense budget.

Stock Watch – Virgin wines

Shares of Virgin Wines plummeted after it revealed it had had a dismal Christmas.

The company lost around £1.5 million in revenue as it stopped Christmas sales a week earlier than usual.

The company had problems with the software it uses to manage its two warehouses.

But that wasn’t the only problem. The cold snap in December also presented challenges, as did the postal strikes. Shares, which traded 197 pence each in early 2021, fell 7.2 percent, or 3.5 pence, to 45 pence.

He said: ‘What we know is that the UK is currently a major exception among European countries as it has not announced higher defense budgets in the past year.

On the one hand, the UK is already ahead of most of its peers in spending as a percentage of GDP.

“But there is definitely an industrial need to spend more given heightened geopolitical threats and the need to keep pace with potential adversaries.”

The FTSE 100 rose 1.2 percent, or 88.48 points, to 7637.11 and the FTSE 250 rose 1.6 percent, or 304.58 points, to 19129.66.

Global markets took their losses well as investors processed the collapse of Silicon Valley Bank (SVB). Banks across the United States staged a rally in the wake of a £385 billion loss.

Meanwhile, official data in the US showed that inflation in the world’s largest economy has slowed slightly to raise hopes that the central bank will slow, if not stop, the pace of rate hikes.

The Dow Jones Industrial Average was up 1.1 percent, the S&P 500 was up 1.8 percent, and the Nasdaq was up 2.1 percent.

The improved mood trickled down to London, where lenders fell back into the black after a gloomy start to the week.

Barclays was up 3.1 percent, or 4.58p, to 152.06p, Lloyds was up 2.1 percent, or 1.01p, to 48.24p, and NatWest was up 2 percent, or 5.4p, to 277, 6p.

F&C Beleggingsfonds meanwhile wrote down the value of its stake in SVB to zero.

The group, which has shares in companies such as Microsoft, Apple and Amazon, said its 51,453 shares in the collapsed technology borrower were worth £4.5 million and represented 0.09 per cent of its entire portfolio. Shares rose 1.7 percent, or 16 pence, to 933 pence.

At TP ICAP, stock brokerage fell 4.6 percent, or 8.2 pence, to 170.2 pence after lowering its profit margin target for this year from 18 percent to 14 percent.

The downgrade was due to the “challenging” stock market conditions that hit electronic trading platform Liquidnet, in addition to the ongoing impact of the Covid pandemic.