Nuclear submarine deal bolsters defence stocks
DEFENCE groups gave the London stock market a boost 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 multi-billion-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 make up Aukus, an alliance forged to combat China’s growing influence in the IndoPacific region.
The latest deal is expected to create thousands of jobs at Barrow, Cumbria, where the UK’s submarines are built.
Derby, where jet engine maker Rolls-Royce designs and manufactures nuclear submarine reactors, has also been marked as a key site.
Rolls added 7pc, or 10.2p, to 155.2p, meaning its shares have risen nearly 60pc so far this year, while defence giant BAE Systems gained 3.3pc, or 30p, to 938p. Deutsche Bank said the deal provides a ‘long-term positive’ for both companies but ‘ narrowing down the financial impact will need more time, pending details over delivery volumes and timeframe’.
The announcement of the nuclear submarine deal came alongside Sunak’s pledge to increase defence spending by nearly £5bn over the next two years. But Defence Secretary Ben Wallace is said to have asked for up to £11bn.
Bernstein analyst George Zhao said the main debate is whether the UK could afford to increase its defence budget.
He said: ‘What we know is that the UK currently stands as a major exception across European countries in not having yet announced higher defence budgets over the past year.
‘On one hand, the UK is already above most peers in terms of spending as a percentage of GDP.
‘But there’s definitely an industrial need to spend more given the elevated geopolitical threats and a need to keep pace with potential adversaries.’
The FTSE 100 rose 1.2pc, or 88.48 points, to 7637.11 and the FTSE 250 advanced 1.6pc, or 304.58 points, to 19129.66.
Global markets clawed back their losses as investors digested the collapse of Silicon Valley Bank (SVB). Banks in the United States staged a rally in the wake of a £385bn rout.
Meanwhile official figures in the US showed inflation in the world’s biggest economy eased a touch to raise hopes that its central bank will slow the pace of interest rate hikes, or even pause altogether.
The Dow Jones Industrial Average edged up 1.1pc, the S&P 500 rose 1.8pc and the Nasdaq added 2.1pc. The improved mood filtered through to London, where lenders swung back into the black following a dismal start to the week.
Barclays rose 3.1pc, or 4.58p, to 152.06p, Lloyds lifted 2.1pc, or 1.01p, to 48.24p and NatWest ascended 2pc, or 5.4p, to 277.6p.
F&C Investment Trust, meanwhile, wrote down the value of its holding in SVB to zero.
The group, which holds stock in companies such as Microsoft, Apple and Amazon, said its 51, 453 shares in the collapsed tech lender were worth £4.5m and represented 0.09pc of its entire portfolio. Shares grew by 1.7pc, or 16p, to 933p.
At TP ICAP, the stock brokerage tumbled 4.6pc, or 8.2p, to 170.2p after it trimmed its profit margin target for this year to 14pc from 18pc.
The downgrade came due to the ‘challenging’ equity market conditions that affected its electronic trading platform Liquidnet alongside the ongoing impact of the Covid pandemic.