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MARKET REPORT: Nuclear submarine deal bolsters defence stocks

Defense deal: Britain and America will send nuclear-powered submarines to Australia in the next decade

MARKET REPORT: Advocacy groups indicted after UK signs nuclear submarine deal with US and Australia

Advocacy groups gave the London Stock Exchange a boost after the UK signed a landmark deal with the United States and Australia to build nuclear-powered submarines.

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

Defense deal: Britain and America will send nuclear-powered submarines to Australia in the next decade

Defense deal: Britain and America will send nuclear-powered submarines to Australia in the next decade

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 reactors for nuclear submarines, has also been named as a key site.

Rolls added 7%, or 10.2p, to 155.2p, meaning its shares are up nearly 60% so far this year, while defense giant BAE Systems has gained 3.3 %, or 30p, to 938p.

Deutsche Bank said the deal provides “long-term positives” for both companies, but “reducing the financial impact will require more time, pending details on delivery volumes and timelines.”

The announcement of the nuclear submarine deal was accompanied by Sunak’s pledge to increase defense spending by almost £5bn over the next two years. But Defense Secretary Ben Wallace is said to have asked for up to £11billion.

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

Stock Watch – Virgin Wines

Virgin Wines shares fell after revealing they suffered a bleak Christmas.

The company lost around £1.5m in revenue as it halted 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 created challenges, as did the postal strikes. The shares, which were listed at 197p each at the start of 2021, plunged 7.2%, or 3.5p, to 45p.

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

“On the one hand, the UK is already above most of its peers in terms of expenditure as a percentage of GDP.

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

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

Global markets recouped their losses as investors digested the collapse of Silicon Valley Bank (SVB). Banks in the US staged a rally following a £385billion rout.

Meanwhile, official figures in the United States showed that inflation in the world’s largest economy had eased somewhat to raise hopes that its central bank would slow the pace of interest rate hikes, or even s would completely stop.

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

The improving mood spread to London, where lenders were back in the black after a dismal start to the week.

Barclays rose 3.1%, or 4.58p, to 152.06p, Lloyds rose 2.1%, or 1.01p, to 48.24p and NatWest rose 2%, or 5.4p, at 277.6p.

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

The group, which owns shares in companies including Microsoft, Apple and Amazon, said its 51,453 shares in the collapsed tech lender were worth £4.5million and represented 0.09% of its entire wallet. The shares rose 1.7%, or 16p, to 933p.

At TP ICAP, stock brokerage fell 4.6%, or 8.2p, to 170.2p after it cut its profit margin target for this year to 14% from 18%.

The downgrade is due to “challenging” equity market conditions that have affected its Liquidnet electronic trading platform alongside the continued impact of the Covid pandemic.

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