ADVFN Morning London Market Report: Thursday 6 August 2020

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London open: Stocks in the red as BoE leaves rates, asset purchases unchanged

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London stocks fell in early trade on Thursday after the Bank of England stood pat on interest rates and said the economic downturn caused by the pandemic will be less severe than previously thought but last longer.

At 0830 BST, the FTSE 100 was down 1.2% at 6,032.56, while sterling was up 0.5% against the dollar at 1.3173 after policymakers voted unanimously to leave interest rates at a record low of 0.1% and the asset purchase programme at £745bn, as anticipated.

The BoE said the economy will not return to its pre-Covid levels until the end of next year. In May, it had said this would happen in the second half of 2021. The economy is now expected to shrink 9.5% this year, compared to a previous forecast for a 14.5% contraction. However, it also revised 2021 growth down to 9% from 15%.

Inflation is expected to fall further below the Bank’s 2% target and average at around 0.25% in the latter part of the year .

The BoE indicated that it is willing to keep policy loose even when inflation rises to 2%.

“The Committee does not intend to tighten monetary policy until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably,” it said.

The unemployment rate is set to rise to around 7.5% by the end of the year and decline to 6% next year.

Ruth Gregory, senior UK economist at Capital Economics, said: “Given that the £300bn of asset purchases announced between March and June will not be completed until ‘the turn of the year’, today’s unanimous decision by the MPC to leave policy unchanged was unsurprising and suggests that the MPC thinks that it has done enough for now.

“But we still think that the Bank will eventually expand QE by a further £250bn by the end of 2021.”

In equity marketsGlencore was the worst performer on the FTSE 100 after it scrapped its deferred $2.6bn dividend to bolster its balance sheet as half-year profits fell on weak commodity prices and the Covid-19 pandemic but oil trading posted record profits.

ITV was in the red after the broadcaster said first-half profit was almost wiped out as the Covid-19 crisis caused revenue to plunge and exceptional costs to increase.

Outsourcer Serco fell even as it said interim profits rose 53% on the back of demand from governments for its services during the pandemic and purchase of a US naval systems unit last year.

Defence engineering firm Meggitt was under the cosh as it insisted that its financial position is “strong” following a press report it is considering an equity offering of up to $600m.

Shopping centre owner Hammerson lost ground after announcing plans to raise around £825m through a rights issue and the sale of its 50% interest in Via Outlets to help counter the impact of the pandemic.

On the upside, paper and packaging group Mondi rallied as it restarted paying dividends and reported a 26% decline in first-half profit after the Covid-19 crisis reduced demand for its products.

Insurer Aviva was trading higher after it reinstated its dividend but said it would review its payout policy as half-year profit fell on coronavirus-related and weather claims.

 

Top 10 FTSE 100 Risers

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# Name Change Pct Change Cur Price
1 Phoenix Group Holdings Plc +4.49% +31.00 721.40
2 Aviva Plc +4.22% +12.00 296.30
3 Mondi Plc +4.21% +60.00 1,485.00
4 Pearson Plc +1.89% +10.60 571.60
5 Legal & General Group Plc +1.84% +4.10 227.10
6 Micro Focus International Plc +0.78% +2.40 309.40
7 Intercontinental Hotels Group Plc +0.57% +22.00 3,866.00
8 Direct Line Insurance Group Plc +0.48% +1.60 335.40
9 Centrica Plc +0.48% +0.23 48.22
10 Bunzl Plc +0.48% +11.00 2,324.00

 

Top 10 FTSE 100 Fallers

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# Name Change Pct Change Cur Price
1 Rio Tinto Plc -4.79% -237.50 4,720.50
2 Bae Systems Plc -4.46% -23.40 501.40
3 Glencore Plc -4.18% -8.20 188.00
4 Itv Plc -3.71% -2.26 58.64
5 Bp Plc -3.42% -10.50 296.15
6 Segro Plc -2.71% -26.80 960.80
7 Bt Group Plc -2.52% -2.65 102.55
8 Unilever Plc -2.42% -113.00 4,550.00
9 Taylor Wimpey Plc -2.38% -2.95 120.75
10 Royal Dutch Shell Plc -2.37% -27.40 1,130.80

 

US close: Markets finish higher as investors digest data, earnings

Wall Street stocks closed in the green on Wednesday, as market participants looked to Washington for news on another Covid-19 stimulus package and thumbed over a slew of data releases.

The Dow Jones Industrial Average ended the session up 1.39% at 27,201.52, the S&P 500 added 0.64% at 3,327.77, and the Nasdaq Composite was 0.52% firmer at 10,998.40.

At the open, the Dow was 271.97 points higher, extending gains recorded in the previous session amid reports of possible further fiscal stimulus in the pipeline and some positive news on the pandemic front.

Investors were still closely monitoring the stimulus discussions on Capitol Hill at the open on Wednesday, with both the White House and Democratic Congress members indicating some progress had been made in negotiations.

However, the two parties were said to still be separated on several key issues, with reports out late in the day suggesting Democrats and Republicans were hopeful of reaching a deal by the end of the week.

Also in focus was news that senior US and Chinese officials were planning to assess the pair’s trade agreement later in August amid heightened tensions between the countries.

The discussion on the so-called phase-one deal, led by US trade representative Robert Lighthizer and Chinese vice-premier Liu He, will reportedly take place on or around 15 August – six months after the agreement first came into effect.

Gold prices also crossed the psychologically important $2,000 per ounce mark, with spot gold last at $2,038.13 per ounce.

On the macro front, despite another new low set last week, mortgage application volume decreased 5.1% week-on-week, according to the Mortgage Bankers Association.

However, demand was still considerably higher for refinances and purchase applications than it was at the same time a year earlier.

Elsewhere, the US labour market recovery slowed sharply in July as the private sector added 167,000 jobs last month, according to the ADP National Employment Report.

However, the coronavirus-fuelled slowdown continued to impact businesses across all sizes and sectors as the figure came in well and truly short of forecasts for a print of 1.9m and the readings of 3.3m and 4.3m in May and June, respectively.

Still on data, the US’ trade deficit fell 7.5% to $50.7bn in June, according to the Commerce Department, with both exports and imports showing signs of recovery from the coronavirus-fuelled recession.

Exports rose 9.4% to $158.3bn, while imports increased 4.7% to $208.9bn.

Lastly, economic activity in the US’ service sector expanded at a robust pace in July, with the Institute for Supply Management’s non-manufacturing PMI rising from 57.1 in June to 58.1 – topping market expectation of 55 – and IHS Markit’s services purchasing managers’ index improved from 47.9 in June to 50 in July – better than the previous estimate and market expectations of 49.6.

Corporate news was also being digested on Wednesday, with a stronger-than-expected set of earnings from Disney leading to some optimism among traders, with profits of $0.08 per share, while analysts expected a loss of $0.64, as it hit 100m paid subscribers across its streaming services.

Shares in Disney ended the day up 8.8%.

CVS was down 0.91%, even as it raised its full-year guidance after topping earnings per share estimates.

Moderna shares were 3.39% lower, reversing earlier gains, after revealing it had received roughly $400m of customer deposits for the supply of its Covid-19 vaccine candidate.

Humana shares rallied 3.25% after it said both profits and revenues had risen above expectations in the second quarter of its trading year, while Johnson & Johnson shares ticked up 0.84% after striking a $1bn deal with the US government to manufacture 100m doses of its coronavirus vaccine candidate, assuming it proves to be successful.

 

Thursday newspaper round-up: High street footfall, restaurants, TikTok

Shoppers continued to stay away from UK high streets last month despite the reopening of non-essential shops, pubs and restaurants following the lifting of lockdown measures. The number of visitors to UK retail destinations dropped by 39.4% in July compared with the same month a year ago, according to figures from Springboard, a data company that tracks footfall at consumer hotspots. – Guardian

Record numbers of people in Britain are looking for temporary work as job losses across the country mount, according to recruitment firms that have been flooded with CVs. The Recruitment and Employment Confederation (REC) and the accountancy firm KPMG said the number of people signing up to find temporary work rose in July at the fastest pace since records began in 1997. – Guardian

Restaurants and pubs enjoyed a much-needed uplift in visitors this week as the prospect of a half price meal encouraged people out of their homes. – Telegraph

TikTok is to open its first data centre in Europe in a $500 million investment, cementing the company’s determination to remain active outside the United States in the face of a potential ban by President Trump. Bytedance, the Chinese owner of the popular video-sharing app, said that TikTok would build its third data centre, picking Ireland alongside its two existing bases in America and Singapore. – The Times

Uber has moved one step closer to its ambition of helping to provide transport wherever its customers are after buying a platform that will link users to taxi firms in areas it does not operate in. The ride-hailing group is acquiring Autocab, a British company that provides software to private hire and taxi operators that allows them to share workloads, as well as an app called iGo. The iGo network allows users to connect with a local taxi firm and is used by 52 per cent of the private hire and taxi market in the UK, from Oxford to Doncaster to Swansea. – The Times

 

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