10th Sep 2020 17:02
(Alliance News) - Stocks in London ended on a subdued note on Thursday with the FTSE 100 clinging on to the 6,000 mark, while the pound fell further as Brexit fears intensified.
The FTSE 100 index closed down 9.52 points, or 0.2%, at 6,003.32. The FTSE 250 ended down 6.25 points at 17,588.68, and the AIM All-Share closed up 3.58 points, or 0.4%, at 955.90.
The Cboe UK 100 ended down 0.2% at 598.83, the Cboe UK 250 closed down 0.4% at 14,992.07, and the Cboe Small Companies ended up 1.4% at 9,543.96.
In European equities, the CAC 40 in Paris ended down 0.4% and the DAX 30 in Frankfurt lost 0.2%.
"From a UK perspective, we have seen yet another sharp decline in the pound, with six-week lows for GBP/USD helping the FTSE 100 outperform over the past week. Nevertheless, the sterling collapse seen over the course of September thus far highlights anxiety that looks set to grow as we move towards that Brexit deadline. With the European Commission calling on the UK government to withdraw the draft bill to avoid further damaging trust between the two sides, the coming period is going to be crucial is setting the tone for ongoing negotiations," said IG Group's Josh Mahony.
In the FTSE 100, Wm Morrison Supermarkets ended the worst performer down 4.6% after the supermarket chain reported a much lower interim profit due to costs associated with Covid-19, though lifted its dividend with a "confident outlook".
The Bradford-based grocer posted a GBP145 million pretax profit for the 26 weeks ended August 2, a 28% drop from its GBP202 million profit the year before. Morrison explained that its profit has been temporarily hurt by considerable Covid-19 costs, amounting to around GBP155 million in the first half.
These extra costs were partially mitigated by business rates relief totalling GBP93 million, giving a net half-year Covid-19 cost impact of GBP62 million. Revenue in the first half fell 1.1% to GBP8.73 billion from GBP8.83 billion due to very low fuel demand during and after the UK lockdown, though the company said this is now rebuilding.
Peers J Sainsbury and Tesco ended down 2.0% and 1.6% respectively.
International Consolidated Airlines ended a volatile session for the stock flat after the British Airways parent said it will raise EUR2.74 billion through a share issue to strengthen its balance sheet and reduce leverage.
The Anglo-Spanish airline said it will issue 2.98 billion shares at a price of EUR0.92 each. The subscription price represents a 36% discount to Wednesday's closing price. The FTSE 100-listed company said the funds raised will strengthen its balance sheet and reduce leverage.
Turning to trading, the airline said June saw a significant increase in bookings to 30% of prior year levels by the end of the month, following an almost complete cessation of new booking activity in April and May.
Since July, IAG said it has experienced an overall levelling off of bookings. Short-haul bookings have fallen slightly following the re-implementation of quarantine requirements by the UK and other European governments for travellers returning from some countries. As a result, the company said its capacity planning scenario for 2020 has been lowered to minus 63% in terms of available seat kilometres compared to 2019 from minus 59% previously.
The pound was quoted at USD1.2877 at the London equities close, down sharply from USD1.2999 at the close Wednesday. The pound fell to a fresh six-week intraday low of USD1.2856 versus the greenback after the EU demanded the UK government remove measures that override Prime Minister Boris Johnson's Brexit deal from new legislation by the end of the month or risk jeopardising trade negotiations.
European Commission vice president Maros Sefcovic said Britain had "seriously damaged trust" with Brussels with the Bill that deviates from the withdrawal agreement signed by the PM.
In an emergency meeting in London, he told Cabinet Office minister Michael Gove that the EU does not accept the legislation is needed to protect the peace process in Northern Ireland.
Sefcovic warned that Brussels is "of the view that it does the opposite" in a statement released after the "extraordinary meeting" of the joint committee between the two sides.
He said "in no uncertain terms" that the "timely and full implementation" of the divorce deal is "a legal obligation", according to the statement.
Further, Sefcovic called on the UK government to remove measures relating to state aid and the Withdrawal Agreement from the draft Bill "in the shortest time possible and in any case by the end of the month".
Commenting on the current state of play, Markets.com analyst Neil Wilson said: "This is real brinkmanship. It is one of three things: it is either a cynical masterstroke in negotiating a deal. Two, it is a cynical move but a miscalculation on the British side, as it may fatally undermine the good faith basis discussions. Or three, it is simply a genuine good faith step based on the British desire to main the integrity of its own internal market, just as much as the EU insists on maintaining its own single market. Either way the language and tone coming out of everything today would suggest a material increase in no deal risks."
The euro stood at USD1.1880 at the European equities close, up from USD1.1812 at the same time Wednesday, after the European Central Bank painted a less downbeat picture of the eurozone's economic prospects.
The ECB maintained its ultra-loose monetary policy amid pressure to deliver another round of stimulus to ward off the economic fallout from the pandemic.
The central bank's 25-member governing council said it was holding its key refinancing rate at zero on an open-ended basis, while maintaining its bond-buying programme at EUR1.35 trillion. The programme is currently due to end in June 2021.
The Frankfurt-based bank also left its deposit rate unchanged at negative 0.5% and the marginal lending rate at plus 0.25%, saying it plans to hold borrowing costs at their present levels on an open-ended basis.
In addition, the ECB said it plans to reactivate a long-term review of its policy instruments, which was put on hold earlier this year due to the onslaught of the coronavirus crisis.
ECB President Christine Lagarde forecast the eurozone's coronavirus downturn would be less severe than feared.
Lagarde acknowledged a recent spike in coronavirus cases was causing "headwinds" for the recovery whose pace remained uncertain, but added data pointed to a "strong rebound" in the third quarter.
According to the ECB's latest forecasts, the eurozone economy is likely to shrink by 8.0% this year, compared with an earlier projection of -8.7% in June. The inflation outlook remained largely unchanged and is expected to inch up to 1.3% in 2022 - still far off the ECB's inflation target of "close to, but below" 2.0%.
Lagarde told reporters the rise of the euro had been discussed - though it was absent from the policy statement - and was "something to be monitored carefully". She said the central bank was not targeting a euro level "and I will not comment on any level - we are monitoring carefully the impact of our currency on our medium-term inflation level."
The euro climbed to a two-year high of more than USD1.20 last week, fuelled by hopes about the eurozone's recovery from the pandemic as well as the US Federal Reserve's plans to hold interest rates at rock-bottom levels and allow inflation to run higher.
Viraj Patel, head of Macro & Geopolitics Research at Arkera said: "The unchanged policy statement and relatively upbeat projections (the 2021 inflation forecast was upgraded...) left markets with the sense that the ECB thinks everything is fine. It's certainly not. But what we effectively got from the central bank today was the can being kicked down the road - with any major policy stimulus discussions likely to now take place later this year (when we all have more data points telling us about the shape of post-pandemic Eurozone economic recovery).
"The ECB is willing to be behind the curve - which is a stark difference from the Fed's aggressive easing approach since the Covid-19 crisis. The fact that the ECB hasn't expedited its strategic policy review highlights just how behind the curve it is willing to be. Kicking the can down the road only makes tomorrow's problems even bigger."
Against the yen, the dollar was trading at JPY106.20, flat from JPY106.23 late Wednesday.
Stocks in New York were mostly higher at the London equities close amid mixed US labour data and continued dim prospects for additional stimulus spending from Washington.
The DJIA was up 0.1%, the S&P 500 index down 0.2% and the Nasdaq Composite up 0.2%.
New jobless claims last week came in at 884,000, the same as the level of the week prior and indicating that an exceptionally large number of workers are still facing layoffs months into the coronavirus crisis.
In Congress, lawmakers remain far apart on another round of stimulus spending, with Republicans pushing for a pared-down bill and pointing to strength in the housing market and elsewhere as signs that a broader relief package isn't needed.
Brent oil was quoted at USD40.50 a barrel at the London close, up from USD40.32 at the close Wednesday.
Gold was quoted at USD1,957.51 an ounce at the London equities close, higher against USD1,945.72 late Wednesday.
The economic events calendar on Friday has a UK industrial production data, alongside monthly UK GDP reading at 0700 BST. In addition, there are Germany and US inflation figures at 0700 BST and 1330 BST respectively.
The UK corporate calendar on Friday has annual results from emerging markets-focused money manager Ashmore Group.
By Arvind Bhunjun; [email protected]
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