25th Mar 2020 16:54
(Alliance News) - Stocks in London ended higher on Wednesday buoyed by massive US stimulus measures, which still needs to be approved by Congress.
The Senate plans to vote Wednesday afternoon on a USD2 trillion stimulus package designed to flood the US economy with capital in a bid to help households and businesses that have been damaged by the coronavirus outbreak.
The FTSE 100 index closed up 188.66 points, or 3.5%, at 5,634.67. On Tuesday, the large cap index closed up 452.12 points, or 9.1%, at 5,446.01 - its second-best day on record after November 24, 2008.
The FTSE 250 ended up 579.46 points, or 4.1%, at 14,752.19, and the AIM All-Share closed up 28.93 points, or 4.6%, at 660.72.
The Cboe UK 100 ended up 5.0% at 9,094.44, the Cboe UK 250 closed up 4.9% at 12,763.00, and the Cboe Small Companies ended up 4.5% at 8,029.33.
In European equities, the CAC 40 in Paris ended up 2.8%, while the DAX 30 in Frankfurt ended up 1.0%.
Shane Balkham, chief investment officer at Beaufort Investment, commented: "Unlike other pandemics such as swine flu, Covid-19 is the first to exist in the age of social media, where information and opinion is always readily available. This is a major contributor to the high volatility we are currently seeing in global markets.
"There is yet to be a market drop without a subsequent rally so, with equities currently at a major discount, it may be worth considering topping up these positions. Yesterday saw one of the most meteoric rises in markets in investing history. This isn't necessarily an indicator of things to come, but is notable as investors respond to firmer fiscal firepower from national governments."
On the London Stock Exchange, JD Sports Fashion ended the best blue chip performer, up 20%. The sportswear retailer was extending gains from Tuesday after it said its websites will continue to accept and fulfil orders. JD Sports said it believes its strong balance sheet, net cash resources and substantial working capital facilities will be adequate to meet any cash deficiencies during the period of disruption. The stock closed up 19% on Tuesday.
Persimmon closed up 15%, despite the housebuilder cancelling its interim dividend and postponing payment of its final distribution in preparation for completions delays.
The York-based company said it entered this "period of uncertainty" with a robust operational performance in the year to date and a strong forward order book.
Persimmon entered 2020 with a strong balance sheet, it said, including cash holdings of GBP844 million, land creditors of GBP435 million and land holdings of 93,246 plots owned and under control. Looking forward, Persimmon said conserving cash and maximising financial flexibility is in the long term best interests of the business and all its stakeholders.
Therefore, the company decided to cancel the proposed 125 pence per share interim dividend payment, which was expected to be paid on Thursday next week.
In addition, Barratt Developments later on Wednesday became the latest housebuilder to cancel its dividend amid the Covid-19 crisis.
Barratt declared a 9.8 pence per share payout in February for the half to December, but this has now been cancelled, saving the FTSE 100 firm around GBP100 million.
The company said it has a "very strong" balance sheet. It had cash of GBP380 million as of March 20, and has an undrawn GBP700 million revolving credit facility. and drawn private placement notes of GBP200 million.
The stock closed up 4.5%.
"The housebuilders will dig in and try to shelter behind their balance sheets - which are in much better shape than they were during the financial crisis. In the short term we think most of the major builders will manage, but if the disruption is prolonged even the strongest balance sheets will find themselves worn down," said analysts at Hargreaves Lansdown.
At the other end of the large cap index, Rentokil Initial ended the worst performer, down 8.2% after the pest control firm withdrew its final dividend and full-year guidance due to the "unprecedented uncertainty" caused by the Covid-19 outbreak.
The company said that it was only in the last ten days that its trading has been hampered by the virus. Until mid-March, its performance "was not materially impacted". Rentokil reported mixed demand for its products and services. With hotels, restaurants and catering sectors being forced to close due to government lockdown measures, demand has fallen, though it has been "strong" in hygiene services and food production markets.
With the FTSE 100 firm looking to save cash due to the virus outbreak, it has withdrawn its final dividend of 3.64p and suspended all further payouts "for the time being".
The pound was quoted at USD1.1764 at the London equities close, up from USD1.1743 at the close Tuesday, continuing its push after hitting the multi-decade lows last week.
On the economic front, UK inflation softened slightly in February, data from the Office for National Statistics showed.
Consumer prices were up 1.7% year-on-year in February, following a 1.8% rise in January. This did matched consensus expectations, according to FXStreet. Motor fuels had a "large downward contribution" after petrol prices fell by 2.4p per litre between January and February 2020, the ONS said.
Pantheon Macroeconomics said: "Looking ahead, CPI inflation looks set to decline sharply over the coming months and to fall comfortably below 1% in the summer. The collapse in Brent crude prices to USD28, together with the reduction in Ofgem's cap on electricity and natural gas prices in April, looks set to mean that the energy component will be subtracting about 0.7 percentage points from the headline rate by May, down from the current 0.2pp boost.
"Meanwhile, the boost to inflation from sterling's recent depreciation will not filter through to core goods prices until the turn of the year. In addition, the pound might recover most of its lost ground once the stress in financial markets caused by the virus fades. All told, then, the inflation outlook likely will not dissuade the MPC from ramping up its asset purchase programme or considering unconventional stimulus measures, if its recent salvo falls short."
The euro stood at USD1.0834 at the European equities close, up from USD1.0792 a day before, as German lawmakers passed legislation to set up a EUR600 billion bailout fund for large firms weathering the coronavirus crisis.
Under the legislation, which is still to be voted on in the Bundesrat upper house, companies would be propped up with loans and nationalised where necessary for the duration of the crisis.
Against the yen, the dollar was trading at JPY111.60, up from JPY111.49 late Tuesday.
Stocks in New York were higher at the London equities close as markets awaited a vote on the historic package agreed by congressional leaders.
On Tuesday, the Dow soared 11.4%, notching its biggest one-day percentage gain since 1933 and recovering some losses due to the virus.
The DJIA was up 2.5%, the S&P 500 index up 0.6%, the Nasdaq Composite was up 0.2%.
On the corporate front, Nike surged 11% after the sportswear giant late Tuesday posted quarterly earnings that beat analysts' expectations. The Beaverton, Oregon-based firm received a boost from its online business and growth in North America, which helped to offset weakness in China due to the coronavirus.
Facebook late Tuesday warned advertising revenue was weakening in countries taking aggressive actions to reduce the Covd-19 spread.
The stock was down 2.8% on Wall Street.
Brent oil was quoted at USD27.08 a barrel at the London equities close, lower from USD27.55 at the close Tuesday.
Gold was quoted at USD1,607.66 an ounce at the London equities close, down from USD1,623.30 late Tuesday.
The economic events calendar on Thursday has UK retail sales figures at 0700 GMT and US GDP readings at 1230 GMT.
The UK corporate calendar on Thursday has annual results from lender Arbuthnot Banking Group and oil and gas explorer EnQuest.
By Arvind Bhunjun; [email protected]
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