6th Aug 2020 12:09
(Alliance News) - Stocks in London were mostly lower at midday on Thursday as the FTSE 100 was hindered by a strong pound and falls for heavyweight miners Glencore and Rio Tinto.
The UK flagship FTSE 100 index was down 100.16 points, or 1.1% at 6,004.56. The mid-cap FTSE 250 index was down 186.72 points, or 1.1%, at 17,451.58. The AIM All-Share index was up 0.6% at 917.17.
The Cboe UK 100 index was down 1.6% at 598.19. The Cboe 250 was down 0.9% at 14,842.68 and the Cboe Small Companies was down 0.2% at 9,185.65.
In mainland Europe, the CAC 40 in Paris was down 0.6%, while the DAX 30 in Frankfurt was 0.1% lower.
"European stocks are falling back in early trading as the hopes of progress on a fresh US stimulus bill begin to fade, while concerns rise about the pace of the jobs recovery in the world's largest economy in the wake of yesterday's ADP employment report. Investors have become increasingly concerned that, having struggled to develop a coherent response to the virus itself, the US will now fumble its plan to save the economy," said IG Group's Chris Beauchamp.
"Firms like Glencore and Rio Tinto have seen huge rebounds from the March lows, but look vulnerable as the recovery begins to slow," the IG analyst added.
On the London Stock Exchange, Aviva was the best blue-chip performer, up 2.6% after the insurer resumed its dividend payments and new Chief Executive Amanda Blanc hinted the insurer could be about to exit most of its international markets.
Aviva's core business is in the UK, but it also has operations in continental Europe, Asia and North America.
"We will focus Aviva on our strongest businesses in the UK, Ireland and Canada and aim to be the UK's leading insurer. We are going to focus on those businesses where we have the necessary size, capability and brilliant customer service to generate superior shareholder returns. This is where we will invest and grow. Where we cannot meet our strategic objectives, we will take decisive action and we will withdraw capital," said Blanc.
The company declared a second interim dividend in respect of 2019 of 6.0 pence per share. Avva also said it has decided to take the opportunity to review its longer-term dividend policy, with the intent of a sustainable pay-out and lower levels of debt.
For the half-year ended June 30, Aviva reported attributable pretax profit of GBP1.08 billion, down from GBP1.52 billion last year and operating profit was GBP1.23 billion, down from GBP1.39 billion.
"The European and Asian arms will be 'managed for value' - corporate speak for potential asset sales and withdrawals from certain markets. The decision to maintain an approach which sees Aviva offer everything from life policies to pet insurance is interesting as her predecessor Maurice Tulloch attracted ire from shareholders over his failure to consider a break up of these different lines of business," explained AJ Bell's Russ Mould.
Mondi was up 1.8% after the Anglo-South African paper and packaging firm said it has resumed dividend payments.
For the half-year ended June 30, revenue was down 8.5% to EUR3.45 billion from EUR3.77 billion the year before and pretax profit fell 26% to EUR466 million from EUR632 million.
However, Mondi declared a 19.00 euro cents per share 2020 interim dividend and a dividend of 29.75 euro cents per share relating to 2019. Both dividends, amounting to a total of 48.75 euro cents per share, will be paid as interim dividends in September, the company said.
At the other end of the large-cap index, Glencore was the worst performer, down 5.8% after the Swiss commodities trader scrapped its dividend as it posted a drop in interim earnings.
For the half-year ended June 30, Glencore swung to a net loss of USD2.60 million from a USD226 million profit last year, as revenue fell to USD70.96 billion from USD107.43 billion. Glencore also reported a 13% drop first-half adjusted earnings before interest, tax, depreciation and amortisation to USD4.83 billion.
In addition, Glencore said it will not pay its deferred dividend, saying the economic outlook is too uncertain due to the coronavirus. The dividend was put on hold earlier this year due to the pandemic.
CEO Ivan Glasenberg said: "The outlook remains uncertain in the short-term. Notwithstanding our cash-generative business and secure liquidity positions, the board has concluded that it would be inappropriate to make a distribution to shareholders in 2020, instead prioritising the acceleration of net debt reduction to within our target range, currently expected to occur by the end of 2020."
Rio Tinto was down 5.5% after the stock went ex-dividend, meaning new buyers no longer qualify for the latest payout.
ITV was down 1.5% after the television broadcaster and programme maker reported a sharp fall in profit in the first half of the year as its production and advertising took a hit from the coronavirus pandemic.
For the half-year ended June 30, revenue fell 17% to GBP1.45 billion from GBP1.75 billion a year before, and pretax profit fell 93% to GBP15 million from GBP222 million.
Advertising revenue fell 21%, while ITV Studios revenue was down 17%.
ITV said it has decided not to pay an interim dividend in light of continued economic uncertainty.
Looking ahead, ITV said that given the level of uncertainty for both ITV Studios and the Broadcast unit it is not possible to provide financial guidance for the third quarter or the remainder of the year.
"Coronavirus has swiped ITV's two main ways of making money: advertising and production. The broadcaster had been struggling with squeezed advertising revenues for a while, but this pandemic has compounded the problem. When times are tough, the first thing market departments do is slash the marketing and advertising budgets, which then causes firms like ITV, which rely heavily on this cash, to suffer," said eToro analyst Adam Vettese.
Meanwhile, the Bank of England offered a more optimistic outlook for the UK's economic prospects than previously, as the central bank kept monetary policy unchanged.
The BoE said its policymakers unanimously voted to keep the Bank Rate unchanged in light of the challenges posed by the coronavirus pandemic.
The BoE's nine-member Monetary Policy Committee all voted to keep the UK's key interest rate at 0.1% and asset purchases at GBP745 billion, as widely expected.
In addition, Threadneedle Street improved its "indicative projection" for growth for the UK economy, forecasting that gross domestic product will shrink by 9.5% in 2020, following UK government measures to protect the economy. In May, the BoE had warned that economic growth could slump by 14% this year.
However, the BoE also warned Thursday that it does not expect the economy to jump back to pre-virus levels until "the end of 2021".
The pound was quoted at USD1.3162 Thursday midday in London, having peaked earlier at USD1.3185 and firm from USD1.3144 at the London equities close Wednesday. Sterling was trading at five-month highs versus the greenback as the prospect of negative UK interest rates were quelled for the time being.
At the subsequent press conference, Bank of England Governor Andrew Bailey told reporters the UK economy is "recovering", but stressed that the progress has been "uneven".
Bailey said that negative interest rates are in the "toolbox", but has no immediate plans to use that drastic monetary policy measure for the first time. "The toolbox has a few things in it, even though obviously we are inevitably, like other central banks, in a more constrained world given where rates are," Bailey said.
Analysts at BK Asset Management commented: "The Bank of England held rates steady at zero and did not increase QE noting that some high-frequency data has shown a strong rebound including spending and the housing market. While BoE acknowledged that business investment remains lacklustre and bankruptcies may yet increase in the wake of Covid impact, the MPC refrained from suggesting that negative rates may be coming and left policy unchanged for now.
"The tone of the statement was a far cry from the nervous BoE communication in May when officials feared that Covid pandemic may result in long-term recession and considered negative rates as part of the policy response. With economic picture improving and COVID infections in the UK seemingly under control UK monetary officials were much more sanguine in today's communique and that helped fuel a rally in cable which inched towards the 1.3200 figure."
Elsewhere, UK construction sector activity grew at the fastest rate in almost five years in July as coronavirus-related shutdowns eased, IHS Markit said.
The HS Markit/CIPS UK Construction purchasing managers' index reading was 58.1 in July, up from 55.3 in June. The score was above the 50.0 neutral mark for the second straight month and beat market forecasts of 57.0.
Markit said UK construction companies signalled a sharp and accelerated expansion of business activity during July, led by another strong increase in house building.
"The construction industry has already stepped up in getting sites back open and operating at somewhere near full tilt this summer. However, these latest figures mask the point that the long-term picture will remain unclear until the pre-Covid cycle of projects come to completion and we see how many spades go in the ground on new developments," said Mark Robinson, chief executive of public sector procurement company Scape Group.
The euro was priced at USD1.1885, soft from USD1.1901. Against the yen, the dollar was quoted at JPY105.48, flat from JPY105.47.
In economic news from the continent, the eurozone's construction slump eased somewhat in July with sentiment finally turning positive after five months in the doldrums, Markit said.
IHS Markit eurozone construction total activity index edged up to 48.9 in July, from 48.3 in June. The July print remained below the 50.0 no-change mark.
Markit noted that July registered "the weakest decline in construction activity across the eurozone in the current five-month sequence".
"Survey data showed Italy recorded construction output growth, while Germany and France posted declines," IHS Markit added.
Gold was trading at USD2,049.55 an ounce at midday on Thursday in London, firm from USD2,046.16 late Wednesday. Brent oil was quoted at USD45.37 a barrel, lower from USD45.96.
US stock market futures were pointed higher as investors once again hope for progress from Washington on a new coronavirus stimulus package.
The DJIA was called up 0.1%, the S&P 500 index up 0.1% and the Nasdaq Composite up 0.2%.
The two parties remain far apart on their proposals, with Democrats' USD3.5 trillion plan more than three times bigger than the Republicans' offer and a key sticking point being supplementary jobless benefits that ran out last week.
"I feel optimistic that there is light at the end of the tunnel," Democratic House Leader Nancy Pelosi told reporters. "But how long the tunnel is remains to be seen."
Still, the general consensus is that they will eventually have to compromise at some point, and Republican Senate Majority Leader Mitch McConnell said next week's recess could be put off so a deal can be reached.
By Arvind Bhunjun; [email protected]
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