28th Aug 2020 12:07
(Alliance News) - Stocks in London were mixed at midday on Friday with a strong pound hindering the internationally-exposed FTSE 100 index as the dollar sank following dovish tones from the US Federal Reserve on Thursday.
In London, the blue-chip FTSE 100 index was down 3.13 points, or 0.1%, at 5,996.51. The mid-cap FTSE 250 index was down 27.43 points, or 0.2%, at 17,734.73. The AIM All-Share index was flat at 963.50.
The Cboe UK 100 index was down 0.2% at 597.69. The Cboe 250 was flat at 15,111.68. The Cboe Small Companies was up 0.1% at 9,501.65.
In mainland Europe, the CAC 40 index in Paris was down 0.3%, while the DAX 30 in Frankfurt was down 0.4%.
"It is a mixed bag as far as European equity markets are concerned. Yesterday's update from Jerome Powell, the Fed chair, is still playing on traders' minds. The US central bank has altered its policy so they will now allow inflation to run at over 2%. The move comes as there are signs that inflation is picking up thanks to the very aggressive monetary and fiscal stimulus policies. Equity benchmarks in Europe ended lower yesterday and the sentiment is largely a little weaker today. The selling pressure isn't particularly strong, and the absence of upbeat news has prompted dealers to trim their exposure to equities," said CMC Markets analyst David Madden.
In the FTSE 100, gold miners Polymetal International and Fresnillo were the best performers, up 3.1% and 2.7% respectively, tracking spot gold prices higher, amid dollar weakness.
Gold was quoted at USD1,955.71 an ounce Friday midday, up from USD1,919.95 late Thursday.
"With the US election approaching, a new Fed policy framework explicitly allows for inflation to moderately overshoot the 2% target to catch-up on previous undershooting, and with very depressed US real interest rates, some long-term investors will likely continue to want to diversify away from the greenback. So gold should remain bid on dips through to the [Federal Open Market Committee] actionable meeting in September," said AxiCorp's Stephen Innes.
At the other end of the large caps, Rolls-Royce was down 3.0% as the jet engine maker extended losses from Thursday. The stock closed down 1.2% on Thursday after Rolls-Royce said it was looking to sell assets, amid a gaping loss and a warning of "material uncertainties" caused by the coronavirus pandemic.
"Rolls-Royce continued its descent, falling another 3.4% after yesterday's disappointing results and heightened speculation that the company will have to do a discounted equity placing to raise money to strengthen its balance sheet," said AJ Bell's Russ Mould.
The dollar was lower across the board as the world's reserve currency was pummelled by a dovish message from Federal Reserve Chair Jerome Powell.
At the Jackson Hole economic symposium on Thursday, the Fed outlined a major policy change that gives greater weight to its mission of maximising employment for the benefit of lower-income families, while placing less emphasis on fighting inflation.
Powell said the aim is to correct the "shortfalls" in achieving the Fed's full employment goal while recognizing that, with changes in the global economy, a tight job market does not necessarily drive prices higher.
In practice, the change has no impact in the near-term but will keep borrowing rates low for much longer than in prior economic expansions. The new policy makes it clear the central bank will allow inflation to stay above its 2.0% target "for some time" before raising interest rates.
The pound was quoted at USD1.3303 at midday on Friday, up sharply from USD1.3192 at the London equities close on Thursday. Sterling was trading at its highest levels since late December.
The euro stood at USD1.1890 at midday Friday, up sharply from USD1.1798 at the European equities close Thursday. Against the yen, the dollar was trading at JPY105.72, sharply lower from JPY106.50.
ThinkMarkets analyst Fawad Razaqzada commented: "Traders are evidently not looking too far ahead and are selling the dollar now and will be asking questions later, as they take advantage of the strong momentum. One longer-term concern is that if the Fed allows inflation to overcook by not reacting fast enough, then it may have to tighten its belt more aggressively when it finally does start its hiking cycle in order to bring prices back under control. Such a policy response will stifle economic growth and will most likely send the dollar soaring higher.
"However, that is something to worry about at some later point in time. Right now, though, investors are convinced rates will not be going up any time soon. So, the trend of short dollar, long stocks, gold and bonds remain intact."
Ahead, Bank of England Governor Andrew Bailey will take the stage for his maiden appearance at Jackson Hole, with his speech expected at around 1400 BST.
"His speech will be monitored for clues on the economic outlook. The US enters its second day of the symposium, with other medium weight data being released throughout the afternoon. Sterling is likely to try and find its feet prior to entering into the bank holiday weekend and the end of the month," OFX analysts said.
The Japanese Nikkei 225 index closed down 1.4%. In China, the Shanghai Composite is up 1.5%, while the Hang Seng index in Hong Kong ended up 0.6%.
Japan's Prime Minister Shinzo Abe announced Friday he will resign over health problems, in a development that kicks off a leadership contest in the world's third-largest economy.
"I have decided to step down from the post of the prime minister," he told a press conference, saying he was suffering from a recurrence of the ulcerative colitis that ended his first term in office.
Abe said he was receiving a new treatment for the condition, which needed to be administered on a regular basis which would not leave him with sufficient time to discharge his duties. He is expected to stay in office until his ruling Liberal Democratic Party can choose a successor, in an election likely to take place among the party's lawmakers and members.
There is no clear consensus on who will succeed Abe, with likely candidates including Finance Minister Taro Aso and Chief Cabinet Secretary Yoshihide Suga.
In commodities, Brent oil was quoted at USD45.65 a barrel from Friday midday, up from USD44.68 a barrel at the London equities close Thursday. The North Sea benchmark held on to gains as Hurricane Laura, which battered the Mexican Gulf and shut down several oil rigs, weakened as it moved inland.
New York is set to open mostly higher, as the Republican National Convention drew to a close on Thursday.
The Dow Jones Industrial Average was called up 0.3%, the S&P 500 up 0.1%, but the Nasdaq Composite was called down 0.2%, based on futures trading.
US President Donald Trump tore into his election challenger Joe Biden, calling him a threat to the "American Dream" in a bruising speech Thursday, as he accepted the Republican nomination for a second term against a backdrop of racial tensions and the deadly coronavirus pandemic.
In his 70-minute address, Trump attacked Biden, who leads in polls ahead of the November 3 election, as a radical leftist.
"This election will decide whether we save the American Dream," Trump said, rejecting Biden's main campaign slogan about saving America's soul. "He's the destroyer of America's jobs and given the chance, he'll be the destroyer of American greatness."
By Arvind Bhunjun; [email protected]
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