12th Mar 2020 08:44
(Alliance News) - European stocks slumped at the open on Thursday with travel stocks among the worst hit following US President Donald Trump's ban on travel from mainland Europe.
In focus later in the day will be a policy announcement by the European Central Bank.
The FTSE 100 index was down 307.74 points, or 5.3%, at 5,568.78 early Thursday. So far this week, London's blue-chip index has slumped nearly 14%.
The mid-cap FTSE 250 index was down 1,138.70 points, or 6.7%, at 16,200.53. The AIM All-Share index was down 3.9% at 766.58.
The Cboe UK 100 index was down 5.1% at 9,426.11. The Cboe 250 was down 6.4% at 14,340.99, and the Cboe Small Companies down 1.3% at 10,468.42.
Stocks plummeted in early dealings after Trump set out measures to combat Covid-19. He imposed a travel ban on mainland Europe for 30 days and stated trade would be halted, although he later backtracked on the trade part.
He criticized European governments for failing to act quickly to restrict travel from China, and announced that starting at midnight Friday, all travel from Europe – except the UK and Ireland – will be suspended for a month.
While insisting the US economy remained strong, Trump urged Congress "to provide Americans with immediate payroll tax relief" to help counter the impact of the outbreak that has disrupted businesses, especially the travel industry, and sent Wall Street plunging.
Trump also said he would instruct the US Treasury to defer tax payments "for certain individuals and businesses negatively impacted" by the pandemic, a move he said would inject more than USD200 billion of liquidity into the American economy.
Jasper Lawler at London Capital Group said Trump managed to "spook an already spooked market".
"The travel ban is a decisive step to prevent the spread in the US but will cripple trade between the two continents. Goods will still flow but presumably at reduced pace and trade in services will almost grind to a halt," said Lawler.
"The biggest source of disappointment on Wall Street was the lack of specific ways to support people and SMEs of the sort that were announced in the UK budget," he added. "Paid sick leave, free testing and a solution for uninsured Americans were all missing. The acrimony between the Republican White House and Democratic Congress since impeachment seems to be making it harder for the US to respond with the speed and vigour required. A scheduled 1-week recess by Congress starting Friday means further delays to new policy is likely."
In a red-drenched FTSE 100, International Consolidated Airlines was down 9.5% following Trump's travel ban on continental Europe.
Other London-listed travel stocks, such as Anglo-German operator TUI and cruise company Carnival, were down 9.5% and 6.7% respectively.
In Frankfurt, German flag carrier Lufthansa sank 10% and Air France KLM in Paris was down 16%.
In mainland Europe, the CAC 40 in Paris was down 5.4% while the DAX 30 in Frankfurt was 5.3% lower early Thursday.
In Asia on Thursday, the Japanese Nikkei 225 index ended down 4.4%. In China, the Shanghai Composite closed down 1.5%, while the Hang Seng index in Hong Kong ended down 3.7%.
Back in London, Berkeley Group Holdings was down 5.9% after saying it will postpone a planned GBP455 million increase in shareholder returns until it receives "greater clarity" over the impact from coronavirus.
The blue-chip housebuilder said it has experienced a continuation of the good trading environment announced with its interim results, with underlying demand maintained. The firm still expects to meet market expectations for the financial year ending April 30.
"Today's announcement is made in the context of the current increased macro uncertainty, which has been uniquely impacted by the global spread of coronavirus. While there has been no noticeable impact on Berkeley's business to date, the ultimate impact on UK business is unknown. There is no recent historic precedent and for this reason it is absolutely right for any responsible business to approach the next six months with a reduced risk appetite and heightened sense of caution," said Berkeley.
The company said that is has decided to postpone the planned GBP455 million increase in shareholder returns scheduled to be made via a B and C share scheme until the effect of coronavirus is "more measurable and certain". The board "is keen to stress" that it still intends to make the returns but will reassess this at its full-year results announcement in June, it added.
In the FTSE 250, WH Smith was down 17% as it anticipated a hit of between GBP30 million and GBP40 million to profit for its current financial year due to the Covid-19 outbreak.
The retailer said that in Asia Pacific, which accounts for 5% of its travel unit's revenue, it has seen a "significant impact" on business since February. The company's travel unit operates stores selling books, magazines and snacks in places such as airports and train stations.
In addition, WH Smith said it has seen a "material reduction" in the past fortnight in passenger numbers at airports outside of Asia Pacific, in the UK, US and Europe.
"Based on current trading and modelling, the group believes that the effects of Covid-19 will result in a reduction in our expectations for revenue and profit across the Travel business for the second half," said WH Smith.
While the firm said it is not seeing a "significant impact" on its high street operations, it noted that Covid-19 could result in reduced footfall.
As a result, WH Smith expects a revenue hit of between GBP100 million to GBP130 million for the financial year ending August 31, resulting in a hit to underlying pretax profit of around GBP30 million to GBP40 million. Headline pretax profit in the 2019 financial year amounted to GBP155 million.
Cineworld was down 20% as it reported a lower profit in 2019 and warned there can be "no certainty" over the impact of Covid-19.
Revenue for 2019 rose to USD4.37 billion from USD4.12 billion, but pretax profit slumped to USD212.3 million from USD349.0 million. This was as finance expenses doubled to USD568.0 million from USD225.2 million, which Cineworld said was largely due to the adoption of accounting rule IFRS16 governing lease liabilities.
Looking ahead, the company said there can be "no certainty" over the future impact of Covid-19, though it has seen a "minimal impact" thus far.
Under the 'going concern' section of the results release, downside scenario analysis considered the loss of up to three months' revenue due to Covid-19.
"These downside scenarios are currently considered unlikely, however it is difficult to predict the overall outcome and impact of Covid-19 at this stage. Under the specific downside scenario, however, of the group losing the equivalent of between two and three months' total revenue across the entire estate there is a risk of breaching the group's financial covenants, unless a waiver agreement is reached with the required majority of lenders within the going concern period," Cineworld said.
The economic events calendar on Thursday has eurozone industrial production figures at 1000 GMT and US producer prices at 1230 GMT.
In focus, though, is the European Central Bank's latest monetary policy decision at 1245 GMT, coming just a day after a surprise interest rate cut from the Bank of England.
"The ECB has pledged to take 'appropriate and targeted' measures. But with limited firepower remaining and interest rates already in negative territory, economists are divided over whether it will cut rates further today. Markets nevertheless have fully priced in a 10bps reduction to -0.6% and have partially priced in a 20bps cut, which would likely be accompanied by a tweak to the two-tier system," said Lloyds Bank.
Lloyds added: "An increase in the pace of monthly bond purchases from the current EUR20 billion is another possibility, though potentially more controversial (neither the Fed nor the BoE have as yet gone down that route)."
ECB President Christine Lagarde holds a press conference starting at 1330 GMT.
The euro traded at USD1.1269 early Thursday, firm from than USD1.1264 late Wednesday.
Sterling was quoted at USD1.2796 early Thursday, lower than USD1.2880 at the London equities close on Wednesday. Against the yen, the dollar was quoted at JPY103.77 versus JPY104.94.
Gold was quoted at USD1,643.22 an ounce early Thursday, lower than USD1,649.40 late Wednesday. Brent oil was priced at USD33.99 a barrel, down from USD36.02.
Oil has been hammered this week following Saudi Arabia's decision to launch a price war after talks over production talks broke down, with Russia refusing to agree to a cut of 1.5 million barrels per day.
Further, the Organization of the Petroleum Exporting Countries on Wednesday predicted global oil demand will all but stall this year as the coronavirus outbreak is expected to hit economies in various regions.
By Lucy Heming; [email protected]
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