22nd Apr 2020 07:48
(Alliance News) - Stocks in London are set to stabilise on Wednesday following a poor week thus far, which has seen investor sentiment dented by a historic rout in oil prices.
In early UK company news, insurers Hiscox and Beazley gave estimates of the total claims expected to arise from Covid-19, while CRH suspended its share buyback but retained its final dividend proposal, and retailer boohoo said it has seen improved sales trends in April.
In early economic news, the UK inflation rate softened in March on lower fuel prices, amid the global plunge in oil markets.
The annual inflation rate eased to 1.5% in March from 1.7% in February. Month-on-month, prices were flat after a 0.4% rise the month before.
"The inflation rate slowed again in March mainly due to falling prices for clothing and motor fuel," commented Mike Hardie, head of inflation at the official statistics agency ONS.
Liquid fuel prices slumped 25% year-on-year in March amid a slide in oil prices due to reduced demand given global lockdowns to stem the spread of Covid-19.
The ONS noted that petrol prices fell by 5.1 pence per litre between February and March, compared with a rise of 1.2p per litre between the same two months a year ago. This was the largest monthly fall in petrol prices since December 2018.
Sterling was quoted at USD1.2312 early Wednesday following the data, soft against USD1.2291 at the London equities close on Tuesday.
IG says futures indicate the FTSE 100 index of large-caps to open 49.77 points higher at 5,690.00 on Wednesday. The FTSE 100 index closed down 171.80 points, or 3.0%, at 5,641.03 on Tuesday.
Oil remained under pressure on Wednesday. Brent oil slipped to USD16.49 a barrel early Wednesday, trading around its lowest levels since 1999, from USD19.75 late Tuesday.
"Oil sold off sharply again, with the weakness spreading from WTI to other crude markets. It merely reflects the underlying theme that there is no demand for physical oil, and there is nowhere to store it," said Stephen Innes at AxiCorp.
On Monday, WTI for May delivery collapsed to an unprecedented low of minus USD40.32 as traders scrambled to sell it before the contract expired Tuesday, but could find few buyers with storage capacity fast filling up.
Prices have plunged as lockdowns and travel restrictions introduced worldwide to stem the spread of the new coronavirus hammered demand.
In the US on Tuesday, Wall Street ended in the red, with the Dow Jones Industrial Average ending down 2.7%, the S&P 500 down 3.1% and the Nasdaq Composite 3.7% lower.
President Donald Trump partially blocked immigration to the US "to protect American workers" from the economic shock of the coronavirus.
In the US, where the economy is reeling and 22 million people have lost their jobs, Trump said he would stop the issuing of green cards for 60 days, but exempt temporary workers such as seasonal farm labourers.
The US is the hardest-hit country in the world, with nearly 45,000 deaths and more than 800,000 coronavirus infections, and healthcare infrastructure in major hotspots like New York City has struggled to cope.
Meanwhile, US lawmakers and the White House have reached bipartisan agreement on a USD480 billion emergency package that replenishes a depleted program to help small businesses devastated by the coronavirus crisis, the Senate's top Republican said Tuesday.
In the UK, Bank of England Governor Andrew Bailey has warned the economy would be hit by a premature end to the lockdown which would also "damage people's confidence very severely".
Businesses have argued measures should be eased to allow economic recovery, but health authorities have cautioned against any relaxing before Covid-19 testing resources have been increased.
Bailey told the Daily Mail that Britons should be cautious about easing restrictions.
He told the paper: "If we had a lifting and then [lockdown] came back again, I think that would damage people's confidence very severely."
In Asia on Wednesday, the Japanese Nikkei 225 index closed down 0.7%. In China, the Shanghai Composite is up 0.4%, while the Hang Seng index in Hong Kong is up 0.2%. Â
Against the yen, the dollar was quoted at JPY107.57, flat versus JPY107.54. The euro traded at USD1.0861 early Wednesday, marginally below USD1.0864 late Tuesday.
Gold was quoted at USD1,684.15 an ounce early Wednesday, higher than USD1,678.49 on Tuesday.
In early UK company news, CRH said it saw a good start to the year, but the impact of Covid-19 has become visible since mid-March.
The building materials firm said it had a "good" first three months of the year, with like-for-like sales up 3%.
To mitigate the financial impact of Covid-19, CRH has suspended all non-essential and discretionary spending.
Following a "prudent and precautionary decision" to draw down its EUR3.5 billion revolving credit facility, the group now has cash and cash equivalents of over USD6 billion.
"This is sufficient to meet all maturing debt obligations for the next 4.5 years and the weighted average maturity of the remaining debt is 10.4 years. There are no financial covenants associated with the group's debt obligations," CRH highlighted.
CRH has decided to postpone its share buyback programme until further notice, but has proposed a final cash dividend of EUR0.63 per share for consideration at Thursday's AGM.
CRH said: "Due to the unprecedented level of volatility in our markets and the uncertainty surrounding the extent and duration of government restrictions that are currently being implemented, the impact on CRH's profitability in 2020 cannot be reasonably estimated at this time. The group continues to monitor the situation closely and further updates will be provided when visibility improves and we have greater clarity over the expected financial performance of the group in 2020."
Insurer Hiscox said it expects to pay net claims of USD150 million due to Covid-19 for event cancellation and abandonment, media and entertainment and other segments including travel.
In the event that restrictions on travel and mass gatherings are extended beyond six months, Hiscox expects that these claims could increase by an additional USD25 million.
Hiscox is also receiving claims as a result of economic losses following government action to stop the spread of Covid-19. Hiscox noted that its core small business insurance cover does not cover claims for business interruption due to the general measures taken by the UK government.
Hiscox's update comes a week after the City watchdog warned insurers that are liable for claims to cover business interruption due to coronavirus must pay out "as soon as is possible" to help small businesses survive the lockdown.
"Hiscox's capital, liquidity and funding positions remain robust and the group remains operationally strong in the face of unprecedented global uncertainty presented by the Covid-19 pandemic. Hiscox expects this uncertainty and consequent capital contraction to influence rates across wholesale and reinsurance markets," the company stressed.
Fellow insurer Beazley said it estimates the total claims from Covid-19 to be USD170 million net of reinsurance.
In an "unpredecented" first quarter, gross premiums written were up 13% to USD840 million.
Beazley expects the cost of Covid-19 across the political, accident and contingency division, which includes event cancellation, personal accident and accident and health, is around USD70 million net of reinsurance. The marine, property and reinsurance divisions should see claims around USD100 million.
Fast fashion retailer boohoo saw revenue surge 44% to GBP1.23 billion in its financial year to February 29, while pretax profit jumped 54% to GBP92.2 million.
The online seller said strong momentum was maintained into the new financial year, though trading since the middle of March has been mixed due to Covid-19. However, performance has improved in more recent weeks and it is now seeing "improved" year-on-year sales growth in April.
"We remain cautious regarding our outlook, as a result of the uncertainty caused by the Covid-19 pandemic," the AIM-listed company said.
By Lucy Heming; [email protected]
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