1st May 2020 07:45
(Alliance News) - Stock prices in London are called lower on Friday morning, as damaging economic data from the European Central Bank weighed on sentiment and despite a promise by UK Prime Minister Boris Johnson to provide a plan to exit lockdown.
In early UK company news, Royal Bank of Scotland suffered the same fate as peers, with profit falling sharply on increased impairments, as Ryanair is set to cut 3,000 jobs amid government-impose travel restrictions.
IG says futures indicate the FTSE 100 index of large-caps to open points 90.31 lower at 5,810.90 on Friday. The blue-chip index closed down 214.04 points, or 3.5%, at 5,901.21 Thursday.
CMC Markets Chief Market Analyst Michael Hewson said: "Despite posting their best month since October 2015, European stocks finished April with a whimper, falling sharply, after a raft of economic data showed that for all the concerns about how bad the economic data is set to be in the second quarter, the lockdowns imposed in March also extracted an even heavier than expected economic price in the first quarter."
European Central Bank President Christine Lagarde on Thursday warned that the euro area is facing an "unprecedented" peacetime economic contraction due to the Covid-19 pandemic.
Her remarks came in a press conference after the central bank said it stands ready to increase the size of its pandemic emergency purchase programme, if needed, as it kept eurozone interest rates steady.
Measures to contain the spread of Covid-19 "have largely halted economic activity" across both the euro bloc and the globe, Lagarde said. Survey indicators for consumer and business sentiment have plunged, suggesting a sharp contraction in economic growth and "a profound deterioration" in labour market conditions.
There are high levels of uncertainty surrounding the ultimate extent of the economic fallout, so ECB forecasts suggest euro area GDP could fall by between 5% to 12% this year - with much depending on the duration of containment measures.
The forecasts come just hours after Eurostat said the eurozone economy contracted 3.8% quarter-on-quarter in the first three months of 2020, and shrank 3.5% in the wider European Union. Annually, GDP fell 3.3% in the euro area and by 2.7% in the EU.
The euro traded at USD1.0963 early Friday, firm on USD1.0874 late Thursday.
Hewson continued: "Markets appeared to have convinced themselves, that for all of the damage that was coming in the second quarter, that the first quartet wouldn't be anywhere near as bad as yesterday's initial estimates suggested it would. The fact that it was even worse, and with a lot of the more recent data still to come through, prompted a sharp reassessment of the likelihood of a v-shaped recovery, that had prompted a lot of the gains that we’ve seen in the past month."
In the UK, Prime Minister Johnson promised to deliver a "comprehensive plan" next week on how the lockdown may be eased after declaring the UK is "past the peak" of the coronavirus outbreak.
Johnson said on Thursday he would be producing a "road map, a menu of options" explaining how to get the economy moving and children back to school while still suppressing the disease's spread.
In Asia on Friday, the Japanese Nikkei 225 index closed down 2.7%. Japan's manufacturing sector saw its downturn intensify in April with production falling at the sharpest rate since 2009, IHS Markit data showed.
The headline au Jibun Bank purchasing managers' index dropped to an 11-year low of 41.9 in April from 44.8 in March. Any reading over 50 indicates expansion in the sector and one below contraction.
Financial markets in China and across Europe - including Germany and France - are closed Friday for the Labour Day holiday.
In London, RBS followed UK banking peers earlier this week in reporting a sharp drop in profit due to a significant rise in credit impairments.
Operating pretax profit dropped to GBP519 million in the first quarter from GBP1.01 billion a year before.
The lender upped its impairment losses to GBP802 million for the period from just GBP86 million a year before.
Net interest income was down to GBP1.94 billion from GBP2.03 billion, as the lender's net interest margin worsened to 1.89% from 2.07%.
This was partly offset by its customer loan book rising to GBP351.3 billion from GBP306.4 billion.
RBS ended the quarter with a CET1 ratio of 16.6% versus 16.2% the year before.
"We remain committed to the strategic objectives and priorities we announced as part of our full year 2019 results. Whilst we are closely monitoring events and assessing potential scenarios and outcomes, reflecting the significant deterioration in economic outlook and unprecedented levels of uncertainty, it would be inappropriate to provide an update on medium-term outlook at this time," RBS said.
At rival Lloyds Banking, Chief Operating Officer Juan Colombas has agreed to stay in his post until September. Colombas was scheduled to retire in July but has agreed to stay on and help the lender deal with the Covid-19 crisis.
Housebuilder Barratt Developments said its construction work will recommence on May 11.
Barratt will start a phased return to construction, with 180 sites - around 50% of the total - in the first phase. The housebuilder noted it is not planning to restart work in Scotland at the moment.
Barratt said a "significant proportion" of the 85% of its workforce that has been furloughed will be able to return to work in May - but is not opening its sales centres or show homes.
"Since our sales centres closed, we have continued to see customer interest, albeit at reduced levels compared to the period to March 22, 2020. As expected, since closing our sales centres, we have experienced a low level of reservations. We expect reservations to continue at low levels until our sales centres and show homes reopen," Barratt said.
The housebuilder will prioritise work on sold plots at advanced stages of construction, and therefore expects a limited number of additional completions this financial year.
At April 26, Barratt has completed 11,776 homes - versus 11,723 the year before. Total forward sales stand at 12,271 with a value of GBP2.85 billion.
Barratt said it continues to be financially strong, with about GBP430 million of cash at April 28.
Budget airline Ryanair said it expects a significant decline in air traffic in 2020, but bemoaned the "distorted" playing field as it charged that legacy European airlines have received over EUR30 billion in state aid.
Ryanair said this is a "clear breach" of both EU competition and state aid rules.
"This unlawful and discriminatory state aid will be challenged by Ryanair in the European Courts," the airline added. "When Ryanair returns to meaningful flying from July, the competitive landscape in Europe will be distorted by unprecedented volumes of state aid from some EU governments to their 'national' airlines."
It said: "As a direct result of the unprecedented Covid-19 crisis, the grounding of all flights from mid-March until at least July, and the distorted state aid landscape in Europe, Ryanair now expects the recovery of passenger demand and pricing (to 2019 levels) will take at least 2 years, until summer 2022 at the earliest."
Ryanair said it will begin restructuring, starting in July, which could see the loss of up to 3,000 mainly pilot and cabin crew jobs, unpaid leave, and pay cuts of up to 20%, as well as the closure of a number of aircraft bases across Europe until traffic recovers.
Due to continent-wide EU government flight restrictions, Ryanair expects to operate less than 1% of its scheduled flying program in April, May and June.
First-quarter traffic is expected to be down 96% year on year at 150,000 passengers.
In the US on Thursday, Wall Street closed in the red, with the Dow Jones Industrial Average ending down 1.2%, the S&P 500 down 0.9% and the Nasdaq Composite closing 0.3% lower.
After the bell in New York, tech giant Amazon and Apple released first-quarter results - which followed news that another 3.8 million Americans had filed jobless claims, taking the overall total of claims to over 30 million.
Apple said it made a profit of USD11.2 billion on sales of USD58.3 billion in the quarter, compared to net income of USD11.7 billion on revenue of USD58 billion in the same period a year earlier.
"Despite COVID-19's unprecedented global impact, we're proud to report that Apple grew for the quarter, driven by an all-time record in services and a quarterly record for wearables," Chief Executive Tim Cook said in an earnings release.
Net sales of iPhones – the big earnings segment for Apple in recent years – dropped 6.7% from a year earlier
Amazon said profits took a hit in the past quarter due to the global pandemic and that its earnings in current period would be wiped out by COVID-related expenses.
The technology and e-commerce giant said revenue surged 26% in the quarter to more than USD75 billion as people hunkered down at home due to the pandemic turned to it for supplies and entertainment.
But profits slipped 29% from a year ago to USD2.5 billion.
Chief Executive Jeff Bezos said all profits in the April-June quarter would be erased by expenses linked to the global virus outbreak.
Elsewhere in the US, President Donald Trump on Thursday threatened China with fresh tariffs as he stepped up his attacks on Beijing over the coronavirus crisis, saying he had seen evidence linking a Wuhan lab to the contagion.
Asked if he had seen anything giving him a high degree of confidence that the Wuhan Institute of Virology was the source of the outbreak, Trump replied, "Yes, I have."
Pressed by reporters at the White House for details on what made him so confident, Trump replied: "I cannot tell you that."
Trump is increasingly making Beijing's handling of the outbreak a major issue for his November re-election campaign.
Sterling was quoted at USD1.2565 early Friday, down from USD1.2601 at the London equities close on Thursday.
Against the yen, the dollar was quoted at JPY107.06, up from JPY106.94.
Gold was at USD1,676.50 an ounce early Friday, lower than USD1,704.48 on Thursday.
Brent oil rose to USD26.85 a barrel early Friday from USD26.50 late Thursday.
The economic events calendar on Friday has manufacturing PMI readings from the UK and US at 0930 BST and 1445 BST respectively.
By Paul McGowan; [email protected]
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