14th May 2020 07:41
(Alliance News) - Stock prices in London are set to slide again early Thursday, following a Wall Street slump overnight after US Federal Reserve Chair Jerome Powell warned Covid-19 could do lasting damage to the economy.
In early UK company news, Persimmon said its return to construction work is going to plan, Hargreaves Lansdown reaffirmed its commitment to paying dividends, and WH Smith reported a good half year to March but then saw sales slump in April due to Covid-19.
IG says futures indicate the FTSE 100 index of large-caps to open 81.85 points lower at 5,822.90 on Thursday. The FTSE 100 closed down 90.72 points, or 1.5%, at 5,904.05 on Wednesday.
"It is challenging to untwine where the adverse reaction in US equities to Fed Chair Powell's speech on Wednesday stems from: a gloomy economic outlook, or a reluctance to open the door to negative rates. But when the Fed gets worried about the risks of corporate failure and associated permanent job losses, it should be time to take notice," said Stephen Innes, chief global markets strategist at AxiCorp.
Fed Chair Powell on Wednesday said the central bank is not considering using negative interest rates as a means to curtail economic damage caused by the coronavirus outbreak.
Speaking at the Peterson Institute for International Economics in Washington DC via webcast, the Fed chief said negative interest rates are not under consideration, quelling speculation the central bank would push US rates below zero.
Powell also said crisis spending measures to confront the coronavirus pandemic are costly but worth the risk if they avoid even worse economic damage
As the shutdowns drag on, they could cause "lasting damage" to the US economy and more policies may be needed to deal with that possibility, including spending beyond the nearly USD3 trillion already approved by Congress, he warned.
AxiCorp's Innes said: "After Fed Chair Powell's comments highlighting prolonged downside risks and the call for more action, risk assets headed lower, with the S&P 500 down 2% while Treasuries rallied. The USD traded broadly higher on risk aversion and with the Fed chair pushing back on negative rates."
Sterling was quoted at USD1.2196 early Thursday, down from USD1.2222 at the London equities close on Wednesday. The euro traded at USD1.0804 early Thursday, lower than USD1.0845 late Wednesday.
The safe haven Japanese yen rose amid the risk-off sentiment. Against the yen, the dollar was quoted at JPY106.86, down from JPY107.11.
In New York on Wednesday, the Dow Jones Industrial Average ended down 2.2%, the S&P 500 down 1.8%, and Nasdaq Composite off 1.6%.
In Asia on Thursday, the Japanese Nikkei 225 index ended down 1.7%. In China, the Shanghai Composite is down 0.8%, while the Hang Seng index in Hong Kong is down 1.4%.
A northeastern Chinese city has partially shut its borders, cut off transport links, and closed schools after the emergence of a local Covid-19 cluster that has fuelled fears about a second wave of infections in China.
Authorities in Jilin, with a population of more than four million, suspended bus services and said it will let residents leave the city only if they have tested negative for Covid-19 in the past 48 hours and complete an unspecified period of "strict self-isolation".
Meanwhile, in South Korea, a spike of new cases driven by a nightclub cluster in Seoul's Itaewon district forced authorities to delay this week's planned re-opening of schools.
And two people in Hong Kong tested positive for coronavirus, officials said, ending a 24-day run of no new local cases that saw the city begin to ease social distancing regulations. The financial hub was on course for 28 days of no local transmissions – a yardstick often used by epidemiologists to judge if an outbreak has been defeated.
US President Donald Trump has called on governors to reopen schools that were closed because of the coronavirus while taking issue with top infectious diseases expert Anthony Fauci's caution against moving too quickly in sending students back to class.
Fauci had urged caution in testimony before a Senate committee on Tuesday, although he made clear that he believes reopening decisions will likely differ from one region to the next.
Gold was quoted at USD1,715.22 an ounce early Thursday, flat on USD1,714.70 on Wednesday. Brent oil was trading at USD29.42 a barrel, soft against USD29.45.
In early UK company news, Persimmon said its restart of construction work is going "smoothly".
The housebuilder will open its sales offices in England on Friday, with social distancing and hygiene measures in place.
Persimmon began a phased return to work in England and Wales on April 27, and the process is continuing smoothly and to plan, it said, with the week beginning May 4 seeing 65% of production capacity restored. The group's businesses in Scotland remain in shut however.
In the eight weeks ended May 10, Persimmon secured 1,351 gross private sales reservations, with a total of 1,300 legal completions being made in the same period. Cancellation levels remain in line with historic trends.
Wealth manager Hargreaves Lansdown said it intends to make payouts in line with its dividend policy for the 2020 financial year as it "performed strongly" in the first four months of calendar 2020.
In the four months to April 30, Hargreaves recorded net new business of GBP4.0 billion and added 94,000 new clients. Year-to-date total revenue was up 13% to GBP448.1 million, supported by record dealing volumes.
Assets under administration fell to GBP96.7 billion at the end of April from GBP105.2 billion at the end of 2019.
"This is a strong rebound from the difficult macro and political environment for retail investment flows during the first half of the financial year," the fund supermarket said.
Hargreaves Lansdown's financial year ends June 30.
Net new business growth was driven by "the usual factors" of clients using their tax allowances during the ISA season, ongoing wealth consolidation onto its platform from existing clients, and flows into cash management service 'Active Savings'. This growth was further accelerated by significant market falls in early March, as existing clients added money to their accounts and new clients joined Hargreaves Lansdown "to take advantage of the opportunity to invest at lower prices".
Books and stationery retailer WH Smith said it had a "good" first half but it has seen sales all but wiped out in April due to Covid-19.
Revenue was up 7% in the six months to February to GBP747 million, though down 1% on a like-for-like basis. The travel unit - comprising shops in train stations and airports selling snacks and magazines - saw revenue growth of 19%, or 2% like-for-like, while the high street arm saw a 5% fall in sales, down 4% on a like-for-like basis.
Pretax profit for the half slipped to GBP63 million from GBP65 million a year ago.
"There was very little impact of Covid-19 on our first half results, however inevitably the performance in the second half will be very different," said Chief Executive Carl Cowling.
Covid-19 has taken a toll on the firm since March, as governments imposed travel restrictions and stay-at-home orders in order to stem the virus's spread.
In April, group total revenue was down 85% on the same period last year, as expected, with travel revenue down 91% and high street revenue down 74%.
Cowling said: "We are a resilient and versatile business and with the operational actions we have taken including managing costs and the new financing arrangements, we are in a strong position to navigate this time of uncertainty and are well positioned to benefit in due course from the normalisation and growth of our key markets."
The board will not be making an interim dividend payment, WH Smith said. It paid out an interim dividend of 17.2p a year ago.
The economic events calendar on Thursday has US jobless claims at 1330 BST.
By Lucy Heming; [email protected]
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