ADVFN Morning London Market Report: Thursday 4 June 2020

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London open: Stocks fall after three days of gains; ECB in focus

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London stocks fell in early trade on Thursday following three days of gains, amid growing tensions between the US and China and ahead of the latest policy announcement from the European Central Bank.

At 0830 BST, the FTSE 100 was down 0.4% at 6,355.47.

Sentiment took a hit after the Trump administration said it was barring Chinese airlines from flying to the US from 16 June. The decision, which was made by the US Department of Transportation, is understood to have been a response to Beijing forbidding US air carriers from resuming flights to China amid the Covid crisis.

China’s civil aviation regulator subsequently issued a notice allowing US carriers to resume limited services into the country.

Investors were also eyeing the latest policy announcement from the European Central Bank, due at 1245 BST.

Deutsche Bank analyst Jim Reid said: “Investors are hoping that the central bank will add further monetary stimulus, which alongside the switch back into value over growth has perhaps been helping to support the rally over recent days.”

Economists expect the €750bn pandemic emergency purchase programme announced in March to be doubled in size and extended to mid-2021, Reid said.

“However our economists also expect large downward revisions to the staff forecast which may give them cover to act further, with President Lagarde having already indicated that their forecast is between the ‘middle’ and the ‘severe’ scenarios the ECB had previously discussed, implying GDP growth this year between -8% and -12%.

“The other interesting aspect to watch out for today will be how Lagarde responds to questions on the German constitutional court ruling, which challenged the ECB’s previous public sector purchase programme in a court ruling last month.”

In UK equity marketsRolls-Royce was under the cosh after the aerospace and defence giant said it was cutting 1,500 jobs at its base in Derby and 700 at its Renfrewshire plant in Scotland. It had already announced last month that it would be axing 9,000 jobs.

Shares of Aston Martin slid after the luxury car maker said it was axing up to 500 jobs as it cut back production of front-engined sports cars and focus on its DBX sports utility model.

Pennon was in the red after it increased its annual dividend by 6.6% but halved its target for dividend growth as the water company set aside almost £9m for bad debts from Covid-19.

Elsewhere, office space provider IWG was hit by a downgrade to ‘sector perform’ at RBC Capital Markets, while Electrocomponents was lower after a downgrade to ‘neutral’ at JPMorgan.

On the upside, online trading platform IG Group rallied after it said full-year trading revenue is expected to be higher than last year as it continues to benefit from increased volatility due to the coronavirus pandemic.

 

Top 10 FTSE 100 Risers

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# Name Change Pct Change Cur Price
1 International Consolidated Airlines Group S.a. +11.41% +28.60 279.20
2 Rolls-royce Holdings Plc +9.25% +27.80 328.20
3 Tui Ag +8.52% +38.10 485.50
4 Easyjet Plc +8.25% +59.80 784.40
5 Marks And Spencer Group Plc +8.18% +8.08 106.90
6 Prudential Plc +7.87% +86.50 1,185.00
7 Micro Focus International Plc +7.21% +31.90 474.40
8 Whitbread Plc +7.20% +178.00 2,651.00
9 Legal & General Group Plc +7.18% +15.40 229.90
10 Aviva Plc +6.90% +18.00 278.90

 

Top 10 FTSE 100 Fallers

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# Name Change Pct Change Cur Price
1 Fresnillo Plc -5.90% -46.80 746.80
2 Kingfisher Plc -3.18% -6.60 201.00
3 Hargreaves Lansdown Plc -3.09% -54.00 1,694.50
4 Ashtead Group Plc -1.00% -25.00 2,479.00
5 Antofagasta Plc -0.26% -2.40 903.60
6 Hikma Pharmaceuticals Plc -0.25% -6.00 2,419.00
7 Nmc Health Plc -0.00% -0.00 938.40
8 Just Eat Plc -0.00% -0.00 861.00

 

US close: Markets higher on further lockdown easing

Wall Street stocks closed higher once again on Wednesday, as major indices rallied on growing optimism regarding the reopening of several US states.

At the closing bell, the Dow Jones Industrial Average was up 2.05% at 26,269.89, the S&P 500 added 1.36% to 3,122.87, and the Nasdaq Composite was 0.78% firmer at 9,682.91.

The Dow had opened 274.87 points higher, carrying on its rally from the previous session after market participants remained optimistic about the reopening of the US economy despite a wave of civil unrest spreading across the country.

As far as Wednesday was concerned, investors were zoned in on the latest set of private-sector employment figures from Automatic Data Processing.

The report revealed US firms shed another 2.76m jobs throughout May as a result of the ongoing Covid-19 pandemic – with losses particularly pronounced at larger business, which reported a decline of more than 1.6m.

Traders also remained focussed on a wave of protests across the US as a result of the death of George Floyd, an unarmed African-American man, in Minneapolis last week under the knee of a white police officer.

However, with protests becoming more peaceful after several US cities, including New York City, imposed curfews on their citizens, hopes of reopening the economy have offset many other investor worries.

Donald Trump also seemed to be dialling down on his threat to deploy US troops into cities, with White House officials stating this week’s response indicated that local governments would likely be able to restore order.

On the macro front, mortgage applications for the week ended 29 March fell 3.7%, a marked turnaround from the 2.7% increase seen in the prior week.

According to the Mortgage Bankers Association, the drop principally stemmed from a reduction in refinancing activity.

Elsewhere, IHS Markit‘s services purchasing managers’ index rose to 37.5 for May’s final reading, a slight recovery from the all-time low of 26.7 set in April.

The composite PMI improved to 37 from 27.

Still on data, new orders for US-made goods dived in April, indicating that business spending had remained depressed early on in the second quarter of 2020 due to the coronavirus pandemic.

The Commerce Department revealed that factory orders had dropped 13% for the month, while data for March was revised to show orders falling 11% instead of the 10.3% as initially reported.

Lastly, the Institute for Supply Management‘s non-manufacturing index rose 3.6 points to 45.4 in May as American service providers began to emerge from their Covid-19 lockdowns.

Economists had been expecting a reading of 44.

In corporate news, 3M was up 2.33% after it revealed that long-time chief financial officer Nick Gangestad will be succeeded by Monish Patolawala, while Warner Music Group priced its initial public offering at $25 per share as it looked to raise up to $1.92bn.

Stocks tied to the reopening of the economy were on the up, including major carriers American AirlinesDelta Air Lines and United Airlines, which rose 5.61%, 7.8% and 12.5%, respectively.

Banks were also in the green, with JPMorgan Chase advancing 5.29%, Wells Fargo up 5.22% and Bank of America 4.63% higher.

On the other hand, shares in some companies that have benefited from strict stay-at-home orders were lower, with Netflix down 1.25% and Shopify off 2.22%.

 

Thursday newspaper round-up: Rolls-Royce, British Airways, HSBC

The US will bar Chinese passenger carriers from flying to the United States starting on 16 June as it pressures Beijing to allow US air carriers to resume flights, the Trump administration announced on Wednesday. The move, announced by the Department of Transportation, penalizes China after Beijing failed to comply with an existing agreement on flights between the world’s two largest economies. Relations between the two countries have also soured in recent months amid escalating tensions surrounding the coronavirus pandemic. – Guardian

Rolls-Royce has announced the locations of its first 3,000 redundancies in the UK, as the jet-engine manufacturer makes deep cuts to its civil aerospace business in response to the coronavirus pandemic. The company last month announced it would cut 9,000 jobs across its global operations because of expectations of lower demand for air travel using its engines for years to come. – Guardian

HSBC’s top executive in Asia has been condemned by democracy campaigners after backing a new Hong Kong security law that hands sweeping powers to the Communist regime in Beijing. Asisa-Pacific boss Peter Wong broke years of political neutrality at the London-listed bank by signing a petition in favour of the change – despite warnings from protesters and human rights groups that it will spell the end of the city’s independence and trigger a brutal crackdown on dissent. – Telegraph

British Airways could be stripped of prized landing slots at Heathrow airport because it is cutting staff while still taking advantage of the taxpayer-backed furlough scheme, a minister has suggested. Officials will review whether they can intervene in slot allocations at ­Europe’s busiest airport as BA plans to slash 12,000 jobs, Kelly Tolhurst, the aviation minister, told MPs. Warnings of state intervention drew a sharp rebuke from the airline’s boss Alex Cruz. Addressing staff, he said: “Every slot lost will lead to jobs in BA being permanently lost.” – Telegraph

The Bank of England will today name 60 businesses, including several of the country’s 20 biggest, that have tapped the state for £19 billion of coronavirus corporate financing, a cheap loan scheme for non-financial companies in need of cash. The list will raise questions about whether multinationals, many of which use legitimate tax avoidance schemes to pad their profits, should be banned or subjected to tougher anti-avoidance conditions. – The Times

 

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