(Alliance News) - London stocks were deep in the red at midday despite a strong performance in New York overnight, with markets growing cautious ahead of this week's US Federal Reserve meeting.
Oil majors were lower on Tuesday as Brent gave back some recent gains, while British American Tobacco was also in negative territory after cutting revenue guidance.
"The S&P 500 market recovering all of its lost ground this year may have put a spark in Asian markets on Tuesday but the celebratory mood didn't extend to the UK and Europe," commented Russ Mould, investment director at AJ Bell.
The FTSE 100 index was down 109.87 points, or 1.7%, at 6,362.72 on Tuesday at midday.
The mid-cap FTSE 250 index was down 318.29 points, or 1.8%, at 17,818.61 and the AIM All-Share index was down 1.1% at 883.44.
The Cboe UK 100 index was up down 1.9% at 10,763.09. The Cboe 250 was down 2.3% at 15,368.59, and the Cboe Small Companies down 0.7% at 9,893.30.
In mainland Europe, the CAC 40 in Paris and the DAX 30 in Frankfurt were both down 2.0% in early afternoon trade.
New York ended higher on Monday, with the Dow Jones Industrial Average up 1.7%, the S&P 500 up 1.2% and Nasdaq Composite up 1.1%. The Nasdaq Composite set a new record closing high and the S&P 500 erased its losses for the year.
However, Wall Street is on course for a lower start after Monday's rally. The Dow Jones is called down 1.1%, the S&P 500 down 1.0% and the Nasdaq down 0.5%.
"Not surprisingly, there will be days like today where investors take a breather, and the market consolidates...Wednesday's FOMC decision will determine whether the break extends a little longer or not. If the Fed does not take any further action, risk sentiment might cool for a bit longer," said Stephen Innes, chief global markets strategist at AxiCorp.
Ahead of the Fed's latest decision, the central bank once again announced changes to its Main Street Lending Program to reach more companies struggling to deal with the damage done by the coronavirus shutdowns.
The facility, which has not yet launched, once again slashed in half the minimum loan amount, taking it down to USD250,000 from USD500,000 previously, the Fed said.
The central bank originally conceived the program with a USD1 million minimum, as it rushed to find ways to support businesses that are too big to benefit from the Paycheck Protection Program run by the Treasury Department.
The Fed said the program should be ready to start lending "soon," and Fed Chair Powell said "I am confident the changes we are making will improve the ability of the Main Street Lending Program to support employment during this difficult period."
The pound was quoted at USD1.2642 Tuesday morning, down from USD1.2689 at the London equities close on Monday. The euro was quoted at USD1.1268, down from USD1.1294.
The eurozone economy contracted less sharply than initially estimated during the first three months of the year, but the decline remained the largest on record, Eurostat said.
On an annual basis, euro area gross domestic product fell 3.1% in the first quarter of 2020, after a 1.0% rise in the fourth quarter of 2019. The first-quarter reading was revised up from the preliminary figure of negative 3.2%.
Quarter-on-quarter, eurozone GDP in the first three months of 2020 fell 3.6% following a 0.1% rise in the fourth quarter. The first-quarter reading was revised up from the preliminary figure of negative 3.8%.
Both the annual and quarterly revised declines remained the largest since records began in 1995.
Amid Tuesday's risk-off mood, safe havens benefited.
Gold was trading at USD1,708.10 an ounce Tuesday, up from USD1,691.14 late Monday. Against the yen, the dollar was quoted at JPY107.95, down from JPY108.61.
However, oil gave back recent gains. Brent oil was priced at USD39.98 a barrel Tuesday, down from USD41.14 late Monday.
"The positive momentum in oil prices driven by OPEC+ output cuts and need to be followed up by an uptick in demand to see prices higher. While equity markets are looking ahead to a recovery in corporate profits in 2021, energy markets do not have the luxury to be as forward-looking," said AxiCorp's Innes.
Royal Dutch Shell 'A'' and 'B' shares were down 3.7% and 4.5% respectively at midday, while BP was down 2.3%.
Also among the FTSE 100 losers on Tuesday was British American Tobacco, down 4.5% after cutting revenue guidance.
The London and Johannesburg-listed tobacco firm said it continues to see "good" pricing and "strong" volumes, with "good" share growth across all its three new categories - vapour, tobacco heating and modern oral.
In developed markets - which accounts for 75% of group revenue - the company has seen "strong" results. In emerging markets, however, BAT noted the coronavirus pandemic has had a "more pronounced" negative effect.
As a result, BAT now expects about a 3% headwind to constant currency revenue in 2020 from the pandemic. The tobacco firm is now guiding for constant currency adjusted revenue growth between 1% to 3%, down from previous guidance of 3% to 5% growth.
The top blue-chip performer was AVEVA, up 4.3% after the engineering & industrial software firm reported a sharp spike in annual profit driven in large part by a rise in Subscription revenue.
The Cambridge-headquartered company posted a GBP92.0 million pretax profit for its year ended March 31. This is almost twice the prior year's GBP46.7 million profit figure.
This resulted primarily from an 8.8% increase in AVEVA's revenue to GBP833.8 million from GBP766.6 million, thanks largely to a 45% increase in Subscription revenue to GBP316.8 million from GBP218.2 million. Maintenance revenue was up 3.8% at GBP201.7 million.
On AIM, Dart Group was down 6.4% as its unit Jet2 delayed resuming flights by two weeks until mid-July.
The airline and tour operator Jet2holidays had been due to restart flights and package holidays on July 1, but has pushed the date back to July 15.
In a statement on Monday, Jet2 said: "In view of the ongoing travel restrictions that are in place as a result of the Covid-19 pandemic, we have taken the decision to recommence our flights and holidays programme on July 15th."
By Lucy Heming; lucyheming@alliancenews.com
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