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(Alliance News) - Stocks in London ended lower on Thursday as investors digested a deluge of disappointing earnings from the FTSE 100's big hitters, while the US economy suffered its worst quarter since the second world war.
The FTSE 100 index closed down 141.47 points, or 2.3% at 5,989.99. The FTSE 250 ended down 230.61 points, or 1.3%, at 17,017.05, and the AIM All-Share closed down 13.47 points, or 1.5%, at 882.55.
The Cboe UK 100 ended down 2.5% at 596.16, the Cboe UK 250 closed down 1.4% at 14,445.25, and the Cboe Small Companies ended up 0.4% at 9,096.50.
In Paris the CAC 40 ended down 2.1%, while the DAX 30 in Frankfurt ended down 3.5%.
"Stocks throughout Europe and the US are on the back foot today, with fears once again resurfacing that the US recovery may already be coming to an end. While the headlines will be dominated by the fact that the US has just suffered their sharpest contraction modern history, the jobless numbers were perhaps just as worrying for investors," said IG Group's Josh Mahony.
On the London Stock Exchange, BAE Systems ended the best performer, up 5.9% after the defence contractor said profit declined in the first half of 2020, with higher operating costs playing a significant role in this, though maintained its dividend.
Farnborough, England-based BAE posted a GBP689 million pretax profit for the six months ended June 30, down 11% from GBP776 million a year before. While revenue rose 5.9% to GBP9.18 billion from GBP8.67 billion a year prior, operating costs increased by 7.0% to GBP8.45 billion from GBP7.90 billion, depressing operating profit to GBP801 million from GBP836 million.
On top of this, BAE's share of results of equity-accounted investments shrank to just GBP7 million from GBP60 million the previous year.
BAE maintained its dividend at 9.4p per share. Including its two recent acquisitions, BAE predicts its annual sales will increase by a low-single-digit percentage from 2019, thanks to increased volumes from the F-35 combat jet, Combat Vehicles, and electronic defence portfolio growth. This is expected to offset the commercial business's shortfall.
"Relying heavily on defence contracts gives BAE something rare in current conditions - great visibility over future business, and the order backlog is still worth billions of pounds. This unique position will be a large reason why BAE feels comfortable maintaining a dividend. In a time when we've seen scores of companies scrap returns to shareholders, BAE's 5% prospective yield is not something to be knocked," said analysts at Hargreaves Lansdown.
AstraZeneca closed up 1.6% after the Anglo-Swedish drugmaker posted a rise in earnings for the first half of 2020.
For the six months ended June 30, AstraZeneca posted revenue of USD12.63 billion, up 14% from USD11.31 billion recorded for the first half of 2019. Pretax profit was USD1.89 billion, doubled from USD899 million the year prior. Core earnings per share rose 24% to USD2.01.
Looking ahead, Astra said its 2020 full-year guidance was unchanged at high single-digit to low double-digit percentage growth in revenue and mid- to high-teens growth in core EPS. It also promised a "broad and equitable" supply of any Covid-19 vaccine that it develops during the pandemic at no profit.
At the other end of the large caps, Lloyds Banking Group ended the worst performer down 7.7%, after the bank reported a loss for the first half, as the "profound" effect from the coronavirus pandemic forced the lender into large credit impairments.
For the six months to June 30, Lloyds recorded a pretax loss of GBP602 million, compared to a GBP2.90 billion profit the year before. Lloyds took a GBP3.82 billion impairment charge in the period, sharply higher than the GBP579 million hit a year before. For 2020, Lloyds expects its impairment to be between GBP4.5 billion and GBP5.5 billion.
The sharp rise reflects a "significant deterioration" in the forward-looking economic outlook. Net income was down 16% year on year to GBP7.41 billion from USD8.82 billion, with net interest income dropping 11% to GBP5.48 billion from GBP6.15 billion.
"Lloyds needs consumer spending and the housing market to pick up before its outlook can improve. The latest results are thoroughly miserable, and it is certainly going to be a tough period ahead. However, the whole banking sector is now well versed in crisis management and will benefit from being in a stronger financial position versus 12 years ago when the global financial crisis damaged the industry," said AJ Bell's Russ Mould.
Peers, Barclays and Natwest Group closed down 4.0% and 5.0% respectively.
Royal Dutch Shell 'A' and 'B' shares ended down 5.5% and 5.7% respectively after the oil major swung to a second-quarter loss as it took a hefty USD16.8 billion impairment charge.
London's biggest company by market value saw a record writedown on the value of its oil and gas assets due to the collapse in global market prices triggered by the coronavirus.
Adjusted earnings - previously referred to as CCS earnings attributable to shareholders excluding identified items - slumped to just USD638 million in the second quarter from USD3.46 billion a year ago.
Including the USD16.8 billion impairment charge - taken "as a result of revised medium- and long-term price and refining margin outlook assumptions in response to the Covid-19 pandemic and macroeconomic conditions as well as energy market demand and supply fundamentals" - Shell posted a loss attributable to shareholders of USD18.13 billion versus income of USD3.00 billion a year ago.
Standard Chartered closed down 5.7% after the Asia-focused bank said it is feeling the "acute impact" of the coronavirus pandemic, forcing the lender to increase its impairments and resulting in a fall in profit in the first half.
In the six months to June 30, the lender recorded pretax profit of USD1.63 billion, down 33% on the USD2.41 billion reported a year before.
Greater China & North Asia saw underlying pretax profit slip 15% year-on-year to USD1.13 billion. ASEAN & South Asia profit plunged 40% to USD456 million. In Europe & Americas, however, StanChart saw profit jump to USD356 million from just USD13 million a year before.
StanChart's credit impairments were raised dramatically, curtailing profit. The lender upped its impairments to USD1.58 billion from USD254 million a year before.
The pound was quoted at USD1.3036 at the London equities close, up from USD1.2968 at the close Wednesday. Sterling was trading at around its highest levels versus the greenback since March.
The euro stood at USD1.1781 at the European equities close, up from USD1.1767 late Wednesday.
In economic news from the continent, the German economy contracted a record 10% quarter-on-quarter in the three months to the end of June, Destatis said. Annually, Europe's largest economy shrank 12% in the second quarter after a 1.8% decline in the first.
"This was the largest decline since the beginning of quarterly GDP calculations for Germany in 1970. It was much larger than during the financial market and economic crisis," Destatis said. The German economy shrank 4.7% in the first quarter of 2009.
Against the yen, the dollar was trading at JPY105.08, unchanged from late Wednesday.
Stocks in New York were lower at the London equities close after the US economy suffered a historic drop in the second quarter and on higher weekly jobless claims.
The DJIA was down 1.3%, the S&P 500 index down 1.2% and the Nasdaq Composite down 0.5%.
The US economy contracted a massive 33% on an annual basis in the second quarter due to lockdowns imposed to stop the spread of the coronavirus, data from the Bureau of Economic Analysis showed.
The decline, though slightly less bad than expected, was the worst on record for the world's largest economy dating back to 1947.
In addition, the Department of Labor reported seasonally adjusted initial jobless claims of 1.43 million for the week to July 25, up 12,000 on the previous week's revised level of 1.42 million.
The latest data mark the second straight week of rising claims.
Analysts at ING noted: "So we now know how deep the deepest ever contraction in US economic activity was, but this is old news given financial markets are priced for a very vigorous recovery. However, Covid-19 is far from beaten and while there is optimism about a vaccine, the timing and its efficacy are still unknown.
"With virus fears on the rise, jobs being lost and incomes squeezed, we feel the recovery could be much bumpier than markets seemingly do, and think we are in for some data disappointment over the next couple of months - starting with next week's payrolls number."
On the political front, US President Donald Trump on Thursday suggested an unprecedented delay to the 2020 election - which polls show him losing - claiming that attempts to provide safe voting during the pandemic will promote mass fraud.
"Delay the Election until people can properly, securely and safely vote???" Trump, who faces Democrat Joe Biden on November 3, asked in a tweet.
Trump claimed that increased mail-in voting, a way to allow people to vote without risking their health in polling stations, would lead to "the most INACCURATE & FRAUDULENT Election in history. It will be a great embarrassment to the USA."
Trump has no constitutional authority to hold back the election.
However, the mere airing of the idea broke with presidential custom, adding to tension mounting in a country ravaged by the coronavirus and set on edge by bitterly partisan politics.
After the closing bell on Wall Street, investors are also looking ahead to a deluge of major earnings, with Apple, Amazon, Alphabet and Facebook all reporting - fresh off a grilling on Capitol Hill on Wednesday.
Brent oil was quoted at USD42.72 a barrel at the London close, down from USD43.42 at the close Wednesday.
"Oil prices are falling as doubts about the strength of the global economic recovery this quarter grow and as oversupply concerns return. OPEC+ is growing concern that the crude demand pickup is slowing as large parts of the world continue to grapple with the coronavirus. OPEC and allies will start to increase production in August and that should keep crude prices towards the lower boundaries of its recent range," explained OANDA analyst Edward Moya.
Gold was quoted at USD1,941.55 an ounce at the London equities close, lower against USD1,955.22 late Wednesday.
The economic events calendar on Friday has France inflation figures at 0745 BST and eurozone inflation and GDP readings at 1000 BST. In the afternoon there are US personal consumption expenditure figures at 1330 BST - the core reading is the Fed's preferred gauge of inflation.
The UK corporate calendar on Friday has interim results from state-backed lender Natwest Group, British Airways parent International Consolidated Airlines, testing specialist Intertek Group, stock exchange operator London Stock Exchange Group and from British American Tobacco.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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