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(Alliance News) - With the US economy recovered from the worst of the pandemic crisis, there is much anticipation in global financial markets around Federal Reserve Chair Jerome Powell's speech on Friday to see if he will detail plans to roll back the central bank's massive stimulus measures.
But concerns about the impact of the fast-spreading Delta variant of the coronavirus on the economy could make expectations of an announcement at the annual Jackson Hole central banking symposium premature.
"We think it is a bit too early, as the next jobs report is due out on Friday next week, so the Fed has more information about the economic impact of the delta outbreak," commented Mikael Olai Milhoj, chief analyst at Danske Bank.
"So our base case is no major new policy signals this time around. A change is more likely in connection with the September meeting in three weeks."
Added veteran Fed-watcher Mickey Levy of Berenberg Capital Markets: "Powell's speech is not likely to provide any breaking insights."
When Covid-19 transformed the world's largest economy last year, the Fed jumped into action to prevent a major recession, slashing interest rates to zero in March 2020 and buying huge amounts of Treasury debt and agency mortgage-backed securities to provide liquidity to the financial system.
Those programs likely saved the US from a worse downturn, but were never meant to be permanent.
The Fed has said it will slow the pace of its massive bond buying program then raise the benchmark lending rate – though no action on the latter is anticipated anytime soon, potentially for years, while the former is viewed as a delicate task.
"It is most likely that Powell's speech will stick to the Fed's recent script of tip-toeing toward tapering and disassociating the unwinding of its asset purchases from the eventual liftoff of rates," Levy said in an analysis.
Kansas City Fed Bank President Esther George, host of the Jackson Hole conference and considered an inflation hawk, said Thursday that the strong data suggest "there's an opportunity to begin to dial back on asset purchases."
But in an interview on Fox Business Network, she hinted that the details may have to wait for "the communication...coming out of our September meeting."
Organizers intended to return the conference to its usual in-person format, but due to rising Covid-19 infections announced this week it would be held virtually for the second year in a row.
Powell has repeatedly promised to give markets plenty of advanced notice before relaxing purchases, but doing so will not be easy.
"He is walking a knife's edge," economist Diane Swonk of Grant Thornton told AFP.
"The best way to prevent a taper tantrum is to lay out a road map for tapering, with off ramps if variants do more to disrupt demand than supply chains," she said. But "he can't ignore those risks and barrel ahead with tapering."
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: down 0.4% at 7,124.98
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Hang Seng: down 0.1% at 25,387.17
Nikkei 225: closed down 0.4% at 27,641.14
DJIA: closed down 192.38 points, or 0.5%, at 35,213.12
S&P 500: closed down 0.6% at 4,470.00
Nasdaq Composite: closed down 0.6% at 14,945.81
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EUR: firm at USD1.1765 (USD1.1760)
GBP: down at USD1.3705 (USD1.3723)
USD: down at JPY109.97 (JPY110.04)
Gold: up at USD1,804.23 per ounce (USD1,794.77)
Oil (Brent): up at USD72.21 a barrel (USD71.40)
(changes since previous London equities close)
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ECONOMICS AND GENERAL
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Friday's Key Economic Events still to come
1100 BST Ireland retail sales index
0830 EDT US advance international trade
0830 EDT US personal income & outlays
1000 EDT US University of Michigan survey of consumers
1000 EDT US Fed Chair Powell speaks at Jackson Hole symposium
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The EU's former chief negotiator on Brexit, Michel Barnier, announced late Thursday he plans to stand as a right-wing candidate against centrist President Emmanuel Macron in next year's presidential elections, pinpointing limits on immigration as a key policy pledge. Most analysts expect the polls next spring to come down to a duel between Macron and far-right leader Marine Le Pen, but an effective candidacy from a traditional right-wing figure could yet upend these predictions. "In these grave times, I have taken the decision and have the determination to stand...and be the president of a France that is reconciled, to respect the French people and have France respected," Barnier told the evening news show of TF1 television in a live interview. Barnier, who is entering an increasingly crowded field on the right, cited his long experience in politics as giving him an edge in the race including the "extraordinary" negotiations to find a deal on Britain's exit from the EU.
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BROKER RATING CHANGES
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BARCLAYS RAISES BABCOCK INTERNATIONAL TO 'OVERWEIGHT' (EQUAL-WEIGHT) - PRICE TARGET 424 (315) PENCE
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GOLDMAN SACHS INITIATES HISCOX AND BEAZLEY WITH 'BUY'
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GOLDMAN SACHS INITIATES LANCASHIRE HOLDINGS WITH 'NEUTRAL'
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COMPANIES - FTSE 100
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International Consolidated Airlines Group's British Airways is planning to launch a subsidiary to operate short-haul flights at Gatwick Airport. The unnamed airline would run alongside its parent company's long-haul operation at the West Sussex airport. BA has suspended its domestic and European routes serving Gatwick during the coronavirus pandemic. It sent an internal letter to staff, seen by the PA news agency, which read: "This was previously a highly competitive market, but for us to run a sustainable airline in the current environment, we need a competitive operating model. "Because of that, we are proposing a new operating subsidiary to run alongside our existing long-haul Gatwick operation, to serve short-haul routes to and from Gatwick from summer 2022.
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COMPANIES - FTSE 250
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Primary Health Properties said it has acquired a care property in Lancashire, North West England, lifting its rent roll to roughly GBP140 million. The Townside Primary Care Centre and a nearby office building, were acquired for GBP40 million in total. The care building is let to a pharmacy and NHS Property Services, which looks after the UK national health service's estate. "The office accommodation is also fully let with 90% of the income secured against Bury Council," Primary Health added. The acquisition increases company's portfolio to 515 assets, with a rent roll of over GBP138 million. Primary Health's net rental income in 2020 amounted to GBP131.2 million.
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COMPANIES - MAIN MARKET AND AIM
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Amigo Holdings reported a fall in revenue as the guarantor loans provider cast doubt over its future. For the three months that ended June 30, revenue dropped 33% to GBP32.5 million from GBP48.8 million in the first quarter last year, but pretax profit surged to GBP15.0 million from GBP1.4 million. Amigo said its pause in lending, which continued throughout the three-month period, led to a 41% decline in customer numbers and a 48% reduction in the net loan book. As such, revenue fell compared to the prior year period, primarily driven by the reduction in the loan book, it explained. Active Covid-19 related payment holidays as at June 30 amounted to 3,000 in the period, down sharply from 42,000 in the first quarter of 2020. All Covid-19 payment holidays have now ended, Amigo said. Chief Financial Officer Mike Corcoran said: "The extremely challenging situation facing Amigo, resulting from the significant liability for compensation payments for historical lending, provides the context for our first quarter results. Within this context, the performance of the business in the first quarter has been better than anticipated. As Amigo is not currently lending, the business is cash generative and our cost reduction programme has been effective. The level of collections remains robust with the impact of Covid-19 less than originally projected. The overall net liability position reflects the remaining complaints provision on the balance sheet. A material uncertainty over the group's ability to continue as a going concern remains."
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Mattioli Woods has bought Richings Financial Management in a deal worth up to GBP1.8 million. Mattioli Woods said that Iver-based Richings has GBP70 million in assets under advice and that the acquisition is expected to be earnings enhancing in the first full year of ownership. Chief Executive Officer Ian Mattioli said: "We believe the broader range of products and services offered by Mattioli Woods, including our enhanced product offering to clients from the recent acquisition of investment manager Maven Capital Partners, can help build on the great outcomes Richings' clients already achieve."
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Air Partner said it continues to trade strongly despite the travel restrictions and the uncertainty due to the Covid-19 pandemic. For the first half of its financial year that ended July 31, the company expects an underlying profit before tax of not less than GBP3.7 million. It posted underlying pretax profit of GBP10.5 million in the first half of financial 2020. Air Partner said it continued to see a strong recovery in its Private Jets division. The UK has exceeded pre-Covid levels over the summer months the company welcomed a number of first-time private jet flyers, in addition to seeing increased demand from existing customers. The US is also performing very well for Private Jets, Air Partner said, with bookings in in the first half higher than before the pandemic due to the strong demand for leisure travel by high-net-worth individuals, which offset the drop from business travel. However, activity in Europe remains limited.
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Separately, Air Partner said it has acquired Kenyon International Emergency Services from PT Lobos, in a deal worth up to USD11.7 million, on a debt free, cash free basis. Air Partner said the acquisition of the emergency planning and incident response company is expected to be earnings enhancing in first full year of ownership.
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COMPANIES - GLOBAL
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Side effects from the Pfizer vaccine in children aged between 12 and 15 and considered vulnerable to Covid-19 infection were mostly mild or moderate, a small UK study has suggested. Researchers in Bristol looked at 27 children whose parents recorded any side effects after the jab. Adverse reactions were either mild or moderate in all of the young people, except one who had "severe fatigue and severe discomfort combined with increased agitation". But experts said the small size and scope of the study does not allow for conclusions on rare side effects or inform the debate on vaccinating healthy younger teens. Currently, children aged between 12 and 15 who are clinically vulnerable to Covid or live with adults who are at increased risk of serious illness from the virus are eligible for a coronavirus vaccine. There have been calls from some quarters to extend the rollout to all healthy 12 to 15-year-olds in the UK, especially as the return of schools is expected to lead to a rise in infections.
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Friday's Shareholder Meetings
Oryx International Growth Fund Ltd - AGM
Pires Investments PLC - AGM
Prudential PLC - GM re Jackson Financial Inc demerger
Wm Morrison Supermarkets PLC - GM re Fortress takeover offer
Tritax EuroBox PLC - GM re Settimo Torinese development
Vietnam Enterprise Investments Ltd - AGM
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By Tom Waite; thomaslwaite@alliancenews.com
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