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Share Price: 315.70
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Change: 0.00 (0.00%)
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Open: 317.35
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Yest. Close: 313.55
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LONDON MARKET CLOSE: FTSE 100's Blow Cushioned By Brexit-Hit Pound

Tue, 8th Sep 2020 16:58

(Alliance News) - Stocks in London ended lower on Tuesday after the US raised the threat of a "decoupling" of its economy from China, but the FTSE 100's fall was not as severe as European bourses due to amplified weakness in sterling.

The FTSE 100 index closed down 7.10 points, or 0.1%, at 5,930.30. The FTSE 250 ended down 17.02 points, or 0.1%, at 17,625.18, and the AIM All-Share closed down 6.08 points, or 0.6%, at 951.86.

The Cboe UK 100 ended down 0.1% at 590.24, the Cboe UK 250 closed up 0.1% at 15,076.83, and the Cboe Small Companies ended down 0.6% at 9,415.22.

In European equities, the CAC 40 in Paris ended down 1.6% and the DAX 30 in Frankfurt down 1.0%.

"European equity markets are deep in the red this afternoon as the continued weakness in US markets and the rise in tensions between the Trump administration and China has hurt confidence. Stocks in Europe had free rein yesterday as the US exchanges remained closed because it was Labor Day," said CMC Markets analyst David Madden.

"The FTSE 100 hasn't lost as much ground as the indices in mainland Europe thanks to the fall in the pound. Sterling is under pressure again over worries a trade agreement between the UK and the EU will not be agreed upon by mid-October, and that could pave the way for WTO trading rules come 2021," Madden added.

On the London Stock Exchange, DS Smith ended the best blue-chip performer, up 8.0% after the packaging company said it continued to perform in line with expectations over the past four months, giving it the confidence to plan to pay an interim dividend.

London-headquartered DS Smith told its annual general meeting that it has progressed well since the beginning of May, with performance continuing in line with expectations, despite the economic challenges that resulted from Covid-19.

Geographically, DS Smith said Northern European region has continued to perform well, with "pleasing" recovery momentum in Southern and Eastern Europe since May. The company also said it is encouraged by the progress in North America, in particular in attracting new customers.

Given the performance over the last quarter, improved clarity in the outlook, alongside a strong financial position, DS Smith said it intends to declare an interim dividend for the half-year to the end of October.

Narrowly missing out on the top spot, JD Sports Fashion ended up 8.0% after the sportswear retailer said it was "reassured" by its performance in the first half despite a sharp drop in earnings.

Revenue for the half-year ended August 1 came in at GBP2.54 billion, down 6.6% from GBP2.72 billion a year ago. Sports Fashion revenue shrunk by 4.6% to GBP2.40 billion, while Outdoor revenue tumbled more dramatically, by 30% to GBP142.5 million. Pretax profit dropped by nearly two thirds to GBP41.5 million from GBP129.9 million.

JD Sports said the reduction in profitability was due to additional costs associated with the shift in revenue to online channels, particularly during the period of temporary store closures.

The FTSE 100-listed retailer added that it is "generally encouraged" with its performance post-lockdown, though noted that retail footfall remains comparatively weak. In addition, JD Sports reinstated guidance for the full-year.

At the other end of the large caps, oil majors ended in the red tracking spot oil prices lower. Brent was quoted at USD39.54 a barrel at the London equities close on Tuesday, down from USD42.10 late Monday. The North Sea benchmark fell below the USD40 a barrel mark for the first time since late June.

BP, closed down 3.1%, while Royal Dutch Shell 'A' and 'B' shares closed down 3.2% and 3.1%, respectively.

On Monday, state-owned oil powerhouse Saudi Aramco cut the prices of its October shipments by a more than expected amount for its key market of Asia.

"Oil prices are collapsing as the global market sell-off sends the dollar higher and after price cuts from Saudi Aramco and Abu Dhabi National Oil Co confirm the demand recovery is struggling. It is getting very ugly in the energy space as the revised base case scenarios for a return to a pre-pandemic crude demand levels keeps getting pushed back," explained Oanda market analyst Edward Moya.

In the FTSE 250, Royal Mail ended the standout performer, up 25% after the postal operator said revenue rose in the five months to August, thanks to a sharp increase in parcel volumes - which prompted upgraded guidance for the current financial year.

The pound was quoted at USD1.3030 at the London equities close, sharply lower from USD1.3170 at the close Monday, as investors continued to be spooked by Brexit fears. Sterling fell to an intraday low of USD1.3009 versus the greenback in afternoon trade its lowest level since late July.

In the latest developments, the head of the UK government's legal department Jonathan Jones resigned on Tuesday amid anger over suggestions that Prime Minister Boris Johnson is planning to override elements of the Brexit Withdrawal Agreement.

Jones's departure was confirmed by the Attorney General's Office, which declined to comment on the reason for the latest exit in a string of resignations of top civil servants.

The Financial Times reported on Tuesday that Jones was quitting as the department's permanent secretary due to a dispute with Downing Street.

Two Whitehall officials were said to have told the paper that he was departing over concerns the prime minister wanted to row back on parts of the Brexit deal relating to Northern Ireland.

Senior EU figures were dismayed by suggestions new Brexit legislation to be introduced on Wednesday could override key elements of the Withdrawal Agreement brokered by Johnson last year.

OFX analyst Sebastien Clements said: "It looks like the wheels of the Brexit bus are finally falling off, as news of the Head of UK Gov Legal resigns after rows with Boris Johnson. The pound has experienced its sharpest decline since March's black Monday against the US dollar. It's once again plummeting towards the psychological USD1.30 handle against the US dollar, levels not seen in over a month.

"UK ministers now face an uphill battle with plenty of roadblocks continuing to slow things down. Investors are currently net long on the pound, however, this can quickly change as funds cut their losses in a profit-risk trade-off. The UK is now faced with two options: concede and let the EU help tow the bus, or simply accept the bus is too heavy to tow."

The euro stood at USD1.1796 at the European equities close, down from USD1.1824 at the same time on Monday, as investors keep an eye on the upcoming policy meeting from the European Central Bank later this week.

"There are no obvious fundamental triggers to cause a sharp move in FX though until the ECB meeting on Thursday, which should cause the EUR/USD exchange rate, and in turn, the Dollar Index to move sharply. [President] Christine Lagarde and her colleagues will most likely hold policy unchanged," ThinkMarkets analyst Fawad Razaqzada said.

"But given that downside risks have intensified over the past several weeks, the ECB may provide a dovish assessment of the Eurozone economy and in doing so raise the prospects of further easing measures later on in the year," Razaqzada added.

Against the yen, the dollar was trading at JPY105.94, down from JPY106.28 late Monday.

Stocks in New York were sharply lower at the London equities close on Tuesday following the long Labor Day weekend, amid mounting US-China tensions and a stalemate in Washington over another round of stimulus funding.

The DJIA was down 1.6%, the S&P 500 index down 1.7% and the Nasdaq Composite down 2.3%.

Stocks started a truncated trading week in the red after President Donald Trump raised the possibility of decoupling the US economy from China, a move that would mean the separation of the world's two largest economies.

"When you mention the word 'decouple,' it's an interesting word," Trump said at a press conference on Monday outside the White House.

The president suggested that the US would gain economically from such a move as he blasted Beijing for unfair trade practices, even amid concerns that losing a major export market would hurt businesses.

The US elections take place in November and Trump recently has been stepping up his attacks on Beijing.

Elsewhere, Trump's chief of staff said Tuesday he is optimistic that Republicans and Democrats in Congress will reach an agreement on a new pandemic emergency aid bill before the November 3 election.

However, Mark Meadows told Fox Business the president continues to oppose the massive aid to state and local governments that Democratic House Speaker Nancy Pelosi is pushing for to help recover from the coronavirus crisis.

"I'm more optimistic perhaps today than I've been in a long time," Meadows said. "I can tell you that there's more that we agree upon than what we disagree upon, and I think it's time that we put politics aside, pass this stimulus."

Gold was quoted at USD1,926.32 an ounce at the close, lower against USD1,929.44 late Monday.

The economic events calendar on Wednesday has China inflation readings overnight and the Bank of Canada's interest rate decision at 1500 BST.

The UK corporate calendar on Wednesday has interim results from IT services provider Computacenter, fund administrator Sanne Group and oil and gas company Tullow Oil.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

Copyright 2020 Alliance News Limited. All Rights Reserved.

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