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(Alliance News) - Stock trading in London is set for a cautious start on Wednesday, with mixed economic data out of China failing to inspire a decisive move higher in Asia overnight.
In early UK company news, BT has decided to suspend its dividend until 2022 and "re-base thereafter".
Meanwhile, the pound rose in early dealings after the Bank of England kept interest rates on hold and voted to maintain its total stock of asset purchases at GBP645 billion, even though two Monetary Policy Committee members voted for a boost to the bank's quantitative easing programme.
Two members preferred to increase the target for the stock of asset purchases by an additional GBP100 billion at this meeting, the BoE said.
Looking to the UK economy, the BoE said the spread of Covid-19 and the measures to contain it are having a "significant impact". Both in the UK and around the world, activity has fallen sharply since the beginning of the year and unemployment has risen.
An "illustrative scenario" for the UK's economic outlook models a "very sharp fall" in UK gross domestic product in the first half of 2020. Under this model, UK GDP falls 14% in 2020.
The two votes to up the pace of QE this week mean that an increase to the asset purchase programme is not imminent, said Naeem Aslam at AvaTrade, but "it isn't out of the question".
Sterling was quoted at USD1.2371 early Thursday following the BoE announcement, up from USD1.2349 at the London equities close on Wednesday.
IG says futures indicate the FTSE 100 index of large-caps to open 4.44 points higher at 5,858.20 on Thursday. The FTSE 100 index closed up just 4.34 points at 5,853.76 on Wednesday.
"European and US stock markets underwent another choppy session yesterday, bobbing around on the ebb and flow of awful economic data, and optimism that the slow easing of lockdowns will prompt an upturn and ignite a quickish recovery. This market schizophrenia, along with some weakness in oil prices, prompted stock markets in Europe to slip back again, while US markets also struggled to maintain their early gains, slipping lower into the close," said Michael Hewson, chief market analyst at CMC Markets.
"Against this backdrop Asia markets have struggled for direction with a mixed session, and this lack of direction is expected to translate into a slightly firmer open here in Europe after yesterday's losses," he said.
In Asia on Thursday, the Japanese Nikkei 225 index closed up 0.3%, with the Tokyo market reopening after a string of holidays. In China, the Shanghai Composite is down 0.1%, while the Hang Seng index in Hong Kong is down 0.7%. ÂÂ
China's exports posted surprise growth of 3.5% in April despite a hit to external demand during the coronavirus pandemic, official figures showed. But imports fell 14% from a year ago, a steeper drop than in the previous month, according to the Customs Administration.
Separately, China's services sector continued to recover in April, data from Caixin showed, but still remained in contraction territory as new work and export sales continued to drop.
The seasonally adjusted headline business activity index rose to 44.4 in April from 43.0 in March, further improving from February's record low of 26.5. Only a score above 50.0 represents expansion so China's services sector remains in decline.
The effect of Covid-19 continues to weigh on firms, which registered lower business activity during the month as new business fell for the third time in a row, and export sales declined at the second sharpest rate in the series' history. Despite the challenging climate, optimism towards the 12-month outlook picked up to a three-month high amid hopes of a recovery in conditions once the pandemic situation improves.
Meanwhile, US President Donald Trump renewed his criticism of China on Wednesday over the global coronavirus pandemic and said it has been worse for the US than Pearl Harbor and 9/11.
The US recorded 2,073 coronavirus deaths in the past 24 hours, bringing the total to 73,095, according to the latest real-time tally Wednesday reported by Johns Hopkins University.
Trump lashed out at China, continuing a war of words over the origins of the deadly virus that emerged in Wuhan last year. "It should have never happened," he said. "Could have been stopped at the source. Could have been stopped in China."
China hit back Wednesday at US Secretary of State Mike Pompeo over his claims the virus originated in a Wuhan laboratory, saying he has no evidence.
In the US on Wednesday, Wall Street ended mixed, with the Dow Jones Industrial Average ending down 0.9% and the S&P 500 down 0.7% but the Nasdaq Composite closing 0.5% higher.
In early UK company news, BT said results for its recently ended financial year were in line with expectations, though it has suspended dividend payments.
Revenue slipped 2% to GBP22.91 billion in the year that ended March 31, while pretax profit fell 12% to GBP2.35 billion from GBP2.67 billion.
Given uncertainty due to Covid-19, BT said it will not provide a financial outlook for the year ahead. It also has decided to suspend payment of its final dividend.
"In order to deal with the potential consequences of Covid-19, allow us to invest in FTTP and 5G, and to fund the major 5-year modernisation programme, we have also taken the difficult decision to suspend the dividend until 2022 and re-base thereafter," said Chief Executive Philip Jansen.
BT plans to resume dividends in the 2022 financial year at an annual rate of 7.7p. For the 2019 financial year, BT paid out 15.40p.
Rolls-Royce said it is prepared for a "prolonged period of uncertainty" due to Covid-19.
The jet engine maker expects to deliver up to GBP1.0 billion in cash savings in 2020 in a bid to offset the "significant disruption" caused by Covid-19 to the aerospace industry.
Looking ahead, the severity of the disruption is expected to lead to a smaller commercial aerospace market which may take "several years" to recover. Civil Aerospace widebody engine flying hours were approximately 40% lower than the firm's expectations for the first four months of the year.
"As a group, we are prepared to endure a prolonged period of uncertainty. Due to the unprecedented reduction in air traffic caused by COVID-19, we are anticipating a significant net cash outflow during the second quarter, and it remains too early to guide on the likely outcome for the full year. Meanwhile, our financial position remains robust and our strong liquidity position provides support for our operations," said Rolls-Royce.
The euro traded at USD1.0793 early Thursday, flat on USD1.0799 late Wednesday. Against the yen, the dollar was quoted at JPY106.27, firm versus JPY106.05.
Gold was priced at USD1,685.10 an ounce early Thursday, flat on USD1,685.00 on Wednesday. Brent oil was trading at USD29.48 a barrel early Thursday, firm on USD29.41 late Wednesday.
The economic events calendar on Thursday has European Central Bank President Christine Lagarde giving a speech 1500 BST.
By Lucy Heming; lucyheming@alliancenews.com
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