(Alliance News) - Stocks in London ended lower on Friday as concerns over the effect of the coronavirus on earnings and the wider economy took a more serious turn with its geographical spread increasing.
New coronavirus cases surged across the Middle East on Friday, after a rapid spread in Iran, where authorities say the death toll from the virus has hit four, prompting alarm and travel bans.
Since December, the SARS-like virus has killed more than 2,200 people in China, the epidemic's epicentre. Elsewhere in the world, it has killed over a dozen people and spread across 27 countries.
The World Health Organization warned nations could face a serious problem if they fail to "hit hard now" against the virus. Many nations have banned travellers from China and airlines have suspended flights to and from the country.
The FTSE 100 index closed down 32.72 points, or 0.4%, at 7,403.92, ending the week down 0.1%. The FTSE 250 ended down 86.49 points, or 0.4%, at 21,780.20, ending the week down 0.1% and the AIM All-Share closed down 2.56 points, or 0.3%, at 972.62, but ended the week up 0.1%.
The Cboe UK 100 ended down 0.7% at 12,527.39, the Cboe UK 250 closed down 0.4% at 19,666.64, and the Cboe Small Companies ended up 0.6% at 12,566.45.
In Paris the CAC 40 ended down 0.5%, while the DAX 30 in Frankfurt ended down 0.6%.
"European markets have finished the week on the back foot today as concerns about the spread of coronavirus take the edge off the record highs seen earlier this week in the DAX and Stoxx600. While we are hearing reports that Chinese companies are returning to work, there is increasing nervousness that the spread of the virus could well cause similar disruptions in Japan and South Korea where cases of the virus appear to be increasing," said CMC Markets analyst Michael Hewson.
On the London Stock Exchange, Russian gold miner Polymetal International ended the best blue chip performer, up 3.0%, tracking spot gold prices higher.
Gold was quoted at USD1,643.10 an ounce at the London equities close, up from USD1,621.15 late Thursday, as demand for the safe haven asset increased in light of coronavirus concerns.
At the other end of the large cap index, Pearson ended the worst performer, down 4.3% after the education publisher reported disappointing annual results, amid a strategic pivot from traditional textbooks to online products.
Pearson said its sales decreased by 6% in headline terms in 2019 to GBP3.87 billion from GBP4.13 billion a year earlier, with portfolio changes reducing sales by GBP347 million. Pretax profit was lower, at GBP232 million compared to GBP498 million a year ago, hurt by the reduced gains on disposals and higher restructuring charges.
Pearson declared a final dividend of 13.5 pence, up 4% from 13p paid a year earlier. For 2019, payout totalled 19.5p compared to 18.5p paid the year before.
Looking ahead, Pearson said it expects to deliver 2020 adjusted operating profit of between GBP410 million to GBP490 million, excluding the recently sold 25% stake in Penguin Random House. In 2019, adjusted operating profit totalled GBP581 million, up from GBP546 million in 2018.
"While the pivot to Digital is gathering pace it's not yet enough to offset the declines in physical courseware, particularly in the key North American region. Convincing customers to fork out for digital products is a challenge, and digital revenues are likely to be lower margin too. The battle for students is competitive, and Pearson's losing ground to traditional rivals as well as new free-to-use online content," said Hargreaves Lansdown's Emilie Stevens.
In the FTSE 250, Daejan Holdings ended the standout performer, up 55% at 8,002.60p after the property investor agreed a takeover offer from major shareholder Freshwater Group.
Dock Newco, part of Freshwater, is offering GBP80.50 in cash for each Daejan share. The offer price values the entire issued shares capital of Daejan at GBP1.31 billion and 20.5% of free float shares at GBP269.5 million. Freshwater currently owns 79.5% of entire issued share capital of Daejan.
The financial terms of the offer are final and will not be increased, Dock Newco noted.
The pound was quoted at USD1.2970 at the London equities close, up sharply from USD1.2882 at the close Thursday, as investors reacted positively to UK purchasing managers' index data.
The seasonally adjusted IHS Markit/CIPS UK composite output index was unchanged month-on-month in February at 53.3, pointing to the joint-fastest expansion of private sector output since September 2018.
Any reading below 50 indicates contraction, while one above expansion.
The seasonally adjusted IHS Markit/CIPS flash UK manufacturing purchasing managers' index ticked up to 51.9 in February from 50.0 in January, the strongest improvement in overall business conditions since April 2019.
While the flash UK services PMI business activity index posted 53.3 in February, down from 53.9 in January, but still the second highest since September 2018. The slowdown partly reflected weaker demand from abroad, as signalled by a renewed fall in new export orders during February.
Analysts at FXPro told Alliance News: "A trend reversal prevailed throughout the week on the markets. The dollar index reversed to decline after almost daily growth since early February. The data probably helps to stop the rally of the American currency. The PMI indices published at the beginning of the day in the eurozone and the UK exceeded expectations. The PMI Composite remained at 53.3 - at 18-month highs, rejecting fears that an outbreak of coronavirus is already affecting the mood of purchasing managers.
"A similar situation in the eurozone where the PMI index grew to the highest level since August, reacting to the ECB's soft policy more than the threat of a slowdown in Asia. The same figure from the US suddenly went into the region below 50 after three months of growth. There is already a business reaction to the threat from China. It is still difficult to rely on positive notes of data from Europe, but they turned out to be enough to launch a Friday pullback when markets moved against the trends that prevailed during the week."
The euro stood at USD1.0863 at the European equities close, up from USD1.0794 late Thursday, following a slew of data releases from the continent.
The eurozone saw business activity increase to a six-month high in February, flash estimates from IHS Markit showed.
The IHS Markit flash eurozone composite PMI rose slightly to 51.6 points in February from 51.3 in January. Any reading over 50 indicates expansion. Despite the only modest increase, February's reading marked a six-month high.
The flash services PMI rose slightly to 52.8 in February from 52.5 the previous month, while the manufacturing PMI improved to 49.1 from 47.9, though remaining in contraction territory.
"The surprise uptick in the key European PMIs in February suggests that the disruption from coronavirus is not yet overwhelming the positive effects of lower political uncertainty following the Phase 1 US-China deal and the UK election. With a bit of luck, this will largely continue in the next few months. However, economic activity remains vulnerable to disruptions linked to coronavirus, which will take time to fully show up," said Berenberg economist Holger Schmieding.
Meanwhile, inflation in the eurozone rose in January on an annual basis, but declined month-on-month, data from Eurostat showed.
The eurozone's annual inflation rate, measured by the consumer price index, was 1.4% in January, up from 1.3% in December. The eurozone flash estimate for January, released last month, was 1.4%.
On a monthly basis, inflation fell 1.0% in January, from a 0.3% rise in December. Both readings came in line with consensus estimates.
The European Central Bank targets inflation of "below, but close to, 2% over the medium term".
Against the yen, the dollar was trading at JPY111.72, down from JPY112.10 late Thursday.
Stocks in New York were lower at the London equities close amid coronavirus fears. Additionally, declines were compounded after data showed activity in the US manufacturing and services sectors stalled in February.
The DJIA was down 0.8%, the S&P 500 index down 0.80% and the tech-heavy Nasdaq Composite down 1.2%.
US services and manufacturing sector activity suffered in February as companies become more concerned about the potential effects of the coronavirus, Markit said.
The flash US services purchasing managers' index reading for February came in at 49.4, down sharply from 53.4 in January, which Markit said was the lowest since October 2013. The services PMI reading missed market consensus estimates of 53.0.
A score above the neutral 50.0 mark indicates expansion, while one below points to contraction.
The flash manufacturing PMI score registered at 50.8 in February, down from 51.9 in January, a six-month low. The reading missed the consensus estimate of 51.5.
IHS Markit said the upturn in output was the softest since last July, with firms stating that weak demand conditions and delays in deliveries following the outbreak of the coronavirus in China had dented production growth.
Brent oil was quoted at USD57.80 a barrel at the London equities close, down sharply from USD59.75 at the close Thursday.
"Oil prices have been heavily punished throughout the [coronavirus] outbreak though so if we really are in containment mode, traders may become more interested in the dips once again," said OANDA analyst Craig Erlam.
The economic events calendar on Monday has UK mortgage approvals figures at 0930 GMT.
The UK corporate calendar on Monday has annual results from distribution and logistics firm Bunzl and from newspaper publisher Reach. There is also a trading statement from Primark clothing chain owner Associated British Foods.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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