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(Alliance News) - The pound slipped below USD1.29 after the Bank of England on Wednesday followed the US in announcing a surprise interest rate cut in response to the "economic shock" from the Covid-19 virus.
The Monetary Policy Committee unanimously decided to cut UK interest rates by 50 basis points to 0.25% from 0.75% at a special meeting ending on Tuesday, back to the record low reached in the aftermath of the vote to leave the EU in 2016.
The BoE is next due to meet on March 26. The new governor, Andrew Bailey, is set to start on March 16.
The rate cut, coming just ahead of the UK government budget due at midday Wednesday, followed the US Federal Reserve last week unexpectedly cutting the federal funds rate by 50 basis points.
The BoE noted that prices of risk assets and commodities have fallen sharply following the spread of the deadly Covid-19, and government bond yields have reached all-time lows. Indicators of financial market uncertainty have reached "extreme" levels.
The Bank Rate cut should "help to support business and consumer confidence at a difficult time", the BoE said, as well as bolstering cash flows of businesses and households.
"Although the magnitude of the economic shock from Covid-19 is highly uncertain, activity is likely to weaken materially in the United Kingdom over the coming months. Temporary, but significant, disruptions to supply chains and weaker activity could challenge cash flows and increase demand for short-term credit from households and for working capital from companies. Such issues are likely to be most acute for smaller businesses. This economic shock will affect both demand and supply in the economy," the BoE said.
The MPC also agreed to introduce a new term funding scheme with additional incentives for small and medium-sized enterprises, financed by the issuance of central bank reserves.
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: called up 77.67 points, 1.3% at 6,037.90
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Hang Seng: down 0.7% at 25,226.24
Nikkei 225: closed down 2.3% at 19,416.06
DJIA: closed up 1,167.14 points, 4.9%, at 25,018.16
S&P 500: closed up 4.9% at 2,882.23
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GBP: down at USD1.2886 (USD1.2942)
EUR: soft at USD1.1331 (USD1.1342)
Gold: up at USD1,663.02 per ounce (USD1,655.61)
Oil (Brent): firm at USD36.98 a barrel (USD36.63)
(changes since previous London equities close)
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ECONOMICS AND GENERAL
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Wednesday's Key Economic Events still to come
0930 GMT UK trade
0930 GMT UK monthly GDP estimates
0930 GMT UK indices of production and services
1230 GMT UK NIESR monthly GDP tracker
1230 GMT UK Chancellor Rishi Sunak delivers budget statement
1230 GMT UK Office of Budget Responsibility publishes UK economic forecast
0700 EDT US MBA weekly mortgage applications survey
0830 EDT US consumer price index
1030 EDT US EIA weekly petroleum status report
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Senior UK government ministers could be tested for coronavirus after Health Minister Nadine Dorries became the first MP to be diagnosed with the illness. The Conservative MP said she has been self-isolating at home after testing positive and her parliamentary office has closed following advice from Public Health England. It came after the number of cases in the UK rose to 382, and a sixth death was confirmed. In a statement on Tuesday night, Dorries said: "As soon as I was informed I took all the advised precautions and have been self-isolating at home." The Department of Health & Social Care said she first exhibited symptoms at some time on Thursday – the same day she attended a Downing Street event hosted by Boris Johnson to mark International Women's Day. Number 10 did not comment on whether the prime minister had undergone testing for the coronavirus, or whether he will now be tested.
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Former US vice president Joe Biden has claimed victory in Michigan, the top prize among the six states holding their Democratic primaries for the presidential nomination on Tuesday. "It looks like we're going to have another good night - we've had victories in Mississippi, Missouri and Michigan," Biden said in Philadelphia as he also claimed success in two other states. "Just over a week ago, many pundits said this candidacy was dead. Now we're very much alive," he said to applause. The result came as a blow to left-wing senator Bernie Sanders, for whom Michigan became a must-win after he slipped to second place in the delegate count during Super Tuesday, when a third of all delegates were allocated. Both campaigns have been pouring resources into the northern state with 125 of the 352 delegates up for grabs on Tuesday. Michigan is also important as Democrats look to win back a state that narrowly went to President Donald Trump in 2016.
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BROKER RATING CHANGES
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RBC CUTS GLENCORE TO 'SECTOR PERFORM' ('OUTPERFORM') - TARGET 210 (280) PENCE
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RBC RAISES FLUTTER TO 'TOP PICK' ('OUTPERFORM') - TARGET 11000 PENCE
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RBC RAISES INTERCONTINENTAL HOTELS TO 'SECTOR PERFORM' (UNDERPERFORM) PRICE TARGET 4500 PENCE
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COMPANIES - FTSE 100
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Spirax-Sarco Engineering said pretax profit dropped by 18% in 2019 to GBP236.8 million from GBP288.8 million in 2018, even as revenue rose 8% to GBP1.24 billion from GBP1.15 billion. The company raised its dividend by 10% to 110.0 pence from 100.0p. It said Kevin Boyd will retire as chief financial officer by the end of 2020, and a search for a replacement has been started.
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COMPANIES - FTSE 250
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FirstGroup said it has started a formal sales process for its North American businesses First Student and First Transit, with "significant interest expressed" by a "range" of potential buyers. First Bus and First Rail will form the "core" of the ongoing group. "We have now commenced a formal process to sell our North American contract businesses. We firmly believe that a sale of these assets is the best way to unlock material value for all FirstGroup shareholders, having completed a detailed review and analysis with advisers appointed by the board to explore all options," said Chair David Martin. On current trading, the transport operator said revenue is up 7.5% in the year-to-date with no significant impact from Covid-19 seen yet.
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Construction firm Balfour Beatty reported a rise in profit and lifted its dividend. Revenue for 2019 rose to GBP8.41 billion from GBP7.81 billion, with pretax profit rising to GBP138 million from GBP123 million. Balfour lifted its dividend to 6.4p from 4.8p. Looking ahead, the firm said it has "confidence" it will continue to deliver "profitable managed growth". "While Covid-19 continues to evolve, Balfour Beatty is monitoring developments closely, looking to mitigate the risk that it may have on the group's employees, customers and supply chain. At this point in time, all sites and offices in the UK, the US and Hong Kong remain open. However, it is too early to fully assess any impact of the outbreak on the operational and financial performance of the group," said Balfour.
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B&M European Value Retail said it has agreed to sell its German business following a strategic review. It will sell its entire 80% stake in JA Woll-Handels to a purchasing consortium led by AC Curtis Salta, a company funded by Adiuva Capital. The total consideration payable for the deal is EUR12.5 million in cash. The discount retailer said EUR2.5 million is payable on completion of the transaction, and EUR10 million due at the end of the year, conditional on the on-going trading of Jawoll.
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Euromoney Institutional Investor said it has experienced disruption due to the Covid-19 outbreak, in line with other events operators. So far, the business publisher and event organiser said it has cancelled 25 events resulting in a revenue hit of GBP3 million, and has postponed 55 events, with 9 moving into the next financial year, for an additional GBP3 million hit. The overall impact on the current financial year from this will be a GBP6 million hit to revenue and a GBP5 million reduction in operating profit. "Our expectations of the impact on revenue and adjusted operating profit are based on our current assessment and are subject to change if COVID-19- related market disruption increases or improves. We have made no changes at this stage to events originally scheduled from July up to and including September," Euromoney warned.
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COMPANIES - INTERNATIONAL
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Saudi Arabian Oil said it will increase its maximum sustainable capacity to 13 million barrels of crude oil per day from 12 million barrels. The move from the Saudi Ministry of Energy follows the Aramco's decision to increase its oil output to 12.3 million barrels per day of crude oil in April on Tuesday. On Sunday, Saudi Arabia took the first shot in an oil war after cutting its price for April delivery by USD4 to USD6 a barrel to Asia and USD7 to the US, with Aramco selling its Arabian Light at an unprecedented USD10.25 a barrel less than Brent to Europe. This was after the failure by cartel the Organization of the Petroleum Exporting Countries and its allies to clinch a deal to cut production.
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Wednesday's Shareholder Meetings
no events scheduled
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By Tom Waite; thomaslwaite@alliancenews.com
Copyright 2020 Alliance News Limited. All Rights Reserved.
