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(Alliance News) - The US Federal Reserve on Sunday led other central banks around the world in taking action against the strains caused by the new coronavirus outbreak, as stocks in London are set to open another likely tough week deeply in the red.
In London early Monday, a number of listed companies warned about the impact of the pandemic, with International Consolidate Airlines Group and easyJet warning the spread of the virus is significantly denting the demand for global travel.
Betting firm Flutter Entertainment said earnings will take a significant hit following the move to suspend high-attendance sports events, while DIY-store chain Kingfisher was more upbeat, noting strong sales in February.
IG says futures indicate the FTSE 100 index of large-caps to open 193.51 points, or 3.6%, lower at 5,172.60 on Monday. The FTSE 100 index closed up 128.63 points, or 2.5%, at 5,366.11 on Friday, but ended the week down 17%.
Faced with a growing economic shutdown amid the global virus pandemic, the US Federal Reserve on Sunday announced drastic emergency measures to shore up confidence and keep the financial sector running, including slashing the key interest rate to virtually zero.
"In a move that caught investors by surprise on Sunday night, the Federal Reserve, along with the European Central Bank, Bank of England, Bank of Japan, SNB and the Bank of Canada threw the kitchen sink at the markets as events over the weekend took further turns for the worst across Europe and the US with respect to the coronavirus," CMC Markets Chief Market Analyst Michael Hewson said.
The Fed made its second emergency rate cut in less than two weeks, cutting the benchmark borrowing rate to a range of 0-0.25%, where it was during the 2008 global financial crisis, and pledged to keep it there "until it is confident that the economy has weathered recent events."
The central bank also announced massive asset purchases, opened its discount lending windows to banks and urged them to use it to help businesses and households. In another move, it removed bank reserve requirements to allow them to use cash backstops.
America's central bank had been scheduled to meet on Wednesday.
Hewson added: "While these moves may go some way to easing any potential blockages in the plumbing of the financial markets, they won’t adequately compensate for the upcoming economic shocks that are about to come our way as a result of the events currently unfolding across Europe, as borders get closed and populations get locked down. Central banks have played their part in the past few weeks, it is now up to global policymakers, G7, and or G20 to step with large scale fiscal measures in the coming weeks and months to complement these measures."
In the US on Friday, Wall Street ended sharply higher, with the Dow Jones Industrial Average and the Nasdaq Composite both ending up 9.4%, and the S&P 500 closed 9.3% higher. It was a tough week for Wall Street, despite the strong gains on Friday, with the DJIA losing 10%, the S&P 500 8.8% and the Nasdaq Composite 8.2%.
And US stock indices are pointed to open more 4% lower again on Monday.
The Bank of Japan on Monday followed the Fed, unveiling a series of emergency monetary policy measures to shore up the world's third-largest economy.
In a meeting brought forward by two days, the BoJ said it would double its annual capacity to purchase exchange-traded funds and Japan real estate investment funds, the latest global central bank to take emergency action.
The moves sent Japanese markets whipsawing, with the Nikkei-225 initially surging two percent but then falling rapidly back into the red as traders digested the statement.
The Japanese Nikkei 225 index ended down 2.5% on Monday.
The BOJ said it had decided unanimously to "actively" purchase ETFs, exchange-traded funds, and J-REITs, investment funds tied to Japanese real estate, with an annual upper limit of JPY12 trillion and JPY180 billion, respectively.
Meanwhile, Australia's Reserve Bank on Monday said it will it will begin buying bonds to help the its economy which has been hit by the spread of the Covid-19 virus.
"In response, the Reserve Bank stands ready to purchase Australian government bonds in the secondary market to support the smooth functioning of that market, which is a key pricing benchmark for the Australian financial system," Governor Philip Lowe said.
He added that the central bank will also regularly conduct one-month and three-month repo operations in a bid to "to provide liquidity to Australian financial markets".
In China, the Shanghai Composite closed 4.2% lower, while the Hang Seng index in Hong Kong is down 4.7%.
China's industrial production has contracted for the first time in three decades as the coronavirus epidemic wreaked havoc on the economy, official data showed Monday. Industrial production for January and February shrank 14% in the first two months of the year, markedly worse than a Bloomberg poll of analysts, which forecasted a 3% drop on-year.
Retail sales plummeted 21% in China from a year ago during the same period – its worst showing in decades as well – after rising 8% in 2019. Analysts had expected a 4% fall.
Sterling was quoted at USD1.2341 early Monday, lower than USD1.2392 at the London equities close on Friday.
The euro traded at USD1.1168 early Monday, up from than USD1.1075 late Friday. Against the yen, the dollar was quoted at JPY106.39, down from JPY107.22.
In commodities, gold was quoted at USD1,534.60 an ounce early Monday, almost USD200 higher than USD1,356.80 late Friday. Brent oil was priced at USD31.90 a barrel, down from USD33.07.
Among the latest raft of London-listed companies to update on coronavirus, IAG said it is implementing further initiatives - following a raft of route suspensions - in order to combat the "challenging market environment.
The British Airways-parent said its first quarter capacity, or available seat kilometres, is expected to fall 7.5%. In April and May, IAG will reduce its capacity by about 75% compared to the year before. IAG also is planning to ground its surplus aircraft.
In an attempt to cut operating expenses further, IAG will halt non-essential and non-cyber related IT spend, freeze recruitment and discretionary spending, implement voluntary leave options, temporarily suspend employment contracts, and reduce working hours.
easyJet said it has undertaken "significant" cancellations, which will result in the grounding of the majority of its fleet.
"European aviation faces a precarious future and there is no guarantee that the European airlines, along with all the benefits it brings for people, the economy and business, will survive what could be a long-term travel freeze and the risks of a slow recovery," the budget airline said.
Cruise ship operator Carnival said a further four of its North American cruise line brands have voluntarily suspended operations for a month.
This follows the decision made by Carnival last week to voluntarily pause its global operations of the Princess Cruises division.
Anglo-German tour operator TUI early Monday said it is suspending the "majority" of its operations over coronavirus fears, and made a request for state aid.
In a press release, the group, which employs 70,000 people worldwide, said the move would affect its "package travel, cruises and hotel operations".
Hannover-based TUI has a presence in over 100 countries and operates a host of airlines, cruise ships and hundreds of hotels.
The firm was taking "substantial cost measures" to mitigate the effect on its earnings, adding that it would apply for state aid guarantees "to support the business until normal operations are resumed".
TUI said it was withdrawing its profit forecast for the current financial year.
Gambling firm Flutter Entertainment said the sports ban will shed about GBP90 million to GBP110 million from Ebitda.
"This estimate assumes that our UK and Irish shops remain open and that scheduled UK, Irish and Australian horse racing fixtures continue to run, albeit behind closed doors. Should horse racing be cancelled in the three regions and our UK/Irish shops be closed, we estimate that this would incrementally reduce Group Ebitda by approximately GBP30 million per month," Flutter added.
The company noted its "strong" balance sheet and said it will continue to explore ways to mitigate earnings drop caused by the suspensions.
Associated British Foods said its first half adjusted operating profit will be ahead of previous expectations - on improved margins in its Primark unit. However, the store closures announced in France, Spain and Austria over the weekend will hurt sales in the future.
The stores in those countries make up about 30% of Primark's sales. Over the next four weeks, Primark had expected GBP190 million in sales from stores in those countries.
"The remainder of the estate, including the UK which represents 41% of sales, has seen like-for-like sales declines over the last two weeks and these have accelerated over the past few days as a result of reduced footfall. We are managing the business appropriately but do not expect to significantly mitigate the effect of the contribution lost from these sales," Primark added.
In some upbeat news, Kingfisher said its like-for-like sales in February were 7.6% higher, and in the first two weeks of March, up to and including March 14, group life-for-like sales "continued to be positive".
Kingfisher did note the "significant uncertainty" and its stores in France and Spain will now be shut until April 14 and March 29, respectively.
Similarly positive, FTSE 250-listed CFD trading platform Plus500 said it has seen a significant rise in customer trading activity since the end of February.
"Revenue from customer income has been very strong due to the heightened levels of market volatility. The company has also experienced gains from Customer Trading Performance which is expected to be neutral over time," Plus500 said.
As a result, Plus500 expects its 2020 revenue and profit to be "substantially" ahead of current consensus expectations.
By Paul McGowan; paulmcgowan@alliancenews.com
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