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(Alliance News) - London share prices were holding up relatively well Friday morning, down only fractionally, despite worrying local data and a painful session on Wall Street on Thursday.
The UK economy shrank by a fifth in the month of April, according to the latest figures from the Office for National Statistics early Friday.
Gross domestic product slumped 20% month-on-month in April, the biggest monthly fall since the series began - far steeper than the falls of 5.8% and 0.2% seen in March and February respectively. In the three months to April, the economy contracted an "unprecedented" 10% on a sequential basis.
Analyst at ING commented: "Social distancing constraints, consumer and business caution, as well as Brexit, all pose challenges to the UK economic recovery. This is set to keep the pressure on the Bank of England to continue expanding its balance sheet, and we expect a further increase in its quantitative easing programme next week."
The latest release captures the direct effects of the Covid-19 pandemic and UK government measures taken to stem its spread.
ING added: "Today's data won't necessarily come as much of as a surprise to markets - it shows the damage was a little greater than expected, but the reality is that markets have become fairly desensitised to big numbers over recent weeks. We know too that April was the first month to be fully encompassed by the lockdown. But these figures are nevertheless shocking, and it goes without saying that this kind of fall in activity is virtually unprecedented, either in scale or speed."
The ONS noted that April's GDP decline was three times greater than the fall experienced during the 2008 to 2009 economic downturn. Throughout the 2008 recession, GDP shrunk by no more than 2.1% in a single quarter.
"April's fall in GDP is the biggest the UK has ever seen, more than three times larger than last month and almost ten times larger than the steepest pre-Covid-19 fall. In April the economy was around 25% smaller than in February," said Jonathan Athow, deputy national statistician for Economic Statistics at the ONS.
He added: "Virtually all areas of the economy were hit, with pubs, education, health and car sales all giving the biggest contributions to this historic fall. Manufacturing and construction also saw significant falls, with manufacture of cars and housebuilding particularly badly affected."
The blue-chip FTSE 100 index was down 13.48 points, or 0.2%, at 6,063.22 early Friday - at this level down 6.5% since the week began.
The mid-cap FTSE 250 index was down 6.53 points at 16,967.14. The AIM All-Share index was down 0.3% at 862.77.
The Cboe UK 100 index was down 0.7% at 10,244.08. The Cboe 250 was down 0.4% at 14,553.35, and the Cboe Small Companies down 0.3% at 9,606.71.
SpreadEx's Connor Campbell commented: "Following Thursday's carnage - the Dow Jones ended the US session down an eye-popping 1860 points - Europe's decline paused on Friday morning despite some godawful data out of the UK.
"Yet the FTSE was measured in its response, trimming its losses to a handful of points after an initial 0.8% slide. Part of that will come from the fact those GDP numbers are shocking, but not necessarily surprising - investors have received repeat warnings over what to expect, as recent as Wednesday's OECD forecasts."
Campbell noted markets have "taken a beating this week".
"There may simply not be the appetite to send them any lower at the moment, regardless of what the day's data says," he explained.
New York stocks suffered heavy losses on Thursday after another spike in US jobless claims, amid worries over rising coronavirus cases in some states that have reopened their economies. The Dow Jones Industrial Average dropped 1,861.82 points, or 6.9%, its worst day since March. The broader S&P 500 lost 5.9%, and the tech-heavy Nasdaq Composite fell 5.3%.
US Treasury Secretary Steven Mnuchin said Thursday there will be no more shutdowns to stop the coronavirus pandemic, even as the outbreak flares in some states. "We can't shut down the economy. I think we've learned that if you shut down the economy, you're going to create more damage," Mnuchin said in an interview on CNBC.
His comments were echoed by President Donald Trump, who tweeted "We will have a very good Third Quarter, a great Fourth Quarter, and one of our best ever years in 2021. We will also soon have a Vaccine & Therapeutics/Cure. That's my opinion. WATCH!"
The president's tweet came after the Federal Reserve on Thursday predicted an economic contraction of 6.5% this year, while warning the outlook remained uncertain.
"The Federal Reserve is wrong so often," Trump said. "I see the numbers also, and do MUCH better than they do."
Orders to close businesses to stop the virus's spread beginning in mid-March have badly harmed the world's largest economy, leading to tens of millions of layoffs and an unemployment rate of 13.3% in May, a figure reminiscent of the Great Depression 90 years ago.
Yet the virus remains deadly across the US, with more than 112,900 deaths reported as of Wednesday and two million cases, while some states like Texas and North Carolina are seeing more hospitalisations from Covid-19 than they did a month ago.
Selling carried on into Asia on Friday, with the Japanese Nikkei 225 index closing down 0.8%. In China, the Shanghai Composite closed marginally lower, while the Hang Seng index in Hong Kong is down 1.2% in late trading.
In mainland Europe, the CAC 40 in Paris was 0.2% higher and the DAX 30 in Frankfurt marginally higher in early dealings.
In London, Informa was 5.4% higher. The FTSE 100 business publisher and exhibitions firm said trading remained mixed, with the Events division hammered by cancellations due to government-imposed lockdowns across the world, while the Subscriptions unit continuing to trade well.
"We expect the pace and shape of recovery to be gradual and phased by market. Despite continued near-term unpredictability, our strengthened balance sheet, continuing cost controls and strong liquidity is enabling us to focus on the other side of Covid-19," Chief Executive Stephen Carter said in his annual general meeting statement.
The FTSE-100 listed company said its Subscriptions unit - which makes up 35% of revenue - continues to perform "resiliently" but its Events unit - 65% of revenue - is focusing on providing alternative digital services as no physical product has been traded anywhere in the world due to Covid-19.
Informa noted the Events unit is focusing on "long-term relationships ahead of short-term revenue", but added the return of events in China is now a "real" possibility.
The company has scheduled a minimal physical product for June but is now planning to run a number of major events in China from early July, with China Beauty Expo in Shanghai the first scheduled major Informa event to be held post-Covid-19.
In the US, the company's biggest market, Informa is assuming a low probability that any physical events will run before September, with most brands due to run in July and August either rescheduled, cancelled or switched to a fully digital event.
Publishing peer Pearson was 7.3% higher.
Among London mid caps, Games Workshop was up 9.0%, the best performer in the FTSE 250, as its trading since its stores were allowed to re-open has been better than expected.
The company said 306 of its 532 stores are now open in 20 countries.
For the year ended May 31, Games Workshop expects its sales to be GBP270 million, with pretax profit to be no less than GBP85 million.
Pub manager Mitchells & Butlers was 2.0% higher after it agreed "a number of new arrangements" with its main creditors, in order to "meet the challenge" of the coronavirus pandemic.
The full impact of the pandemic, Mitchells & Butlers said, is still uncertain due to still not knowing when it can reopen its pubs and restaurants.
As a result, Mitchells & Butlers has agreed to a committed unsecured liquidity facilities totalling GBP250 million through to December 31, 2021.
This involves extending to the term of its existing GBP150 million facilities plus the provision of additional facilities totalling GBP100 million.
"These facilities will be on a new covenant structure, reflecting the revised trading profile of the group through the recovery of its business following re-opening, and continue to be supported by a negative pledge in respect of the group's unsecured assets," Mitchells & Butlers said.
The GBP100 million additional facilities are structured under the UK government-backed Coronavirus Large Business Interruption Loan Scheme.
Mitchells & Butlers currently has cash balances of GBP130 million, having fully drawn down the existing facilities of GBP150 million.
During this period of shuttered pubs, the Ebitda loss in a four-week period is about GBP15 million, including rent, Mitchells & Butlers said.
Cash burn before debt service is higher than this, the company noted, primarily as it pays down supplier balances, at between GBP30 million and GBP35 million per four-week period.
Sterling was quoted at USD1.2595 early Friday, down from USD1.2642 at the London equities close on Thursday. The euro traded at USD1.1309, down versus USD1.1377 late Thursday.
Against the yen, the dollar was quoted at JPY107.13, up from JPY106.64.
Gold was priced at USD1,7321.80 an ounce early Friday, lower than USD1,742.15 on Thursday.
Brent oil was trading at USD37.25 a barrel, down from USD38.70 late Thursday.
Still to come Friday, US import and export prices are due at 1330 BST.
By Paul McGowan; paulmcgowan@alliancenews.com
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