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(Alliance News) - Stocks in London ended lower on Wednesday amid fears of a second coronavirus wave and a warning that further support may be needed to prevent lasting damage to the US economy from the virus crisis.
White House health advisor Anthony Fauci said in congressional testimony that reopening businesses and communities too early risked damaging recent progress in containing the disease.
Fauci said federal authorities had developed guidelines on how to safely reopen activities, with a sustained 14-day decrease in cases as a vital first step.
Sentiment was also dented after lawmakers in Washington proposed giving the president powers to impose fresh sanctions if Beijing does not give a "full accounting" for the coronavirus outbreak.
The FTSE 100 index closed down 90.72 points, or 1.5%, at 5,904.05. The FTSE 250 ended down 294.92 points, or 1.8%, at 15,878.12, and the AIM All-Share closed down 4.79 points, or 0.6%, at 819.77.
The Cboe UK 100 ended down 1.8% at 9,973.70, the Cboe UK 250 closed down 1.8% at 13,497.90, and the Cboe Small Companies ended down 0.9% at 8,871.80.
In Paris the CAC 40 ended down 2.9%, while the DAX 30 in Frankfurt ended down 2.5%.
"The bullish run that equity markets enjoyed last month was largely down to a slowing of the infection rates as well as the reopening of industries. Now that some nations are slowly reopening sections of their economies, there have been increases in the rates of new cases, and that has spooked dealers. The fear factor is nothing like what was seen in early March when the coronavirus was spreading like wild fire, but traders are dumping stocks nonetheless," said CMC Markets analyst David Madden.
In the FTSE 100, Spirax-Sarco Engineering closed up 2.3% after the thermal energy manager said trading has "held up well" despite the "unprecedented" market conditions brought about by the Covid-19 outbreak.
Spirax-Sarco said a "small number" of its manufacturing facilities were temporarily shut but all now are open, though operating at different levels of capacity. Demand in the area of Maintenance, Repair & Overhaul and small improvement project activities, which traditionally make up about 85% of revenue, "experienced only a mild decline compared to a very strong comparable period in 2019," Spirax said.
Sage Group closed up 1.8% after the accounting software provider reported higher interim profit as software subscription revenue grew and expenses fell, offsetting a drop in other revenue.
Sage reported a GBP275 million pretax profit for the six months ended March 31, up 39% from GBP198 million the year before. One factor in this was a 1.9% increase in revenue to GBP975 million from GBP957 million, with organic total revenue up 5.7% at GBP935 million including 10% recurring revenue growth.
The Newcastle Upon Tyne-based firm said organic revenue growth was underpinned by software subscription revenue growth of 26% to GBP582 million, while other revenue - software & software-related services and processing - fell 20% to GBP109 million.
Ferguson closed up 0.9% after the plumbing and heating products supplier said the "strong" momentum seen in the first half of its financial year has been restrained since by the Covid-19 outbreak.
Ferguson said revenue from its ongoing operations in the US and Canada were up slightly in the third quarter but trading profit took a hit. In the three months to April 30 - Ferguson's third-quarter - revenue was up 0.9% year on year to USD4.75 billion from USD4.71 billion, but a 7.7% rise in February and March was offset by an 11% decline in April.
In the US, Ferguson recorded 1.9% revenue growth in the third quarter, but Canada suffered a 16% fall. In the nine months to April 30, revenue from ongoing operations was up 3.2% year-on-year to USD14.64 billion, while trading profit was 2.8% higher at USD1.13 billion.
At the other end of the large-cap index, travel-related stocks were lower amid continued fears around the health of the sector due to Covid-19.
Carnival closed down 11%, InterContinental Hotels Group, down 8.6%, easyJet, down 3.8%, International Consolidated Airlines, down 4.8%.
In addition, Carnival's rival Royal Caribbean Cruises on Wednesday launched a USD3.3 billion bond offering, pledging 28 of its ships as collateral and forecast heavy losses for the first quarter due to the Covid-19 pandemic.
In the FTSE 250, Aston Martin Lagonda ended as the worst performer, down 16% after the luxury carmaker posted a far wider loss in its first quarter as Covid-19 stifled dealer demand.
The Gaydon, Warwickshire-based firm reported a GBP118.9 million pretax loss for the three months ended March 31, many times wider than the prior year's GBP17.3 million loss.
The stock fell to an all-time low of 31.96 pence during the session.
The pound was quoted at USD1.2222 at the London equities close, down from USD1.2310 at the close Tuesday, as data from the Office for National Statistics showed the UK economy shrank in the first three months of the year.
UK GDP fell 2.0% sequentially in the first quarter after a flat reading for the fourth quarter of 2019. Annually, first-quarter GDP fell by 1.6%.
Though dire, the latest figures were better than expected by the market. Consensus, according to FXStreet, had seen a quarter-on-quarter decline of 2.5% and an annual fall of 2.1%.
In the month of March alone, the economy contracted by a record 5.8% month-on-month, having fallen 0.2% in February and advanced 0.1% in January.
The data point captured the first direct effects of the Covid-19 pandemic and government measures taken to reduce stem the spread of the virus, the ONS said. The "most significant" was the introduction of restrictions in movement across the UK, which began on March 23.
Artur Baluszynski, head of research at Henderson Rowe, said: "The numbers are really bad, especially considering that the lockdown only started mid-March. One of the reasons why the -2% figure is better than expected is because the real impairment of the consumer demand is likely to show up in April numbers. However, we can now see how the UK's more relaxed lockdown measures helped the economy to fare better than France or Spain which contracted close to 6% over the same period."
The euro stood at USD1.0845 at the European equities close, down from USD1.0870 late Tuesday.
Against the yen, the dollar was trading at JPY107.11, down from JPY107.28 late Tuesday.
Stocks in New York were mostly lower at the London equities close after US Federal Reserve Chair Jerome Powell said more fiscal support may be needed to prevent lasting damage to the economy from the coronavirus crisis.
The DJIA was down 0.6%, the S&P 500 index down 0.1% but the Nasdaq Composite was up 0.6%.
Powell pointed to the hit to households from elevated unemployment and the permanent loss of small businesses as among the imperatives that could require Congress to spend beyond the USD3 trillion already approved in response to the COVID-19 hit.
"Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery," Powell said in a speech to the Peterson Institute for International Economics.
In addition, the Fed is not considering using negative interest rates as a means to curtail economic damage caused by the coronavirus outbreak, Powell said, quelling fears the central bank would push rates below zero.
"I know there are fans of the policy, but for now it's not something that we're considering," Powell said in the Q&A session.
Analysts at ING said: "While we acknowledge that the scale and speed of the fiscal and monetary support has been more impressive in the current crisis versus the great financial crisis, the fact is we don't know how long social distancing, travel restrictions and consumer angst about catching the virus will last.
"There is also clear concern that with tens of millions of Americans having lost their job, consumer demand may not come back as rapidly as in the GFC. This suggests to us the Fed's stimulus will remain in play for many more months with very little prospect of a rate hike away from the emergency lower bound within the next year and a half."
Brent oil was quoted at USD29.45 a barrel at the London close, lower from USD29.80 at the close Tuesday.
Meanwhile, the rebalancing of the oil market is underway and will accelerate, OPEC said, days after some of its members voluntarily increased their production cuts.
The world oil market was thrown into disarray earlier this year as lockdown measures imposed by governments to slow the spread of the coronavirus led to plunge in demand just as crude producers had been stepping up output in a war for market share. Prices tumbled, with the price of the benchmark US oil futures contract briefly plunging below zero.
The cartel believes the worst drop in demand will be recorded in the current April to June quarter. In response to the oil market crisis, OPEC and its allies have agreed on major cuts in production, by 9.7 million barrels per day, but the cartel believes an improvement is on the horizon.
OPEC said it now expects daily demand in 2020 to drop by some 8.5 million barrels per day from last year's level, which is a roughly 8.5% drop.
Gold was quoted at USD1,714.70 an ounce at the London equities close, up from USD1,707.15 late Tuesday.
The economic events calendar on Thursday has Germany inflation readings at 0700 BST and US jobless claims at 1330 BST.
The UK corporate calendar on Thursday has annual results from private equity investor 3i Group, interim results from books and stationery retailer WH Smith and a trading statement from stockbroker Hargreaves Lansdown.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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