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(Alliance News) - Stocks in London were lower at midday as investors fretted about spikes in Covid-19 cases, US-China political tensions, and weak UK economic data, as US earnings season begins in earnest.
In the US, California Governor Gavin Newsom on Monday ordered all indoor restaurants, bars and movie theatres to close again as coronavirus cases soar across the state. Churches as well as businesses including gyms, shopping malls, hair salons and non-essential offices must also close indoor operations in 30 of the state's worst-hit counties including Los Angeles, he said.
Meanwhile, Hong Kong on Monday announced sweeping new measures as the city suffers a relapse. In Australia, Melbourne is already under a new lockdown, and there are signs of new outbreaks in Sydney.
The US on Monday confirmed 59,222 new coronavirus cases in the previous 24 hours, Johns Hopkins University reported in its real-time tally. The country has seen a resurgence of cases in the so-called Sun Belt, stretching across the south from Florida to California.
In addition, US-China tensions were back on the table after US Secretary of State Mike Pompeo called China's pursuit of resources in the South China Sea "unlawful", ramping up support for Southeast Asian nations and triggering an angry response from Beijing.
The comments added to a laundry list of issues that have the two economic superpowers at odds, including China's role in the virus pandemic, trade, Hong Kong and Huawei.
The FTSE 100 index was down 23.13 points, or 0.4%, at 6,153.06. The mid-cap FTSE 250 index was 256.27 points lower, or 1.8%, at 17,128.82. The AIM All-Share index was 13.28 points lower, or 1.4% at 867.86.
The Cboe UK 100 index was down 0.4% at 613.54. The Cboe 250 was 1.3% lower at 14,492.54, and the Cboe Small Companies index was down 0.2% at 9,171.06.
In mainland Europe, the CAC 40 in Paris was down 1.7% while the DAX 30 in Frankfurt was 1.5% lower.
In the FTSE 100, Halma was among the worst performers, down 5.3% after the hazard detection firm warned of a fall in financial 2021 profit due to the coronavirus pandemic.
For the financial year that ended March 31, Halma's revenue was up 11% to GBP1.34 billion from GBP1.21 billion in financial 2019.
Pretax profit rose 8% to GBP224.1 million from GBP206.7 million the year before. The figure was just shy of the GBP227 million market consensus forecast. Adjusted pretax profit rose by 9% to GBP267.0 million from GBP245.7 million, in line with consensus.
Looking ahead, Halma expects financial 2021 adjusted pretax profit to be 5% to 10% below 2020.
Ocado Group was down 3.5% despite the online grocer saying it delivered a strong performance considering the challenging times created by the Covid-19 pandemic.
For the half-year ended May 31, Ocado's pretax loss narrowed to GBP40.6 million from GBP147.4 million a year before, as revenue increased to GBP1.09 billion from GBP882.3 million. Ocado said the coronavirus crisis has significantly accelerated the ongoing shift by consumers to online grocery.
Looking ahead, Ocado said there is a positive outlook for online grocery, but it has suspended its Retail revenue growth forecast given uncertainties over the scale and duration of social distancing restrictions in the UK.
The pound was quoted at USD1.2512 at midday, down sharply from USD1.2615 at the London equities close Monday, as disappointing UK economic growth data put paid to hopes for a 'V-shaped' recovery for the domestic economy.
The Office for National Statistics said the UK economy grew by 1.8% in May as activity began to recover with the easing of coronavirus lockdown. May's GDP growth was far short of the 5% rise expected by most economists.
May's meagre recovery comes after GDP contracted at a record-breaking pace in March and April when the economy was brought to a virtual standstill, falling by a downwardly revised 6.9% and 20% respectively.
Compounding the situation, the Office for Budget Responsibility said the "UK is on track to record the largest decline in annual GDP for 300 years", warning that the economy could shrink by as much as 14.3% in 2020. In its latest set of financial forecasts, the OBR said a worst-case scenario would not see GDP recover to pre-crisis levels until the third quarter of 2024.
UK government measures to address the impact of the virus also will result in an "unprecedented peacetime rise in borrowing" this year, to between 13% and 21% of GDP, with the OBR currently predicting borrowing of GBP322 billion. UK GDP is set to fall by 10.6% in even its most optimistic projection, the OBR said.
Fidelity International's Tom Stevenson commented: "The partial easing of lockdown cleared the way for May's small rebound in GDP, up 1.8% month-on-month. However, with the UK economy a quarter smaller in May than in February, we're still a very long way from understanding the shape of its return to normal. Hopes of a V-shaped recovery are fading fast, and I suspect we're looking at something resembling far more of a 'W' - a series of improvements and relapses, before a proper recovery takes hold.
"Pent-up demand amongst consumers suggests that we may see some spikes in activity as shops and restaurants re-open, flights resume, and workers continue their gradual return to the office. However, this upwards trajectory may be flatter and the recovery take longer than we hoped. It is one thing opening up, another persuading consumers to return to their old ways."
Meanwhile, UK Prime Minister Boris Johnson is set to bar Chinese tech giant Huawei from playing any role in Britain's 5G network, triggering a renewed clash with Beijing.
Johnson is chairing a meeting on Tuesday of the National Security Council, which is expected to end any involvement by the firm in building the 5G system. The decision - following intense pressure from both the US administration of Donald Trump and backbench Tory MPs - marks a major U-turn by the government.
It is expected that Johnson will announce that no new Huawei equipment can be installed in the network from as early as next year. It also is expected to announce a so-called "rip out" date by which all the existing Huawei equipment must be removed.
Details will be set out by Culture Secretary Oliver Dowden in a Commons statement following the NSC meeting.
The euro was changing hands at USD1.1357 at midday, flat from USD1.1359 at the European equities close Monday. Against the yen, the dollar was trading at JPY107.40, firm from JPY107.28 late Monday.
In economic news from the continent, German inflation hardened slightly in June, according to figures from Destatis.
Consumer prices rose 0.9% on an annual basis in June, ticking up from 0.6% in May. Stripping out energy products, June's inflation rate would have been 1.6%, Destatis noted. The harmonised index of consumer prices - calculated for EU-wide comparison - rose 0.8% year-on-year in June after 0.5% growth in May.
Stocks in New York look set for a modestly higher open ahead of the highly-anticipated earnings releases from major US banks JPMorgan Chase, Citigroup and Wells Fargo.
Already out, JPMorgan Chase said earnings per share more than halved to USD1.38 in the second quarter from USD2.82 a year before, as a result of USD8.9 billion in reserve builds.
The DJIA, the S&P 500 index and the Nasdaq Composite all were called up 0.3%.
Investors are bracing for the worst quarter of earnings since the global financial crisis, but stimulus measures deployed across the US economy are likely to help cushion the blow for the banks.
CMC Markets analyst Michael Hewson said: "As we look ahead to the US banks second-quarter earnings numbers, investors will be looking to see whether these key US bellwethers set aside further provisions in the face of the big spikes seen in unemployment, and the rising number of Covid-19 cases across the country.
"Another plus point for US banks will be the fees they received for processing the paycheck protection program for US businesses. It's being estimated that US banks that are part of the scheme have made up to USD24 billion in fees, despite bearing none of the risk in passing the funds on from the small business administration."
Brent oil was trading at USD42.48 a barrel at midday, down from USD42.92 at the London close Monday.
Oil was lower as the Joint Ministerial Monitoring Committee of the Organization of the Petroleum Exporting Countries prepares to meet on Tuesday and Wednesday to recommend levels for future supply cuts.
Gold was quoted at USD1,799.28 an ounce at midday, lower against USD1,806.50 late Monday.
Ahead in the economic events calendar, there is US inflation readings at 1330 BST.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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