(Alliance News) - Stocks in London started Friday in the red as US President Donald Trump threatened to reignite the US-China trade war.
In a torrid week for the UK's big lenders, RBS continued the trend of falling profits on rising credit losses. Over the past week, London's five FTSE 100 banks have taken a total GBP7.50 billion in credit loss impairments. On Friday, RBS contributed GBP802 million of this.
The FTSE 100 index was 137.71 points lower, or 2.3%, at 5,763.50 early Friday. The mid-cap FTSE 250 index was down 338.67 points, or 2.1%, at 16,115.79. The AIM All-Share index was down 1.1% at 801.43.
The Cboe UK 100 index was down 2.3% at 9,750.77. The Cboe 250 was down 1.8% at 13,899.91, and the Cboe UK Small Companies down 0.2% at 9,066.29.
"European stocks are taking the lead from Wall Street and Asia, pointing to a sharply lower start on the open. Sobering comments from tech giants Apple and Amazon in addition to fears of a new chapter to the US China trade war are weighing on sentiment at the end of the trading week and the start of the new month, pulling equities lower and boosting the safe haven dollar," City Index analyst Fiona Cincotta said.
In the US on Thursday, Wall Street closed in the red, with the Dow Jones Industrial Average ending down 1.2%, the S&P 500 down 0.9% and the Nasdaq Composite closing 0.3% lower.
Trump on Thursday threatened China with fresh tariffs as he stepped up his attacks on Beijing over the coronavirus crisis, saying he had seen evidence linking a Wuhan lab to the contagion.
Asked if he had seen anything giving him a high degree of confidence that the Wuhan Institute of Virology was the source of the outbreak, Trump replied, "Yes, I have."
Pressed by reporters at the White House for details on what made him so confident, Trump replied: "I cannot tell you that."
Trump is increasingly making Beijing's handling of the outbreak a major issue for his November re-election campaign.
After the bell in New York, tech giant Amazon and Apple released first-quarter results - which followed news that another 3.8 million Americans had filed jobless claims, taking the overall total of claims to over 30 million.
Apple said it made a profit of USD11.2 billion on sales of USD58.3 billion in the quarter, compared to net income of USD11.7 billion on revenue of USD58 billion in the same period a year earlier.
"Despite COVID-19's unprecedented global impact, we're proud to report that Apple grew for the quarter, driven by an all-time record in services and a quarterly record for wearables," Chief Executive Tim Cook said in an earnings release.
Net sales of iPhones – the big earnings segment for Apple in recent years – dropped 6.7% from a year earlier, however.
Apple lost 2.6% in the New York after-hours trading session.
Amazon said that profits took a hit in the past quarter due to the global pandemic and that its earnings in current period will be wiped out by COVID-related expenses.
The technology and e-commerce giant said revenue surged 26% in the recently completed quarter to more than USD75 billion as people hunkered down at home due to the pandemic turned to it for supplies and entertainment. But profit slipped 29% from a year ago to USD2.5 billion.
Chief Executive Jeff Bezos said all profits in the April-June quarter would be erased by expenses linked to the global virus outbreak.
Amazon shed 4.8% in after-hours trading.
Cincotta continued: "Despite the sell off yesterday, global stocks posted their best month since 2011 in April thanks to a slowdown in coronavirus infections, optimism surrounding the gradual reopening of economies and massive stimulus initiatives. However, data and earnings are serving as a reminder that the economic pain is really only just beginning."
In Asia on Friday, the Japanese Nikkei 225 index closed down 2.7%. Japan's manufacturing sector saw its downturn intensify in April with production falling at the sharpest rate since 2009, IHS Markit data showed.
The headline au Jibun Bank purchasing managers' index dropped to an 11-year low of 41.9 in April from 44.8 in March. Any reading over 50 indicates expansion in the sector and one below contraction.
Financial markets in China and across Europe - including Germany and France - are closed Friday for the Labour Day holiday.
In London, RBS was among the few blue-chip firms in the green in early trading, up 2.6%.
RBS reported a sharp drop in first-quarter profit, as it was forced to significantly increase its credit impairments to cope with the fallout from the Covid-19 pandemic.
In the three months to March 31, the state-backed lender's operating pretax profit nearly halved to GBP519 million from GBP1.01 billion in the same period the year before.
Attributable profit for the first quarter came in at GBP288 million, down 59% from GBP707 million a year before.
RBS recorded GBP802 million in impairment losses in the quarter, up from GBP86 million a year before. The credit losses represents 90 basis points of gross customer loans, compared to 11 basis points the year before.
The significant rise, RBS said, was to cover the "more uncertain economic outlook".
Net interest income was down 4.4% year on year at GBP1.94 billion from GBP2.03 billion. Total income was up 3.9% however at GBP3.16 billion.
The bank's net interest margin worsened to 1.89% from 2.07% a year before. The lender's falling margins were blamed on continued structural pressure in the mortgage business, as front book margins remain below back book, and on the contraction of the yield curve.
RBS total loans to customers ended the quarter at GBP351.3 billion, up from GBP306.4 billion at the same point in 2019.
Royal Dutch Shell A shares sunk to the bottom of the FTSE 100, down 6.3%, as HSBC cut the oil major to Hold from Buy. B shares were down 5.6%.
On Thursday, Shell announced its first dividend cut since the second world war as it grapples with lower oil prices.
The Anglo-Dutch company slashed its first-quarter dividend to 16 US cents from 47 cents. Shell's first-quarter current cost of supplies earnings attributable to shareholders, excluding items, were USD2.9 billion, down 46% on a year ago due to a drop in oil, gas and liquefied natural gas prices as well as lower sales volumes.
The oil giant produced 3.7 million barrels of oil equivalent per day, down 1% on a year before.
Ryanair was down 4.5%. The Irish budget airline said it could slash up to 3,000 jobs as it embarks on a restructuring in response to destructive effects the Covid-19 has had pandemic on travel.
Ryanair also took aim at what it labelled as "state-aid doping", to which the likes of airline Deutsche Lufthansa and Anglo-German holiday operator TUI have turned in the face of the ongoing health crisis.
"As a direct result of the unprecedented Covid-19 crisis, the grounding of all flights from mid-March until at least July, and the distorted state aid landscape in Europe, Ryanair now expects the recovery of passenger demand and pricing to 2019 levels will take at least 2 years, until summer 2022 at the earliest," Ryanair explained.
The airline's restructuring may result in 3,000 job losses, mainly with pilots and cabin crew, but also pay cuts as high as 20% and the closure of a number of bases across Europe. The latter measure will be in place until traffic recovers, Ryanair noted.
Dublin-based Ryanair's outlook for its first half and beyond is bleak. Travel restrictions mean its first quarter traffic will be more than 99% lower than initially planned.
It expects traffic of fewer than 150,000 passengers, a fraction of its initial forecast of 42.4 million passengers. It expects to operate fewer than 1% of its scheduled flight programme in April, May and June.
The second quarter, running from July to September, will improve, Ryanair predicted, but its traffic will be a shadow of what it hoped for prior to the pandemic.
Hargreaves Lansdown lost 3.1% as Liberum cut the fund supermarket to Hold from Buy.
Sterling was quoted at USD1.2556 early Friday, down from USD1.2601 at the London equities close on Thursday.
The euro traded at USD1.0958 early Friday, firm on USD1.0874 late Thursday. Against the yen, the dollar was quoted at JPY106.97, flat on JPY106.94.
Gold was at USD1,672.10 an ounce early Friday, lower than USD1,704.48 on Thursday.
Brent oil was trading at USD26.40 a barrel early Friday down slightly from USD26.50 late Thursday.
The economic events calendar on Friday has manufacturing PMI readings from the UK and US at 0930 BST and 1445 BST respectively.
By Paul McGowan; paulmcgowan@alliancenews.com
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