(Alliance News) - UK shares dropped at the open Monday, despite central banks around the world following the lead of the US Federal Reserve in taking drastic action to stave off an economic meltdown cause by the virus pandemic.
Federal Reserve Chair Jerome Powell warned on Sunday that the US economy is likely to show the impact of the new coronavirus pandemic in the April-June period, with business and manufacturing affected. Economic activity in the second quarter will be "weak," however, the chance of recession this year will depend on how soon the pandemic impact can be contained, Powell said in a press conference following the rollout of emergency measures.
Powell said the Fed does not believe negative interest rates will be appropriate, but said fiscal measures by the government are "critical" to respond to the economic damage.
The Fed on Sunday made its second emergency rate cut in less than two weeks, lowering the benchmark borrowing rate to a range of 0.00%-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, making it easier for them to borrow from the Fed and urging them to use it to help businesses and households. It also removed bank reserve requirements to allow them to use cash backstops to meet unexpected funding needs.
Also, in joint action coordinated with the European Central Bank, Bank of England, Bank of Japan, Bank of Canada and the Swiss National Bank, central banks moved to counteract global "dollar funding pressures", Powell said.
"The swap lines are available standing facilities and serve as an important liquidity backstop to ease strains in global funding markets," a joint statement from the central banks said.
The BoJ followed the Fed with a series of emergency monetary policy measures to shore up the world's third-largest economy, as the coronavirus pandemic threatens a global recession.
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 Japanese central bank 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.
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".
Here is what you need to know at the London market open Monday:
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MARKETS
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FTSE 100: down 4.6% at 5,119.52
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Hang Seng:down 4.1% at 23,047.75
Nikkei 225: closed down 2.5% at 17,002.04
DJIA: closed up 1,985.00 points, 9.4%, at 23,185.62
S&P 500: closed up 9.3% at 2,711.02
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GBP: down at USD1.2347 (USD1.2392)
EUR: up at USD1.1166 (USD1.1075)
Gold: sharply up at USD1,532.90 per ounce (USD1,356.80)
Oil (Brent): down at USD32.09 a barrel (USD33.07)
(changes since previous London equities close)
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ECONOMICS AND GENERAL
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Monday's Key Economic Events still to come
1100 GMT Ireland goods exports and imports
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UK Prime Minister Boris Johnson will discuss strengthening coronavirus-tackling measures with officials and could make a decision on shielding elderly citizens, banning mass gatherings and household isolation. Johnson will chair an emergency meeting of the Cobra committee on Monday afternoon before addressing the first of the daily press conferences being planned to update the public on Covid-19. It comes as the Guardian reported on a Public Health England briefing which warned health chiefs the epidemic in the UK could last until spring next year and could lead up to 7.9 million people being admitted to hospital. As the UK death toll reached 35 on Sunday, Health Secretary Matt Hancock said over-70s could be told to stay home for up to four months within the "coming weeks". Johnson is expected to discuss the isolation proposal, as well as banning mass gatherings and isolating entire households if one member shows symptoms, during the emergency meeting.
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UK retail footfall slumped, numbers showed, with shopping centres hardest hit during the wettest February on record. According to the British Retail Consortium-Shopper Trak monitor, total retail footfall in the UK was down 2.0% annually in February. Footfall in February fared worse than the three-month average decline of 0.8% and the 12-month average slip of 0.3%. Storms Ciara, Dennis and Jorge swept the UK, leading to a spate of flood warnings in February. BRC Chief Executive Helen Dickinson said: "Multiple storms took their toll on footfall this February, particularly for shopping centres and high streets. The decline was less marked for retail parks, which provide easy parking and offered some salvation from the rain."
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UK house prices in March jumped to highs not seen since December 2016, according to the latest Rightmove house price index. Prices increased 3.5% year-on-year in March, hitting a record of GBP312,625 and beating the previous record set in June 2018 by GBP3,186. This is the highest annual rate of price growth since December 2016. The surge in average asking price of property was fuelled by strong buyer demand and lack of supply, Rightmove explained.
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BROKER RATING CHANGES
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CITIGROUP RAISES HSBC HOLDINGS TO 'NEUTRAL' ('SELL')
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JEFFERIES RAISES J SAINSBURY TO 'BUY' ('HOLD')
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JEFFERIES CUTS ROYAL DUTCH SHELL TO 'HOLD' (BUY) - PRICE TARGET 1140 (2470) PENCE
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COMPANIES - FTSE 100
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International Consolidated Airlines Group said it is implementing further initiatives - following a raft of route suspensions - in order to combat the "challenging market environment" caused by the virus pandemic. 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.
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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.
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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.
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Anglo-German tour operator TUI 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". It also said it was withdrawing its profit forecast for the current financial year.
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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.
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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.
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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.
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COMPANIES - FTSE 250
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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.
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COMPANIES - OTHER MAIN MARKET AND AIM
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Old Mutual reported a drop in total annual profit, but profit increased after excluding the distribution of Quilter and unbundling of the company's Nedbank stake. Pretax profit from continuing operations in 2019 rose 63% to ZAR13.80 billion from ZAR8.45 billion in 2018. This was due to an increase in non-banking investment return to ZAR86.70 billion from ZAR20.51 billion, taking total revenue and other income up 60% to ZAR176.12 billion from ZAR109.88 billion. However, its profit after tax, including discontinued operations, was considerably lower at ZAR9.66 billion compared to ZAR42.71 billion the year before after its managed separation in 2018. Profit after tax attributable to equity holders of the parent fell 74% to ZAR9.39 billion from ZAR36.57 billion, in line with the expected fall of between 76% and 74%. Old Mutual's separation, which completed in October 2018, involved the unbundling of 32% of its Nedbank stake and spin-off of its wealth management business as Quilter. Old Mutual still holds a 19.9% stake in lender Nedbank, while Quilter was listed on London and Johannesburg.
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COMPANIES - INTERNATIONAL
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US' airlines have announced drastic reductions in flights after US President Donald Trump's administration banned foreign travellers arriving from Europe. American Airlines said it would reduce all international capacity by 75%. It also said domestic service would be reduced by 20% in April compared to last year. Its competitor Delta said it would "significantly reduce its US to Europe flying beginning Monday, March 16, following the US government directive restricting travel between the US and Europe." Southwest Airlines said it "will likely make service reductions based on demand." The restrictions on travel from Europe took effect at midnight Friday and were later extended to Britain and Ireland as of Tuesday.
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Sportswear firm Nike and yoga wear retailer lululemon Athletica became the latest companies to close stores globally due to Covid-19. Nike said it will close stores in "multiple countries" including the US, Canada, Australia and New Zealand. It added that it will also close stores in western Europe. lululemon said it will close all of its stores in North America and Europe from Monday until March 27. The announcements from the two companies follows that of Apple Inc, which said it will shut all of its retail stores outside of China for two weeks to help control the spread of the coronavirus.
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Monday's Shareholder Meetings
Plant Health Care (re authority to issue shares)
Aston Martin (re rights issue)
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By Tom Waite; thomaslwaite@alliancenews.com
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