(Alliance News) - Stock prices in London continued to slide at midday on Thursday amid concern that a revival in inflation might hold back economic recovery, while UK banks were lower after Barclays annual results disappointed investors.
London's blue-chip index was down 51.34 points, or 0.7%, at 6,659.56. The FTSE 250 index was down 44.92 points, or 0.3%, at 21,103.97, and the AIM All-Share index was flat at 1,222.95.
The Cboe UK 100 index was down 0.1% at 662.81 points. The Cboe 250 was down 0.1% at 18,662.02. The Cboe Small Companies was trailing, down 0.9% at 1,212.36.
The CAC 40 index in Paris was down 0.4% and Frankfurt's DAX 30 was 0.1% lower.
"It has been a lacklustre morning so far as traders continue to be a little cautious about US government bond yields, even though the closely watched 10 year yield has dipped. Like with yesterday, there are minor concerns that US yields could spike due to chatter that inflation is set to rise because of all the various stimulus packages. Upward moves in yields is likely to spark speculation about higher interest rates - something that central banks don't even want to think about for the foreseeable future," said CMC Markets analyst David Madden.
In the FTSE 100, Ashtead Group was the best performer, up 3.1% after Goldman Sachs started coverage on the equipment rental firm with a Buy rating, saying the equipment rentals firm offers strong medium-term growth potential, despite the stock trading at record highs.
"We think there is room for further re-rating as we believe we are at the beginning of an upgrade cycle supported by improving cyclical trends," analysts at the US bank said.
At the other end of the large-caps, Smith & Nephew was still the worst performer, 5.1% lower, but recouping some of its earlier losses. The medical devices maker reported a fall in annual earnings, as the coronavirus pandemic caused elective surgical procedures to be put on hold.
For 2020, revenue was down 11% to USD4.56 billion from USD5.14 billion in 2019, and trading profit fell sharply to USD683 million from USD1.17 billion. The company declared a full-year dividend of 37.5 US cents per share, unchanged from 2019.
Looking ahead to 2021, Smith & Nephew said its outlook reflects the likely continuation of Covid-19 effects during the first half of 2021 and the uncertainty regarding the timing and pace of recovery.
Imperial Brands, GlaxoSmithKline, BP and Royal Dutch Shell 'A' and 'B' shares were down 5.0%, 3.0%, 2.4%, 2.3% and 2.2% respectively. The stocks went ex-dividend, meaning new buyers no longer qualify for the latest payout.
Shell had said Wednesday it has agreed to sell Duvernay shale light oil assets in Canada to Crescent Point Energy. Toronto-listed Crescent will pay USD707 million for the assets, USD550 million in cash and USD157 million worth of shares in the company.
Shares in UK banks were lower after Barclays kicked off sector earnings season. NatWest Group reports on Friday and Lloyds Banking Group on Wednesday next week.
NatWest was 2.5% lower. The Financial Times reported that the UK state-backed lender is gearing up to gradually withdraw from the Republic of Ireland, with the aim of freeing up capital and moving completely to the UK market.
Lloyds was off 3.8%.
Barclays was down 4.7% after reporting a drop in annual earnings - with profit falling by almost a third in 2020.
However, Barclays said it will resume dividend payments after the Bank of England lifted its ban on shareholder distributions in December.
For 2020, Barclays posted net income of GBP21.77 billion, up 1% from GBP21.63 billion in 2019, as net interest income fell 14% to GBP8.12 billion from GBP9.41 billion.
Barclays booked GBP4.84 billion in credit impairments in 2020, more than doubled from GBP1.91 billion in 2019.
Pretax profit sank 30% to GBP3.07 billion from GBP4.36 billion. However, the figure beat company-compiled consensus which forecast pretax profit of GBP2.81 billion.
Barclays declared a dividend of 1.0 pence for 2020, down from 3.0p paid in 2019. In addition, Barclays said it intends to initiate a share buyback of up to GBP700 million, which is expected to commence in the first quarter of 2021.
"On the face of it you might have expected a round of applause for Barclays fourth-quarter results which were significantly better than forecast and came with the extra cherry of a reinstated dividend, bolstered by a share buyback. Instead the company got the cold shoulder from the market as attention was drawn by large provisions on Covid-related bad debt and a warning of a continuing impact through the course of 2021," said AJ Bell's Russ Mould.
"While allowing banks to pay dividends for the year just gone, the regulator has stipulated that any dividends for 2021 have to be accrued rather than doled out, at least until it's had a chance to reassess the position the economy and financial situation is in over the summer. In other words there's no absolute guarantee the usual first-half dividend will be paid,'' Mould added.
The dollar was lower against major counterparts after dovish meeting minutes from the US Federal Reserve. The pound was quoted at USD1.3945 at midday Thursday, up sharply from USD1.3845 at the London equities close Wednesday.
The euro was priced at USD1.2070, higher against USD1.2036. Against the yen, the dollar was trading at JPY105.64, down from JPY105.82.
The US economy is "still far" from the Fed's goals, the minutes released on Wednesday showed, and it is likely to take "some time" before further progress towards the central bank's employment and inflation targets is achieved.
Analysts at ActivTrades said: "After gaining ground to other major currencies during the first half of the week, the US dollar is on the back foot during the start of Thursday's trading session. This change in dynamic came after the publication of the minutes for the Federal Reserve's last meeting, where it became clear that despite the central bank's optimistic expectations for economic growth in 2021, it has no intention to review its accommodative monetary policy or purchase program.
"The topic of inflation has recently been trending amongst investors, with many selling low coupon bonds and driving a rise in yields and subsequently increasing dollar demand, as they moved to price in a potential change of stance from the Fed. However, the Fed has no such concerns and, according to the minutes published yesterday, appears determined to maintain its current course of very low interest rates and large bond purchases, which creates scope for further dollar weakness.''
Brent oil was quoted at USD64.56 a barrel Thursday at midday, up sharply from USD63.53 late Wednesday, as US refining and extraction capacity remains shuttered due to deadly wintry conditions in Texas. The North Sea benchmark had breached the USD65 mark for the first time in over a year in early trade. The US benchmark WTI spot price was quoted USD61.45, higher against USD60.39.
Texas Governor Greg Abbott directed the Lone Star state's natural gas providers not to ship outside the state until Sunday and asked the state energy regulator to enforce the export ban.
"Oil prices rose to fresh 13-month highs as traders bet shut-ins in Texas will affect oil producers and refiners for a while longer. It's estimated that US crude output is down by as much as 3.5 million barrels per day as freezing temperatures and power outages have hit the Permian Basin," said Markets.com analyst Neil Wilson.
Gold was trading at USD1,786.25 an ounce, higher versus USD1,774.53 at the London equities close on Wednesday.
US stock market futures were pointed to a lower open as US lawmakers open a hearing Thursday seeking answers on the recent stock market frenzy that caused dizzying moves in the value of little-known shares and prompted calls for tougher Wall Street regulations.
The Dow Jones Industrial Average was called down 0.3%, the S&P 500 down 0.5% and the Nasdaq Composite down 0.8%.
The House Financial Services Committee was to hear from witnesses playing a role in the volatility affecting video game retailer GameStop and other companies in recent weeks. The unprecedented volatility prompted calls for regulators to review the role of social media, hedge funds and trading platforms which may manipulate the market.
In prepared testimony, Robinhood CEO Vladimir Tenev defended the actions of his company which enables free trades to small investors.
"Any allegation that Robinhood acted to help hedge funds or other special interests to the detriment of our customers is absolutely false and market-distorting rhetoric," Tenev said.
In the economic calendar for Thursday, there is US initial jobless claims at 1330 GMT.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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