(Alliance News) - London stock prices slumped at the open on Thursday on gloomy comments from US Federal Reserve Chair Jerome Powell, who warned that Covid-19 could cause "lasting damage" to the economy.
Though the FTSE 100 was doused in red in early dealings, shares in Hargreaves Lansdown rallied as the fund investment platform posted encouraging trading during the pandemic.
The FTSE 100 index was down 66.68 points, or 1.1%, at 5,837.37 early Thursday. The mid-cap FTSE 250 index was down 142.34 points, or 0.9%, at 15,735.78. The AIM All-Share index was down 0.5% at 815.90.
The Cboe UK 100 index was down 1.1% at 9,865.86. The Cboe 250 was down 0.9% at 13,373.48, and the Cboe Small Companies down 0.3% at 8,841.67.
In mainland Europe, the CAC 40 in Paris and DAX 30 in Frankfurt were both 1.4% lower early Thursday.
"A dose of reality from Federal Reserve Chair Jerome Powell overnight has brought stocks crashing lower," said Fiona Cincotta at City Index.
"Doom and gloom, Jerome Powell spoke of an extended period of weak growth, pouring cold water over the V-shaped recovery fantasy that had been spurring the markets higher. Fears of a second wave of the virus are lingering stubbornly as economies reopen and clusters of new outbreaks are appearing. Adding to traders' angst were comments from the WHO, that coronavirus may never disappear," she said.
Fed Chair Powell on Wednesday said the central bank is not considering using negative interest rates as a means to curtail economic damage caused by the coronavirus outbreak.
Speaking at the Peterson Institute for International Economics in Washington DC via webcast, the Fed chief said negative interest rates are not under consideration, quelling speculation the central bank would push US rates below zero.
Powell also said crisis spending measures to confront the coronavirus pandemic are costly but worth the risk if they avoid even worse economic damage
As the shutdowns drag on, they could cause "lasting damage" to the US economy and more policies may be needed to deal with that possibility, including spending beyond the nearly USD3 trillion already approved by Congress, he warned.
His comments came as a northeastern Chinese city partially shut its borders, cut off transport links, and closed schools after the emergence of a local Covid-19 cluster that has fuelled fears about a second wave of infections in China.
Authorities in Jilin, with a population of more than four million, suspended bus services and said it will let residents leave the city only if they have tested negative for Covid-19 in the past 48 hours and complete an unspecified period of "strict self-isolation".
Meanwhile, in South Korea, a spike of new cases driven by a nightclub cluster in Seoul's Itaewon district forced authorities to delay this week's planned re-opening of schools.
And two people in Hong Kong tested positive for coronavirus, officials said, ending a 24-day run of no new local cases that saw the city begin to ease social distancing regulations. The financial hub was on course for 28 days of no local transmissions – a yardstick often used by epidemiologists to judge if an outbreak has been defeated.
US President Donald Trump has called on governors to reopen schools that were closed because of the coronavirus while taking issue with top infectious diseases expert Anthony Fauci's caution against moving too quickly in sending students back to class.
Fauci had urged caution in testimony before a Senate committee on Tuesday, although he made clear that he believes reopening decisions will likely differ from one region to the next.
In Asia on Thursday, the Japanese Nikkei 225 index ended down 1.7%. In China, the Shanghai Composite closed down 1.0%, while the Hang Seng index in Hong Kong is down 1.3% in late trade.
Sterling was quoted at USD1.2205 early Thursday, down from USD1.2222 at the London equities close on Wednesday. The euro traded at USD1.0809 early Thursday, lower than USD1.0845 late Wednesday.
The safe haven Japanese yen rose amid the risk-off sentiment. Against the yen, the dollar was quoted at JPY106.81, down from JPY107.11.
Gold was quoted at USD1,716.30 an ounce early Thursday, flat on USD1,714.70 on Wednesday. Brent oil was trading at USD29.90 a barrel, up against USD29.45.
Amid broad market losses on Thursday, Hargreaves Lansdown surged 9.7%. The FTSE 100 constituent said it intends to make payouts in line with its dividend policy for the current financial year as it "performed strongly" in the first four months of calendar 2020.
In the four months to April 30, Hargreaves recorded net new business of GBP4.0 billion and added 94,000 new clients. Year-to-date total revenue was up 13% to GBP448.1 million, supported by record dealing volumes.
Assets under administration fell to GBP96.7 billion at the end of April from GBP105.2 billion at the end of 2019.
"This is a strong rebound from the difficult macro and political environment for retail investment flows during the first half of the financial year," the fund supermarket said.
Hargreaves Lansdown's financial year ends June 30.
Net new business growth was driven by "the usual factors" of clients using their tax allowances during the ISA season, ongoing wealth consolidation onto its platform from existing clients, and flows into cash management service 'Active Savings'. This growth was further accelerated by significant market falls in early March, as existing clients added money to their accounts and new clients joined Hargreaves Lansdown "to take advantage of the opportunity to invest at lower prices".
Housebuilders were towards the other end of the blue-chip index in early trade, with Barratt Developments down 2.6%, Persimmon down 2.3% and Taylor Wimpey down 1.9%.
A report from surveyors suggested that house prices could take longer to recover than sales now that England's property market has been re-opened for business.
The Royal Institution of Chartered Surveyors said feedback suggests that a recovery in house prices could take a little while longer than a bounce back in sales levels, with property professionals suggesting, on average, prices would take 11 months to recover, compared with nine months for sales.
The findings were contained in Rics's UK-wide April survey, which said 35% of property professionals believed prices could be left up to 4% lower on the re-opening of the housing market, while more than 40% thought prices could fall by more than 4%.
Persimmon on Thursday said it will open its sales offices in England on Friday, with social distancing and hygiene measures in place.
Persimmon began a phased return to work in England and Wales on April 27, and the process is continuing smoothly and to plan, it said, with the week beginning May 4 seeing 65% of production capacity restored. The group's businesses in Scotland remain shut however.
WH Smith was down 2.6% after it reported a drop in April sales due to Covid-19.
Prior to the onset of the virus, the retailer said it had a good first half. Revenue was up 7% in the six months to February to GBP747 million, though down 1% on a like-for-like basis.
The travel unit - comprising shops in train stations and airports selling snacks and magazines - saw revenue growth of 19%, or 2% like-for-like, while the high street arm saw a 5% fall in sales, down 4% on a like-for-like basis.
Pretax profit for the half slipped to GBP63 million from GBP65 million a year ago.
"There was very little impact of Covid-19 on our first half results, however inevitably the performance in the second half will be very different," said Chief Executive Carl Cowling.
Covid-19 has taken a toll on the firm since March, as governments imposed travel restrictions and stay-at-home orders in order to stem the virus's spread.
In April, group total revenue was down 85% on the same period last year, as expected, with travel revenue down 91% and high street revenue down 74%.
At the bottom of the FTSE 250 was Stagecoach, down 8.7% after Citigroup cut the transport operator to Sell from Buy.
The economic events calendar on Thursday has US jobless claims at 1330 BST.
By Lucy Heming; lucyheming@alliancenews.com
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