(Alliance News) - Stock prices in London were mixed at midday on Tuesday as investors digested downbeat UK economic figures and a warning from Royal Dutch Shell over the financial consequences of low oil prices.
The FTSE 100 was down 30.34 points, or 0.4%, at 6,195.43. The mid-cap FTSE 250 index was flat at 17,206.53. The AIM All-Share index was up 2.01 points, or 0.1% at 881.11.
The Cboe UK 100 index was down 0.7% at 10,474.43. The Cboe 250 was down 0.2% at 14,676.10, and the Cboe Small Companies was down 0.4% at 9,263.59.
In Paris the CAC 40 was flat, while the DAX 30 in Frankfurt was up 0.3%.
"The biggest quarterly drop in UK GDP in more than a generation helped contribute to a downbeat feel for the markets on Tuesday," said AJ Bell's Russ Mould. "After a quarter which has seen the best performance for global equities in more than a decade, reflecting the sharp recovery from the lows seen in March, the next few months could prove a lot more complicated."
On the London Stock Exchange, Smiths Group was the best blue-chip performer, up 7.0% after the engineer launched a strategic restructuring programme that will cost around GBP65 million and said revenue was higher in the ten months to the end of May.
The restructuring is group-wide and will have an operating cash cost of approximately GBP65 million spread across financial 2020 - which ends July 31 - and financial 2021. However, savings will "substantially offset costs" in financial 2021 and deliver a full approximately GBP70 million annualised benefit starting in financial 2022.
Turning to trading, Smiths said in the ten months ended May 31, underlying revenue from continuing operations was up 2% and year-to-date revenue increased 6%. For the first four months of its second half, underlying revenue was up 1%.
Standard Life Aberdeen was up 3.5% after the fund manager said Stephen Bird, a former Citigroup senior executive. will succeed Keith Skeoch as chief executive as part of a "wide-ranging succession planning exercise".
Bird will initially join the company's board as CEO-designate on Wednesday. Following a handover period and subject to regulatory approvals, Bird will assume CEO role at which point Skeoch will stand down after some five years as CEO and 14 years as a director.
Bird was CEO of the Global Consumer Banking division at Citigroup from 2015 until retiring in November 2019. Bird had been touted as a potential candidate for the top job at HSBC Holdings, a role that eventually went to Noel Quinn.
At the other end of the large-cap index, Royal Dutch Shell was the worst performer, with its 'A' and 'B' shares down 2.6% and 2.3% respectively. The oil company warned it will take an impairment charge of up to USD22 billion in the second quarter of 2020 due to the significant disruption to energy markets caused by the Covid-19 pandemic.
Shell said that a more sombre view on oil and gas prices and refining margins means it will take post-tax impairments of USD15 billion to USD22 billion in the second quarter of 2020. It said there will be no cash impact from these impairments. The impairments are expected to have a pretax impact of USD20 billion to USD27 billion.
The impairment charges stem from Shell's revised view of mid-to-long-term commodity prices and refining margins.
The Anglo-Dutch oil major, which is London's largest company by market capitalisation, expects Brent oil to average USD35 a barrel in 2020, rising to USD40 in 2021, USD50 in 2022 and USD60 in 2023. It expects USD60 to be the long-term average.
Peer BP also had warned shareholders earlier this month that it would write down the value of its assets by between USD13.0 billion and USD17.5 billion. BP was down 1.8%.
The pound was quoted at USD1.2274 at midday, flat from USD1.2271 at the London equities close on Monday, after data showed the UK economy recorded its largest fall since 1979 in the first quarter.
The UK economy contracted by more than first estimated between January and March, dropping 2.2% in the joint largest fall since 1979, the Office for National Statistics said. On an annual basis, the UK economy contracted 1.7% in the first quarter of 2020 over the same quarter of the previous year. This was a downward revision of 0.1 percentage point from the previous estimate of a 1.6% decline. It was also the biggest fall since the third quarter of 2009, the ONS said.
On a quarterly basis, UK gross domestic product shrank by 2.2% in the first three months of 2020, after showing no growth in the previous period and compared with a preliminary estimate of a 2.0% decline. The ONS said this was the joint largest fall in UK GDP since the third quarter of 1979, as the coronavirus lockdown from mid-March forced non-essential businesses to close and consumers to stay at home.
UK Prime Minister Boris Johnson headed to the UK's Black Country to announce a multi-billion pound "new deal" for infrastructure projects to help stimulate the nation's recovery from the coronavirus pandemic.
Channeling former US President Franklin D Roosevelt, Johnson, speaking in the West Midlands, laid out plans to accelerate GBP5 billion on infrastructure projects as part of a 'new deal'.
Roosevelt's 1933 New Deal brought about the concept of a government-regulated economy with substantial and immediate economic relief, along with widespread industrial reform to rebuild the US after the Great Depression.
Fidelity International's Tom Stevenson highlighted the scale of the challenge ahead is vast, and the big question facing the UK government is whether the measures it proposes will be enough to revive the economy.
"What really matters going forward is the health and resilience of the economy and the well-being of the people that live and work within it. The outlook for shares is ultimately dependent on multiple factors, a key one of them being fiscal and monetary support for businesses. It's therefore, not surprising that support for further government-led measures goes hand in hand with investors' willingness to accept cuts or suspensions of dividend payments for the sake of the future survival and recovery of UK businesses and the economy. The investors in our research also understand that growth, by itself, is meaningless if it is achieved at the expense of the economy that supports it and of people's mental and physical health," Stevenson said.
The euro stood at USD1.1205 at midday, down from USD1.1243 at the European equities close Monday.
On the economic front, eurozone consumer price inflation edged higher in June, data from Eurostat showed, as economies on the continent reopened.
Euro area annual inflation is expected to be 0.3% in June, accelerating from 0.1% in May, according to a flash estimate from Eurostat. The reading beat market expectations for an 0.1% rise, though remains historically weak and well short of the central bank's target.
The European Central Bank aims at inflation rates of below, but close to, 2.0% over the medium term.
Robert Alster, head of Investment Services at Close Brothers said: "Covid-19 has simply exacerbated the EU's struggle to deliver inflation - the ECB is now not expected to hit its 2% target for at least another five years, and perhaps not even for a decade. With sectors slowly opening up, consumer spending should increase and we may see some inflationary pressure, but it's unlikely to have a particularly notable effect for some time."
Against the yen, the dollar was trading at JPY107.75 in London, flat from JPY107.71 late Monday.
Stocks in New York look set to open lower amid fears that a rise in Covid-19 infections will slow the pace of business re-openings.
The DJIA was pointed down 0.3%, the S&P 500 index down 0.1% and the Nasdaq Composite down 0.2%.
More US governors are walking back on reopening plans, with New Jersey Governor Phil Murphy saying the state will delay the resumption of indoor dining which was originally set for Thursday,
Brent oil was quoted at USD41.42 a barrel at midday, firm from USD41.24 at the London equities close Monday.
Gold was quoted at USD1,770.00 an ounce, soft against USD1,770.31 late Monday.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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