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(Alliance News) - Stocks in London ended lower on Wednesday showing a muted reaction as the UK government unveiled a package worth GBP30 billion to help kickstart the domestic economy.
UK Chancellor of the Exchequer Rishi Sunak unveiled a plan three-point "plan for jobs," including bonuses for employers, VAT and stamp duty cuts, home improvement vouchers and eating-out discounts.
The summer statement or 'mini budget' contained up to GBP30 billion of new stimulus measures, however, this was markedly lower than Germany, where Angela Merkel's governing coalition agreed on a EUR130 billion stimulus package last month to help relaunch the country's economy.
The UK chancellor's measures come as part of the government's next stage of its support package. The third act will come in October as part of the Autumn Budget, which is expected to be crucial as the country emerges from lockdown.
The FTSE 100 index closed down 33.74 points, or 0.6%, at 6,156.16. The FTSE 250 ended down 164.80 points, or 1.0%, at 17,185.24, and the AIM All-Share closed down 8.89 points, or 1.0%, at 874.18.
The Cboe UK 100 ended down 0.6% at 613.45, the Cboe UK 250 closed down 1.3% at 14,579.48, and the Cboe Small Companies ended down 0.7% at 9,273.04.
In Paris the CAC 40 ended down 1.2%, while the DAX 30 in Frankfurt ended down 1.0%.
"The Chancellor of the Exchequer has revealed a targeted package of measures that attacks some of the most pressing needs in this recovery. That said, the overall envelope is not particularly large by international comparison and effective spending will be markedly below the headline number. We think that the real challenge will come when the furlough scheme runs out and structural change in the economy due to this pandemic but also the fall-out from Brexit could cause a marked increase in the unemployment rate. We don't think the announced retention bonus will have any impact on those structural forces," said Western Asset Management's Andreas Billmeier.
The pound was quoted at USD1.2575 at the London equities close, marginally lower from USD1.2586 at the close Tuesday.
Sunak stuck firm to the October deadline for the job retention furlough scheme to end but said it would be replaced with a new Jobs Retention Bonus.
Under the scheme, employers who bring back furloughed staff and continuously employ them through to January we be paid a GBP1,000 bonus per employee as long as they are paid at least GBP520 on average a month.
For the housing market, the chancellor confirmed that stamp duty was being abolished on transactions below GBP500,000 until March 31, 2021 - effective immediately. He said the average stamp duty bill will fall by GBP4,500 as a result and nearly nine out of 10 people buying a main home this year will pay none at all.
Large-cap housebuilders Persimmon closed up 0.9%, while Taylor Wimpey ended down 1.8%, Barratt Developments down 1.2 % and Berkeley down 1.3%.
In addition, there was more for the hard-hit hospitality industry as Sunak announced a Value Added Tax cut on food, accommodation and attractions from 20% to 5% from July 15 to January 12.
Analysts at ING explained: "The pound's reaction to Chancellor Sunak's fiscal announcement was fairly muted, given that sterling had already front-run the event yesterday (in terms of gains) after policy details started to emerge ahead of the announcement today.
"While the size of the stimulus announced is modestly larger than expected, in our view it is not significant enough to prompt further GBP gains. The announced measures today do not significantly alter our UK growth outlook, and with the overriding GBP driver (UK-EU trade negotiations) still looking fairly uncertain, more gains in GBP are unlikely."
The euro stood at USD1.1322 at the European equities close, up from USD1.1297 late Tuesday. Against the yen, the dollar was trading at JPY107.47, marginally lower from JPY107.52 late Tuesday.
On the London Stock Exchange, Rolls-Royce ended the best blue-chip performer up 3.7% ahead of the jet engine maker's trading update on Thursday.
Last week, Rolls-Royce said it was in "early stages" of reviewing options to strengthen its balance sheet and recover the business following the Covid-19 pandemic.
Gold miner Fresnillo closed up 2.6% tracking spot gold prices higher. Gold was quoted at USD1,811.86 an ounce at the London equities close, higher against USD1,793.61 late Tuesday.
The precious metal hit an intraday high of USD1,817.98 - its highest level since late 2011. Bullion is up almost 20% so far in 2020 and is within striking distance of 2011′s record high of USD1,920.30 an ounce.
"The commodity has been on the up-and-up since late March, and has built a head of steam in the last month or so. The global indices may regularly be trying to put on a happy face, but the safe haven's gains suggest a lot of anxiety remains," said Spreadex analyst Connor Campbell.
At the other end of the large-cap index, WPP ended worst performer, down 5.4% after Credit Suisse reinitiated coverage of the advertising giant at Underperform.
Stocks in New York were higher at the London equities close shrugging off losses from Tuesday, as investors assess the economic hit from rising coronavirus cases in the US.
The DJIA was up 0.2%, the S&P 500 index up 0.6% and the Nasdaq Composite up 1.1%.
The US neared three million confirmed Covid-19 cases Wednesday, as President Donald Trump downplayed the risks posed by the pandemic and aggressively pushed for schools to reopen.
Several large states, including Texas, Florida and California have rolled back steps to reopen their economies following spikes in coronavirus cases.
However, White House economic advisor Larry Kudlow again ruled out more broad economic shutdowns and said economic trends were solid in much of the country.
"It's a big country, most of it is doing rather well," Kudlow said on CNBC. "Some of it is in trouble here, I get that."
Brent oil was quoted at USD42.86 a barrel at the London close, down from USD43.26 late Tuesday.
"Now past the peak of the summer driving season, investors are skeptical that demand will improve much as the coronavirus continues to hurt demand in some key driving states and as airlines take back some of their optimism on flight increases," explained OANDA analyst Edward Moya.
The economic events calendar on Thursday has China inflation readings overnight, Germany trade data at 0700 BST and the latest US jobless claims figures at 1330 BST.
The UK corporate calendar on Thursday has trading statements from jet engine maker Rolls-Royce and from housebuilders Persimmon and Vistry Group.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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