LONDON MARKET CLOSE: Shell Hits FTSE As Markets Eye Virus Resurgence

(Alliance News) - London stocks slipped on Tuesday with oil major Royal Dutch Shell weighing on the blue-chip FTSE 100 index after warning of a hefty impairment charge.

A downwards revision to UK GDP and a local lockdown imposed on the city of Leicester also dented the mood.

The stock market recovery "continues to send flagging signals" amid numerous reopening setbacks, commented Craig Erlam at Oanda.

The FTSE 100 index closed down 56.03 points, or 0.9%, at 6,169.74. The FTSE 250 ended down 79.50 points, or 0.5%, at 17,119.16, while the AIM All-Share closed up just 0.63 of a point at 883.75.

The Cboe UK 100 ended down 0.9% at 10,457.59, the Cboe UK 250 closed down 0.6% at 14,621.97, and the Cboe Small Companies ended down 0.9% at 9,214.85.

The pound was quoted at USD1.2384 at the London equities close Tuesday, up compared to USD1.2271 at the close on Monday.

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 showed.

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.

While the rest of England looks to a further easing of lockdown rules in July, harsher restrictions are coming into force in Leicester following a surge in the number of coronavirus cases.

Non-essential shops will be closed from Tuesday, the day UK Prime Minister Boris Johnson looks to shift focus to the recovery from the pandemic with a multi-billion pound "new deal" for infrastructure projects.

Rising numbers of cases in the East Midlands city – 10% of all positive cases in the country over the past week – mean the planned easing of restrictions on Saturday will not take place, with people have been advised against all but essential travel.

Health secretary Matt Hancock said Leicester's seven-day infection rate was 135 cases per 100,000 – three times that of the next highest city. Hancock said the measures would be kept under review and would not stay in place "any longer than is necessary", adding: "We'll review if we can release any of the measures in two weeks."

"With the UK's Q1 GDP revised lower to -2.2%, and Leicester entering local lockdown, the FTSE was unable to shake its status as the session's worst performer," said Connor Campbell, financial analyst at Spreadex.

In European equities on Tuesday, the CAC 40 in Paris ended down 0.2%, while the DAX 30 in Frankfurt ended up 0.6%.

Over in the US, Arizona's Republican governor shut down bars, movie theatres, gyms and water parks on Monday amid an alarming resurgence of coronavirus cases nationwide.

Meanwhile leaders in several states ordered residents to wear masks in public in a dramatic course reversal. Among those implementing the face covering orders is the city of Jacksonville, Florida, where mask-averse President Donald Trump plans to accept the Republican nomination in August.

Arizona Governor Doug Ducey's order went into effect immediately and will last for at least 30 days. Ducey also ordered public schools to delay the start of classes until at least August 17.

The state is not alone in its reversal. Places such as Texas, Florida and California are backtracking, closing beaches and bars in some cases amid a resurgence of the virus. In New Jersey, Governor Phil Murphy announced on Monday that he is postponing the restarting of indoor dining because people have not been wearing face masks or complying with recommendations for social distancing.

Stocks in New York were mostly higher at the London equities close, with the DJIA flat, the S&P 500 index up 0.7%, and the Nasdaq Composite up 1.2%.

Against the yen, the dollar was trading at JPY107.77 compared to JPY107.71 late Monday.

The euro stood at USD1.1246 at the European equities close Tuesday, against USD1.1243 at the same time on Monday.

The EU on Tuesday agreed to open its borders to 15 countries from July 1, but the US, where the coronavirus is still spreading, will remain excluded.

China made it to the list, which will be updated every two weeks, but on the condition that Beijing do the same for Europeans, a statement said.

US neighbour Canada as well as Japan, Australia, New Zealand and Uruguay were included without conditions on the list which was drawn up by diplomats on Friday, but required final approval. Britain is considered part of the EU during its post-Brexit transition that ends on December 31.

Weighing on London's FTSE 100 on Tuesday was oil major Royal Dutch Shell, 'A' shares closing down 3.9% and 'B' shares down 3.7%.

Shell warned that 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.

The energy giant 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.

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 shares closed down 2.5% on Tuesday.

The Anglo-Dutch firm, 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.

Brent oil was quoted at USD41.66 a barrel at the London equities close Tuesday, firm from USD41.24 late Monday.

Elsewhere in the commodity space, gold prices edged up amid Tuesday's cautious mood. Gold was quoted at USD1,782.27 an ounce at the London equities close Tuesday against USD1,770.31 at the close on Monday.

Back in London, Smiths Group advanced 8.8% after launching a strategic restructuring programme that will cost around GBP65 million and reporting 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. Savings are to "substantially offset costs" in financial 2021 and deliver a full approximately GBP70 million annualised benefit starting in financial 2022.

The FTSE 100-listed engineering business, which has its headquarters in London, promised "further detail" of the restructure along with its annual results due September 24. But it confirmed that job cuts are on the horizon.

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 four months of its second half ended May 31, underlying revenue was up 1%.

Mid-cap Petropavlovsk shed 19%. The gold miner announced the election of a new chair, chief executive and two directors, but said it believes the voting process at its annual general meeting to appoint the new board members was skewed.

"The board believes that the current results have been achieved in a manner which is neither transparent nor fair to shareholders; and would be hugely damaging to the corporate governance and executive management of the company, and accordingly to the interests of the company's shareholders and stakeholders," the company said, adding that it has asked the UK Takeover Panel to probe any breach of rules.

easyJet slipped 0.9% after confirming plans to shed staff and potentially close three of its UK bases.

The budget carrier said it informed UK trade unions BALPA and UNITE of its plans. BALPA earlier on Tuesday said easyJet informed it that 727 UK-based pilots are at risk of redundancy.

The FTSE 250-listed airline said its proposals also include the closure of its London Stansted, London Southend and Newcastle airport bases, though noted these would remain "part of easyJet's route network".

"With many expecting to see a surge in European travel in July, today's news highlights the fact that air travel will likely remain hugely depressed by historical standards. While efforts to streamline the balance sheet have typically been treated with optimism throughout this crisis, today's announcement failed to bolster sentiment given how dramatic their actions are perceived to be," said Joshua Mahony, senior market analyst at IG.

In the UK corporate calendar on Wednesday, there are first quarter results from grocer J Sainsbury and a trading statement from infrastructure construction firm Costain.

The economic calendar on Wednesday has manufacturing PMIs from Japan and China at 0130 BST and 0245 BST respectively, with the same due from Germany, the eurozone and the UK at 0855 BST, 0900 BST and 0930 BST respectively.

UK Nationwide house prices are at 0700 BST and German retail sales at 0700 BST followed by unemployment at 0855 BST. US ADP employment is at 1315 BST with an IHS Markit manufacturing PMI at 1445 BST and the ISM's manufacturing data at 1500 BST.

By Lucy Heming; lucyheming@alliancenews.com

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