LONDON MARKET CLOSE: Stocks Down As European Data Gives Reality Check

(Alliance News) - Stocks in London ended lower on Friday as investors digested double-digit falls in economic output due to Covid-19, providing additional evidence that a swift recovery is getting out of reach.

The FTSE 100 index closed down 92.23 points, or 1.5% at 5,897.76, ending the week down 4.6%.

The FTSE 250 ended down 84.40 points, or 0.5%, at 16,932.65, ending the week down 3.1% and the AIM All-Share closed up 3.39 points, or 0.4%, at 885.52, ending the week down 0.5%.

The Cboe UK 100 ended down 1.0% at 590.28, the Cboe UK 250 closed down 0.3% at 14,406.16, and the Cboe Small Companies ended up 0.3% at 9,119.35.

In Paris the CAC 40 ended down 1.4%, while the DAX 30 in Frankfurt ended down 0.5%.

"The market's attempt at a rebound was all but gone by Friday afternoon, the Western indices wilting in the face of a 2-day GDP reality check. The situation was even worse for the FTSE, the UK index is trading [below] 5,930, a level last seen in the middle of May. Though it has been erring lower for the past couple of weeks, it is the losses encountered on Thursday and Friday that really did the damage. And this is even before the UK is served its own second-quarter GDP damnation," said Spreadex analyst Connor Campbell.

France's economy contracted by a record 13.8% in the second quarter, Spain slumped 18.5%, Portugal contracted 14% and Italy shrank 12%.

Europe as a whole was hammered by its sharpest recorded contraction in the second quarter, with GDP down 12% in the eurozone and 12% across the full European Union.

"The hard part of this recovery is set to start about now. First of all, slightly higher trending new Covid-19 cases increase the risk of reversed reopenings, and we're already seeing local signs of that. Secondly, from this point on, cautious increases in unemployment and bankruptcies and weak investment will bring to light more characteristics of a general economic slump. These factors are likely to drag on for some time, making a swift recovery to pre-corona levels of GDP out of the question," said analysts at ING.

In the FTSE 100, Avast closed up 2.9% after the digital security and privacy products maker launched a new cybersecurity product, Avast Business Small Office Protection. Avast said Avast Business Small Office Protection offers real-time cyber protection for small business and secures up to ten devices per business.

Shares in Avast are up 27% so far in 2020 with demand for its services increasing, as more people turn to remote working during the coronavirus pandemic.

London Stock Exchange Group closed up 1.7% after the stock exchange operator acknowledged it was mulling selling Borsa Italiana to ease the process of receiving the regulatory approval for its Refinitiv acquisition.

The news comes following the European Commission's Phase II review of the Refinitiv takeover.

Revenue in the six months to June 30 climbed 3.9% to GBP1.06 billion but pretax profit slipped 0.3% to GBP362 million from GBP363 million, with expenses up 16% at GBP526 million. The six-month period was marked by volatility in equity markets due to the Covid-19 pandemic.

"In the context of the European Commission's Phase II review, London Stock Exchange Group confirms that it has commenced exploratory discussions which may result in a sale of LSEG's interest in MTS or potentially the Borsa Italiana group as a whole," LSEG said.

At the other end of the large caps, International Consolidated Airlines ended the worst performer, down 9.0% after the British Airways parent swung to a loss in its first half as the malaise in the travel sector continued in its second quarter.

IAG said revenue for the three months to June 30 was GBP703 million, plunging 89% year-on-year. Its pretax loss for the quarter was GBP2.32 billion, swinging from a profit of GBP921 million.

Looking ahead, Chief Executive Willie Walsh said: "We continue to expect that it will take until at least 2023 for passenger demand to recover to 2019 levels."

IAG also confirmed plans to raise EUR2.75 billion from a pre-emptive share subscription. Largest shareholder Qatar Airways, with a 25% stake, has backed IAG's plans to bolster its coffers and has proposed two directors to join IAG'S board as non-executive directors.

NatWest Group closed flat after the company, formerly known as Royal Bank of Scotland, continued a common theme among the big UK banks, reporting a loss for the first half of 2020 following a sharp rise in impairment losses.

In the six months to June 30, NatWest sunk to an operating pretax loss of GBP770 million compared to a GBP2.69 billion profit a year before. NatWest recorded a loss attributable to shareholders of GBP705 million from a GBP2.04 billion profit a year before. Impairment losses totalled GBP2.86 billion in the first half, versus GBP323 million a year prior.

The state-backed lender upped its impairment provisions at the end of the first half to GBP6.1 billion from GBP4.2 billion at the end of March and GBP3.7 billion at the end of 2019. Profit before impairment losses was GBP2.09 billion, down from GBP3.02 billion the year before.

Peers Lloyds Banking Group and Barclays ended up 0.9% and 2.3% respectively. Akin to NatWest, both lenders took multi-billion pound charges for possible bad loans earlier this week.

Analysts at the Share Centre commented: "Banks were reporting on a period which is unprecedented in our lifetime. The economy and businesses had to a certain extent shut-down, so they were hardly likely to paint a positive picture. Analysts had of course been crunching the numbers with the focus on the amount each group would set aside for bad debts and it's the fact that the numbers were worse than forecast which caused the slide in the share prices.

"To sum up then, balance sheets are stronger than when the financial crash hit in 2008, but there appears to be very little for investors to get excited about at the moment. They probably won't need reminding; Brexit, Covid, interest rates on the cusp of being negative and consumer confidence are barriers that will not be scaled quickly."

The pound was quoted at USD1.3125 at the London equities close, up sharply from USD1.3036 at the close Thursday. Sterling is up around 3.2% against the greenback this week alone and has continued to trade at its highest levels since March.

The euro stood at USD1.1820 at the European equities close, up from USD1.1781 late Thursday. A tweet from US President Donald Trump on Thursday suggesting delaying November's elections also jolted investors, helping send the euro soaring to a two-year peak at USD1.1909 in early trade.

Against the yen, the dollar was trading at JPY105.77, up from JPY105.08 late Thursday.

Stocks in New York were mostly lower at the London equities close, amid blowout earnings by powerhouse technology companies on Thursday and as the market monitored messy Washington talks on another relief spending package.

The DJIA was down 0.6%, the S&P 500 index down 0.3%, but the Nasdaq Composite is up 0.3%.

Tech giants Amazon, Alphabet, Apple and Facebook all reported better-than-expected results after the market closed Thursday, validating surging valuations built on expectations the sector would be a big winner amid the pandemic upheaval.

The tech results boosted sentiment even amid anxiety over a partisan fight in Washington over the scope of another fiscal package to support the coronavirus-battered US economy.

Supplemental unemployment benefits provided in the CARES Act expire Friday but Republicans and Democrats remain far apart on what should come next and the Republican-controlled Senate adjourned for the weekend.

Brent oil was quoted at USD42.94 a barrel at the London close, up from USD42.72 at the close Thursday.

Gold was quoted at USD1,973.70 an ounce at the London equities close, higher from USD1,941.55 late Thursday. The precious metal hit a fresh record high of USD1,982.76 in early trade.

"Safe-haven demand remains strong as Congress and the White House continue to struggle to break the impasse on extending emergency unemployment benefits. Gold will continue to shine bright as real yields continue to fall deeper into negative territory, virus surges will keep economic recoveries limited, and the stimulus trade will not go away until the labor market bounces strongly back," said OANDA market analyst Edward Moya.

The economic events calendar on Monday has manufacturing PMI readings from France, Germany, the eurozone and the UK at 0850 BST, 0855 BST, 0900 BST and 0930 BST.

The UK corporate calendar on Monday has interim results from Asia-focused bank HSBC Holdings and insurer Hiscox. There is also annual results from online estate agent Purplebricks Group.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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