LONDON MARKET CLOSE: Stocks Show Resilience Against Dire UK GDP Data

(Alliance News) - Stocks in London ended higher on Friday rebounding from sharp losses on Thursday, shrugging off a record monthly decline in UK GDP and second wave Covid-19 fears in the US.

The FTSE 100 index closed up 28.48 points, or 0.5%, at 6,105.18, but ended the week down 3.7%. The blue-chip index closed down 4.0% at 6,076.70 on Thursday.

The FTSE 250 closed up 103.67 points, or 0.6%, at 17,077.34, ending the week down 4.3%. The AIM All-Share closed flat at 865.96, ending the week down 3.4%.

The Cboe UK 100 ended flat at 10,315.31, the Cboe UK 250 closed up 0.5% at 14,684.60 and the Cboe Small Companies ended up 0.6% at 9,687.93.

In Paris the CAC 40 ended up 0.5%, while the DAX 30 in Frankfurt ended down 0.2%.

CMC Markets analyst David Madden said: "Stock markets have rebounded from yesterday's horrendous declines as traders' fears have faded. A portion of the declines that were seen yesterday have been recouped, but stocks are still down since Wednesday's close. The landscape hasn't changed in the past 24 hours as there is still a possibility of a second wave of Covid-19 cases as countries reopen their economies.

"It is possible that yesterday's move was just a knee-jerk reaction to the reports of rising cases, as traders have become accustomed to falling infection rates. Should it be the case that infection rates rise, but only at a modest level, dealers might hold their nerve, which could facilitate a further recovery."

On the London Stock Exchange, Pearson ended the best blue-chip performer, up 12%.

Activist investor Cevian Capital has built a stake in the education publisher, according to a regulatory filing on Thursday. Cevian Capital II holds a 5.4% stake in Pearson, according to the filing, equal to 40.6 million shares.

Informa closed up 6.1%. The business events and publishing company said trading has remained mixed, with the Events division hammered by cancellations due to government-imposed lockdowns across the world, while the Subscriptions unit continues to trade well.

The London-based company said its Subscriptions unit - which makes up 35% of revenue - continues to perform "resiliently". The Events unit - contributing 65% of revenue - is focusing on providing alternative digital services, as no physical product has been offered anywhere in the world due to Covid-19.

Informa noted the Events unit is focusing on "long-term relationships ahead of short-term revenue", but added the return of events in China is now a "real" possibility. The company has scheduled a minimal physical product for June but is now planning to run a number of major events in China from early July, with China Beauty Expo in Shanghai the first scheduled major Informa event to be held post-Covid-19.

easyJet, Ryanair Holdings and International Consolidated Airlines Group's British Airways have launched legal action against the UK government's "flawed" 14-day quarantine policy.

easyJet and IAG ended up 5.9% and 4.8%, respectively, while Ryanair closed up 1.5%.

The airlines said they have asked for a judicial review to be heard "as soon as possible", claiming the measures introduced this week will have a "devastating effect on British tourism and the wider economy". Most international arrivals into the UK have been required to enter a 14-day quarantine since Monday.

The pound was quoted at USD1.2527 at the London equities close, down sharply from USD1.2642 at the close Thursday, as worries over Brexit returned to haunt investors.

The pound had staged a tentative recovery from USD1.2570 levels following UK's worst-ever GDP release that showed the economy shrank at its fastest pace ever recorded in April in the morning, rising back above USD1.26 mark in late morning and early afternoon trade.

The UK economy shrank by a fifth in the month of April, according to the latest figures from the Office for National Statistics.

Gross domestic product slumped 20% month-on-month in April, the biggest monthly fall since the series began - far steeper than the falls of 5.8% and 0.2% seen in March and February respectively. In the three months to April, the economy contracted an "unprecedented" 10% on a sequential basis.

The latest release captures the direct effects of the Covid-19 pandemic and government measures taken to stem its spread.

Robert Alster, head of Investment Services at Close Brothers Asset Management said: "The journey to recovery will not be easy. The OECD has expressed serious concerns about Britain's ability to bounce back from the economic hit, worsened still by the ongoing Brexit negotiations which will come to a head at the end of the year. No new employees can be placed on furlough, but with almost 9 million workers now covered by the Job Retention Scheme, the government's priority will be how to get Britain back to work and, crucially, spending money again."

Sterling turned lower against the buck in the afternoon after the UK formally ruled out an extension to the Brexit transition period.

UK Cabinet Office minister Michael Gove has confirmed the government will not extend the Brexit transition period, after the first ministers of Scotland and Wales called for it to do so.

In a letter to the prime minister, Nicola Sturgeon and Mark Drakeford said exiting the transition period at the end of this year, when the UK economy will just be beginning its recovery from coronavirus, would be "extraordinarily reckless".

But in a tweet on Friday, Gove said he has officially given notice to EU negotiators that the UK Government will not request an extension beyond the December 31 deadline.

The statement was made during a meeting of the EU Joint Committee.

Analysts at ING noted: "Brussels wants the UK to maintain some alignment on EU state aid rules in exchange for tariff-free access to the European market. Britain wants full-scope to support industries in the post-virus recovery. There's also reportedly a view in Westminster that the costs of 'no deal' have already been registered over recent weeks, and that the economic damage would be hidden by the wider Covid-19 shock.

"Economically, 'no trade deal' doesn't look substantially different from the scenario above, given that both would see a substantial decrease in market access. Tariffs will raise additional costs in some specific industries but for the bulk of goods, the real costs come from customs clearance and the potential delays, which also exist under a free-trade agreement."

The euro stood at USD1.1235 at the European equities close, down sharply from USD1.1377 late Thursday, after eurozone industrial production continued to fall steeply in April, data from Eurostat showed.

Industrial production plunged by 17% month-over-month in April following a 12% monthly fall in March and compared to market forecasts according to FXStreet of a 20% drop.

On an annual basis, industrial output in the eurozone collapsed by 28% in April following a drop of 14% in March, while economists expected a fall of 30%.

The monthly drop was the biggest ever recorded in eurozone industrial production and significantly higher than the declines seen in late 2008 and early 2009, during the financial crisis, as coronavirus containment measures forced businesses and factories closures, the EU statistics office said.

Against the yen, the dollar was trading at JPY107.35, firm from JPY107.20 late Thursday.

Stocks in New York were higher at the London equities close, avoiding a second day of massive declines.

The DJIA was up 1.4%, the S&P 500 index up 1.7% and the Nasdaq Composite up 1.6%.

Major indices on Thursday suffered their worst session since March on worries that a resurgence in coronavirus cases in some states will threaten the US economic recovery following shutdowns to stop the virus earlier in the spring.

Stocks were back on the upswing Friday from the opening bell and holding their gains after data from the University of Michigan showed a surprisingly big jump in consumer confidence.

The University of Michigan consumer sentiment index jumped to 78.9 from 72.3 in May, much better than economists had expected.

Moreover, cheap money unleashed by policymakers across the world so far, and confidence the central banks will take more steps to shield major economies from the worst of the fallout have prompted the steep ascent in stocks since the end of March.

OANDA analyst Edward Moya said: "The Bank of Japan should expand their lending program, which will support corporate financing. The Bank of England will throw more stimulus to their domestic economy with a 100-billion-pound increase to their asset-purchase target. The Bank of Russia is also widely expected to ease next Friday, possibly becoming more aggressive with their rate cuts. Brazil central's bank will likely deliver its eight straight rate cut, while the SNB and Norges keep rates steady but reiterate the toolbox is not totally empty.

"The stock market selloff will unlikely be a one-and-done event as Covid-19 continues to intensify in the US and will likely disrupt many states' reopening plans. Nashville reported consecutive increases with new cases above the 14-day trend and will delay their Phase-3 reopening. Oregon saw a record high in cases and Governor Brown is pausing their Phase-1 reopening for a week. The coronavirus is now spreading across America and many states that were not hard hit are seeing outbreaks. The risks of a second wave are still mainly expected to happen in the fall but could happen earlier when most New Yorkers that escaped the city eventually return."

Brent oil was quoted at USD38.54 a barrel at the London close, down from USD38.70 at the close Thursday.

Gold was quoted at USD1,704.02 an ounce at the London equities close, down sharply against USD1,742.15 late Thursday.

The economic events calendar on Monday has China retail sales figures overnight and eurozone trade data at 1000 BST.

The UK corporate calendar on Monday has annual results from eggless cake maker Cake Box Holdings.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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