LONDON MARKET CLOSE: Stocks Sink As Fed Gives Markets Reality Check

(Alliance News) - Stocks in London ended sharply lower on Thursday following sobering comments from the Federal Reserve on the outlook for the world's largest economy and a rise in new coronavirus cases in the US.

After keeping interest rates unchanged at historic lows, the Fed laid out its view Wednesday that the US economy would take time to fully recover from the worst global emergency in generations.

In a statement, the US central bank warned the crisis "poses considerable risk to the economic outlook over the medium term", forecasting a 6.5% contraction this year and unemployment of 9.3%.

Fed chief Jerome Powell warned that "the path of the economy is highly uncertain", while the bank added it will keep rates at zero until the recovery is underway.

While the Fed reading was broadly in line with market expectations, it gave a jolt to traders who have been piling into stocks on hopes for a quick rebound.

The FTSE 100 index closed down 252.43 points or 4.0% at 6,076.70. The FTSE 250 ended down 631.79 points, or 3.6% at 16,973.67, and the AIM All-Share closed down 21.61 points, or 2.4% at 865.61.

The Cboe UK 100 ended down 3.7% at 10,314.10, the Cboe UK 250 closed down 3.9% at 14,606.90, and the Cboe Small Companies ended down 2.7% at 9,634.50.

In Paris the CAC 40 ended down 4.4%, while the DAX 30 in Frankfurt ended down 4.0%.

"Stocks are lower today as health fears circulate. A number of states who have wound down some of their restrictions, are now seeing a jump in new cases of coronavirus. Traders are dumping stocks for fear that more states will reveal a rise in fresh Covid-19 cases too. The gloomy economic projection from the Fed yesterday is also weighing on sentiment. The US central bank believes the economy will contract by 6.5% this year," said CMC Markets analyst David Madden.

Stocks in New York were sharply lower at the London equities close after another spike in US jobless claims, amid worries over rising coronavirus cases in some states that have reopened their economies.

The DJIA was down 3.3%, the S&P 500 index 2.7% and the Nasdaq Composite 1.8%.

US initial jobless claims continue to trend downwards as states start to re-open, data from the Department of Labor showed, though still remain around historic levels.

For the week to June 6, seasonally-adjusted initial claims came in at 1.54 million, down from 1.90 million the week before.

The latest figure was in line with market consensus of 1.55 million claims, according to FXStreet, and takes the total number since the Covid-19 crisis began to bite in March to nearly 44 million.

The entire population of the US is about 330 million.

Meanwhile, the number of confirmed US coronavirus cases passed 2 million, as public health experts warned of the emergence of new Covid-19 hotspots across the country.

Around 21 US states are reporting a rise in new Covid-19 cases which comes as health experts warned that premature reopening of states could lead to a surge in cases.

The spike prompted Arizona - which has seen a huge increase since its reopening - to ask its hospitals to activate coronavirus emergency plans. Other new Covid-19 hotspots include Texas, Florida, North Carolina, South Carolina, Oregon, Tennessee, Washington, New Mexico, Missouri, and Utah.

On the London Stock Exchange, gold miners ended at the top of the blue-chip index, with Polymetal International and Fresnillo up 2.2% and 1.2% respectively.

Gold was quoted at USD1,742.15 an ounce at the London equities close, up sharply from USD1,716.28 late Wednesday, as the dollar weakened in the wake of Powell's press conference.

At the other end of the large-cap index, travel stocks ended in the red as the possibility of another spike in coronavirus cases heaps more pressure on the troubled tourism industry.

Carnival ended the worst performer down 12%, while airlines International Consolidated Airlines Group and easyJet closed down 8.8% and 7.1% respectively.

"Once again we find the travel stocks at the forefront of the losses, with risks of another surge in coronavirus cases bringing huge possible implications for the bottom line if countries begin to restrict movement once again. Hard-hit stocks such as Carnival, Rolls-Royce, IAG, and easyJet are all on the back foot as they continue to lead the decline of value stocks," said IG Group.

Johnson Matthey closed down 6.3% after the speciality chemicals company cut its dividend for first time since the 1980s as annual profit fell.

The London-based chemicals company reported pretax profit of GBP305 million for the year to the end of March compared to GBP488 million a year earlier, as it booked GBP140 million of major impairment and restructuring charges.

Johnson Matthey proposed a final dividend of 31.125 pence, half the level of the year before. This took the total dividend for the financial year to 55.625p, down 35% from 85.5p the year prior.

Looking ahead, the company said it is unable to provide financial guidance for its 2021 financial year.

The pound was quoted at USD1.2642 at the London equities close, down sharply from USD1.2760 at the close on Wednesday, as investors turn their attention to Brexit.

The pound had risen against the greenback since May 28, strengthening when market optimism caused the safe-haven dollar to fall.

Further, the pound has had to contend with deadlocked talks on future EU-UK relations. Chief EU Negotiator Michel Barnier has not relented in his criticism saying the UK wants all the benefits of the bloc's membership without the obligations. Brussels has also refused to budge on Barnier's mandate, angering officials in London.

Analysts at ING said: "As sterling normally moves more independently from the simple global sentiment oscillations, its positioning gauge is still a good informative tool. As we discussed in a previous commentary, GBP positioning has been strictly interconnected with the Brexit saga in the past two years, as a rise in net shorts often corresponded to a higher perceived risk of a hard Brexit.

"The recent resurgence of Brexit-related shorts in sterling has pushed down the positioning gauge to negative levels that were last seen before the December 2019 election."

The euro stood at USD1.1377 at the European equities close, up from USD1.1343 late Wednesday. Against the yen, the dollar was trading at JPY106.64, down sharply from JPY107.20 late Wednesday.

Brent oil was quoted at USD38.70 a barrel at the London close, sharply down from USD40.70 at the close Wednesday following the Fed's gloomy outlook.

"Following yesterday's downbeat outlook by the Fed, energy traders are worried permanent damage to the economy along with a second wave of the coronavirus will cripple prospects for a strong second half of the year. The supply glut issue to is not going away anytime soon as US crude stockpiles rise to a record high," said OANDA Markets analyst Edward Moya.

The economic calendar on Friday has UK industrial and manufacturing data at 0700 BST, France inflation readings at 0745 BST and US import and export prices at 1330 BST.

The UK corporate calendar on Friday has annual results from City Pub Group and an AGM trading statement from sandwich maker Bakkavor.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

Copyright 2020 Alliance News Limited. All Rights Reserved.