LONDON MARKET CLOSE: US-China Tariff Fears Return To Haunt Investors

Fri, 01st May 2020 17:04

(Alliance News) - Stocks in London ended sharply lower on Friday after US President Donald Trump threatened tariffs on Beijing, escalating the blame game between the two biggest economies.

With concerns over the damage the coronavirus will cause to the global economy, investor fears were heightened by an issue that had previously taken a back seat.

However, with a presidential election coming up in November, Trump reignited his war of words with China indicating he could hit China with additional tariffs over its handling of the coronavirus pandemic, claiming he had seen evidence linking a Wuhan lab to the contagion.

In an interview with Reuters Trump said earlier this week China "will do anything they can" to make him lose his re-election bid.

The FTSE 100 index closed down 138.15 points, or 2.3%, at 5,763.06, and ended the week down 1.2%.

The FTSE 250 ended down 306.12 points, or 1.9%, at 16,148.34, but ended the week up 2.2%, while the AIM All-Share closed down 12.69 points, or 1.6%, at 797.65, ending the week up 2.8%.

The Cboe UK 100 ended down 2.4% at 9,742.30, the Cboe UK 250 closed down 1.9% at 13,885.30, and the Cboe Small Companies ended down 0.9% at 9,002.10.

"Sentiment in stocks has been shaken as President Trump has threatened China with tariffs. The US leader blames China for the pandemic, and he is clearly not happy about the fact that over 30 million people in the US have lost their jobs since the health crisis struck," said CMC Markets analyst David Madden.

Financial markets across the continent were closed for Labour Day.

On the London Stock Exchange, Royal Bank of Scotland ended the best performer, up 2.4% after the state-backed lender reported first-quarter earnings that beat company-supplied market consensus.

In the three months to March 31, the bank's operating pretax profit nearly halved to GBP519 million from GBP1.01 billion in the same period a year before. However, this was higher than the GBP415 million consensus estimate.

Profit was hit by a GBP802 million provision - set aside to cover potential loan losses due to the economic downturn that could make it harder for retail and business customers to repay debts. Analysts had been expecting a GBP515 million charge.

Total income was up 3.9% at GBP3.16 billion. The figure beat the consensus estimate of GBP2.84 billion.

Hargreaves Lansdown equity analyst Nicholas Hyett said: "RBS went into the current crisis with a balance sheet loaded up to the gunwales with capital. Cancelling the dividend has strengthened the balance sheet still further and as a result RBS looks in robust health despite the economic turmoil currently sweeping the market, shaking off a significant increase in lending in the first quarter almost without blinking. Continued progress on cutting costs is welcome too, and that should help protect profitability in both the long and the short term."

Barratt Developments closed up 2.3% after the UK's largest housebuilder by volume said work will resume at its construction sites on May 11, although its sales centres and show homes will remain closed.

Peers Taylor Wimpey closed down 1.6%, Berkeley Group closed up 0.4% and Persimmon up 0.1%.

At the other end of the large-cap index, Royal Dutch Shell ended in the red, with its 'A' and 'B' shares down 7.1% and 6.7% respectively after being hit by a double downgrade. Both share classes already had lost 11% on Thursday.

The oil major was downgraded to Hold from Buy by Berenberg and by HSBC.

On Thursday, Shell announced its first dividend cut since the second world war amid the oil price crash.

Budget airline easyJet closed down 5.8%, suffering a negative read-across from peer Ryanair Holdings, which said it will slash up to 3,000 jobs as it embarks on restructuring in response to the destructive effects the Covid-19 pandemic has had on travel.

Ryanair shares ended down 6.4%. British Airways-parent International Consolidated Airlines closed down 3.1%, and Eastern European budget carrier Wizz Air ended down 3.8%.

Travel restrictions mean Ryanair's first-quarter traffic will be more than 99% lower than initially planned. It expects traffic of fewer than 150,000 passengers, a fraction of its initial forecast of 42.4 million passengers. It expects to operate fewer than 1% of its scheduled flight programme in April, May and June.

The pound was quoted at USD1.2593 at the London equities close, down slightly from USD1.2601 at the close Thursday, after disappointing UK manufacturing PMI data which showed manufacturers suffered the biggest fall in output and orders for at least three decades in April.

The IHS Markit-Chartered Institute of Procurement & Supply purchasing managers' index fell to 32.6 in April from 47.8 in March, significantly below both the no-change mark of 50 and slightly below the flash reading of 32.9.

Market consensus according to FXStreet was for a reading of 32.8.

"Manufacturers also remained downbeat about the outlook for demand, with optimism about the 12-month outlook for growth in demand improving only marginally from March's record low. Any recovery in output over the summer likely will gradual, given that social distancing rules and school closures will continue to deplete manufacturers' workforces, while the continued presence of the virus will keep consumers' confidence greatly depressed," Pantheon Macroeconomics said.

The euro stood at USD1.0955 at the European equities close, up from USD1.0874 late Thursday.

"The single currency has been pushing higher for the past 24 hours - largely driven by a fall in the US dollar. Yesterday, the Federal Reserve widened the scope of the Main Street lending scheme and that hurt the greenback, and in turn the euro rallied," said CMC's Madden.

Against the yen, the dollar was trading at JPY107.16, up from JPY106.94 late Thursday.

Stocks in New York were lower at the London equities close on weakness from two of the biggest companies in the world, Amazon and Apple following earnings reports.

The DJIA was down 1.7%, the S&P 500 index down 1.8% and the Nasdaq Composite down 1.9%.

Amazon dove 5.8% after the e-commerce company late Thursday cautioned that earnings in the second quarter would be entirely wiped out by expenses related to Covid-19 as it works to keep up with surging demand at a time when many brick-and-mortar stores are closed.

Further, the US House Judiciary Committee is asking Amazon boss Jeff Bezos to testify after Democratic leaders said they suspected Amazon of lying to Congress, threatening to subpoena his testimony if he does not comply.

Apple fell 1.0% as it reported lower profits late Thursday, with the pandemic hitting the iPhone maker on multiple fronts, disrupting its retail operations, suppliers in China and the finances of its customers.

In addition, Exxon Mobil Corp on sunk to a first-quarter loss, with the oil major reporting a USD2.9 billion non-cash charge as the market grapples with a demand shock induced by the Covid-19 pandemic.

The Irving, Texas-based company reported a pretax loss of USD258 million for three months to March 31, swinging wildly from a USD4.29 billion profit last year. Its net loss was USD610 million versus USD2.35 billion profit.

The poor results were "driven by a USD2.9 billion non-cash charge from market-related write-downs", Exxon Mobil explained. However, the company maintained its cash dividend of USD0.87 cents per share.

The stock was down 4.2% on Wall Street.

Fellow oil major Chevron Corp saw first-quarter earnings rise on Friday but gave a more downbeat assessment of future results amid reduced demand stemming from Covid-19, as the oil major took further actions to protect its dividend.

Earnings for the first three months of the year increased 26% to USD3.60 billion from USD2.65 billion a year ago, boosted by its Downstream division which saw earnings rise to USD1.10 billion from just USD252 million a year ago.

The San Ramon, California-based firm is reducing 2020 capital expenditure guidance by up to USD2 billion, and estimates operating costs this year will decrease by USD1 billion.

The stock was down 3.1% in New York.

Brent oil was quoted at USD26.68 a barrel at the London close, firm from USD26.50 at the close Thursday.

Gold was quoted at USD1,685.70 an ounce at the London equities close, down sharply from USD1,704.48 late Thursday.

The economic events calendar on Monday has manufacturing PMI readings from Italy, France, Germany and the eurozone at 0845 BST, 0850 BST, 0855 BST and 0900 BST respectively.

The UK corporate calendar on Monday has no events scheduled.

Financial markets in Japan will be closed on Monday for the Nature Day holiday, while markets in Shanghai and Hong Kong will also be closed for Labour Day.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com