LONDON MARKET CLOSE: Week off to rocky start on fresh Covid variant

Mon, 17th May 2021 17:07

(Alliance News) - It was a cautious start to the week in London, with concerns over the Indian variant of Covid dampening the optimism over the UK easing some lockdown measures.

The UK prime minister urged people to treat the latest easing of restrictions with a "heavy dose of caution" while Business Secretary Kwasi Kwarteng warned against excessive drinking for those returning to bars.

Although ministers believe the vaccines will be effective against the highly transmissible Indian variant of concern, there are worries about the impact of its spread on those who have refused to have a jab or not yet been offered one.

The threat posed by the Indian variant led Boris Johnson to warn that the final stage of England's road map out of lockdown could be delayed from the June 21 target.

"We are keeping the spread of the variant first identified in India under close observation and taking swift action where infection rates are rising," Johnson said.

CMC Market Chief Market Analyst Michael Hewson said: "It's been a cautious and subdued start to the week for markets in Europe, on disappointment over the latest China data, and new restrictions being imposed in parts of Asia prompting a little bit of caution amongst global investors."

The FTSE 100 index closed down 10.76 points, or 0.2%, at 7,032.85 on Monday. The mid-cap FTSE 250 index ended down 121.96 points, or 0.6%, 22,214.14. The AIM All-Share index lost 0.2% to finish at 1,234.09.

The Cboe UK 100 index closed down 0.1% at 701.94. The Cboe 250 ended down 0.5% at 19,993.09, and the Cboe Small Companies down 0.5% at 14,927.01.

In mainland Europe, the CAC 40 in Paris and the DAX 30 in Frankfurt closed down 0.3% and 0.1%, respectively.

IG's Joshua Mahony added: "In the UK, concerns over a rise in Covid cases with the Indian variant has some worried over the potential ramifications for the reopening timeline. However, a rise in the US 10-year treasury yield has highlighted that there is still an underlying feeling of optimism that the economic picture will continue to improve over the coming months."

"Airlines are on the back foot once again today, with optimism over the reopening of international travel proving short-lived given concerns over the growth of the Indian Covid variant," he continued.

British Airways parent International Consolidated Airlines closed down 3.7%, while budget peers easyJet, Wizz Air and Ryanair lost 2.8%, 2.5% and 2.4%, respectively.

Mahoney added: "With Germany classifying the UK as a 'risk' area, the spread of this variant could dash hopes that the airlines will be able to reopen additional routes in the coming weeks. Unfortunately, the risks posed by this latest strain also raises questions around those same businesses that have just found reprieve from lockdown restrictions, with pub and restaurant chains all on the back foot despite the resumption of indoor dining."

Ryanair said it expects an improvement to financial results as coronavirus restrictions ease and it introduces a more efficient aeroplane.

The Irish carrier swung to a loss in the financial year to the end of March of EUR1.11 billion from a EUR648.7 million profit recorded the year before.

Annual revenue fell 81% year-on-year to EUR1.64 billion from EUR8.49 billion, in line with the fall in traffic to just 27.5 million from 148.6 million the year prior. Load factor declined to 71% from 95% year-on-year.

Looking ahead, Ryanair expects first-quarter traffic to be between 5 million and 6 million passengers. It also believes that annual traffic is likely to be towards the lower end of its previously guided range of 80 million to 120 million passengers, which would represent a jump of up to four times year-on-year.

The airline said it thinks financial 2022 will be close to breakeven, assuming vaccine rollouts allow the lifting of intra-European travel restrictions in time for the July to September peak period.

Restaurant Group, down 6.2%, JD Wetherspoon, down 3.0%, Mitchells & Butlers, 2.5%, and Trainline, down 4.8%, were among midcap stocks feeling the heat of potentially longer lockdown restrictions in the UK.

Premier Inn owner Whitbread gave back 3.0% on similar concerns that the full relaxation in June might get pushed back.

CMC's Hewson added: "Asia focussed banks HSBC and Standard Chartered have slipped back due to uncertainty over the tighter restrictions being imposed in Singapore and Taiwan as well as disappointment over weaker than expected China retail sales numbers for April."

StanChart lost 1.7%, while HSBC gave back 1.2%.

Back in the FTSE 250, Diploma ended the day the best performer, up 7.0%, after the technical products supplier said it saw a strong first-half performance and expects its full-year performance ahead of expectations.

For the six months to March 31, revenue at the London-based seals and cables maker was up 29% to GBP365.2 million from GBP283.6 million the year before, and pretax profit increased 2% to GBP42.5 million from GBP41.6 million.

Diploma declared an interim dividend of 12.5 pence per share, having skipped its interim payout last year. It said this reflects its "growth outlook and future prospects".

Turning to acquisitions, Diploma said it had an active "pipeline of opportunities".

Looking ahead, Diploma said: "As a result of the strong trading performance in the first half and positive momentum into the second half, we now expect full-year results significantly ahead of our previous expectations."

Brent oil was quoted at USD69.24 a barrel Monday evening, up from USD68.30 late Friday. Gold was priced at USD1,865.60 an ounce, higher than USD1,837.50.

IG's Mahony said: "Precious metals have provided one area of strength on an otherwise dour day, with silver and gold spiking into multi-month highs. Concerns that rising yields could hinder demand for gold and silver appear to be on the back-foot, with recent volatility in the fixed income space giving the platform for a more convincing move higher for gold and silver. Looking back at the post-2008 period, the outperformance of precious metals in the face of rising yields does highlight the potential for similar strength in the coming months."

Blue chip Fresnillo and Polymetal added 3.1% and 3.0%, respectively, in London on Monday - topping the FTSE 100. Fellow miners Rio Tinto added 2.4%, while BHP and Anglo American closed 1.1% and 1.0% higher.

New York equity markets were lower at the London close, starting the week on the back foot. The DJIA was down 0.6%, the S&P 500 index 0.6% and the Nasdaq Composite 0.8%.

Oanda's Edward Moya said: "US stocks are edging lower following mixed Chinese economic data, concerns that Taiwan and Singapore success in fighting Covid is in jeopardy, and after the Empire State manufacturing survey solidified the inflationary theme that is running wild on Wall Street."

The dollar was lower against major counterparts. The pound was quoted at USD1.4119 at the London equities close on Monday, up from USD1.4088 on Friday evening.

The euro was priced at USD1.2146, up from USD1.2138. Against the yen, the dollar was trading at JPY109.20, lower from JPY109.40.

In the international economic calendar on Tuesday has UK ILO unemployment at 0700 BST, followed by eurozone employment and GDP at 1000 BST, with US housing starts at 1330 BST.

In the local corporate calendar, telecommunications giant Vodafone will issue full-year results, with tobacco firm Imperial Brands publishing half-year results and Domino's franchisor DP Eurasia issuing a trading statement.

By Paul McGowan; paulmcgowan@alliancenews.com;