LONDON MARKET CLOSE: Worrisome US Fed Weighs On European Stocks

(Alliance News) - Stocks in London struggled Thursday following a gloomy outlook from the US Federal Reserve's minutes of its most recent Federal Open Market Committee meeting.

In London, the blue-chip FTSE 100 index closed down 98.64 points, or 1.6%, at 6,013.34. The mid-cap FTSE 250 index lost 86.96 points or 0.5% at 17,496.43, and the AIM All-Share index shed 0.3% at 957.46.

The Cboe UK 100 index closed down 1.6% at 599.08. The Cboe 250 ended down 0.6% at 14,891.21, and the Cboe Small Companies closed down 0.3% at 9,617.70.

In mainland Europe, the CAC 40 index in Paris gave back 1.3%, while the DAX 30 in Frankfurt lost 1.1%.

"European equity markets are deep in the red on the back of the Fed minutes last night. The update warned the US economy could face a 'considerable' negative impact over the medium term on account of the pandemic," CMC Market analyst David Madden said.

He continued: "The Fed also repeated the need for fiscal stimulus, as they feel they can't tackle the crisis alone. The absence of a coronavirus relief package is playing on traders' minds even more so in light of the Fed's comments. It seems a bit strange that traders are all of a sudden worked up about the Fed's bearish outlook, when it has been known for a while now. The US unemployment benefit scheme ended in late July, so it's a surprise that dealers are now running scared. Nonetheless, the mood is bearish and in terms of index points, the biggest fallers on the FTSE 100 are mining and energy stocks."

In London, Antofagasta lost 5.6% after the Chilean copper miner slashed its interim dividend by 42%, as first-half earnings took a hit from a drop in copper prices as a result of the coronavirus crisis.

The miner also warned that 2020 copper output will be at the lower end of its original 725,000 to 755,000 tonnes range, and only if no Covid-19 related shutdowns occur during the rest of the year.

For the half-year ended June 30, revenue fell 15% to USD2.14 billion from USD2.53 billion last year as a result of lower realised copper prices and sales volumes, partially offset by the increase in the realised gold price. First-half pretax profit fell by 49% to USD387.5 million from USD763 million.

Antofagasta declared an interim dividend of 6.2 cents, down 42% from 10.7 cents paid out last year.

Mining peers Evraz gave back 6.0%, Anglo American 4.3%, Glencore 4.2%, BHP 3.3% and Rio Tinto lost 2.6%.

Airlines were struggling in London on Thursday, as Croatia was added to the UK's quarantine list.

IG analyst Joshua Mahony commented: "With Croatia widely expected to be added to the quarantine list tonight, so comes the fear that flights could be cancelled to cope with the lessened demand that comes in response. For investors, the fear is that this growth in the number of nations with quarantine restrictions will continue to stifle sentiment and drive down precious revenues as we close out an incredibly tough summer for the travel sector."

British Airways-parent International Consolidated Airlines lost 5.2%, easyJet 3.6%, and Ryanair 3.2%.

Frasers Group ended the best mid-cap performer, gaining 13%, after the retailer said it was seeing signs of normality returning to the UK high street but warned that further lockdowns were a threat.

The Sports Direct owner saw pretax profit for the financial year ended April 26 fall 20% to GBP143.5 million from GBP179.2 million a year prior. Revenue rose 6.9% to GBP3.96 billion from GBP3.70 billion year on year. This increase was driven by premium lifestyle sales, which increased by 35% to GBP722.0 million from GBP535.4 million a year prior, as well as by European retail, which increased by 16% to GBP697.7 million, from GBP599.8 million year on year.

Mike Ashley's company said it plans to invest "in excess" of GBP100 million on upgrading its digital platforms and pushing its designer label business Flannels.

At the other end of the FTSE 250, Premier Oil sunk 24%, with an Investec downgrade to Hold adding pressure to a weak first half.

The oil and gas company said it took a knock in the first half of 2020 due to a double set of challenges, as it agreed to refinance its debt facilities and plans to raise more equity.

Premier Oil swung to a pretax loss in the half-year ended June 30 of USD671.5 million from a profit of USD120.6 million a year prior. Sales revenue fell 39% to USD530.6 million from USD871.3 million year-on-year.

Production was 67,300 barrels of oil equivalent per day, down 20% from 84,100 barrels of oil equivalent per day a year prior. This was however in line with the company's 2020 guidance.

The company plans to raise a further USD300 million in equity, in addition to the USD230 million it already announced to fund the proposed BP acquisitions as previously disclosed. Premier Oil's debt refinancing is conditional on at least a USD325 million take-up of the equity raise.

Stocks in New York were mixed the London equities close on Thursday, as weekly jobless claims crept back above one million. The DJIA was down 0.2%, the S&P 500 index was flat, and the Nasdaq Composite was up 0.5%.

US initial jobless claims moved back above one million as a resurgence in new Covid-19 cases hit the labor market, figures from the Labor Department showed.

In the week ending August 15, US initial jobless claims rose by 1.1 million, picking up pace from a revised figure of 971,000 in the previous week. The recent number was worse than market predictions, cited by FXStreet, of 925,000 initial jobless claims.

Since March, around 57 million US workers have now filed new unemployment insurance claims. Pressure on Congress to reach an agreement in deadlocked stimulus talks is likely to be ramped up by the reversal in recent improvements in new unemployment claims..

IG's Mahony commented: "Stock market have declined after a disappointing jobless claims reading from the US, with data once again highlighting a stuttering recovery despite the initial rebound seen over recent months. Last week's drop back below the one-million mark signalled a significant hurdle for the US economy, yet the rise to 1.1 million fresh claims does highlight the ongoing difficulties as we move into the second stage of the recovery."

The pound was quoted at USD1.3160 on Thursday evening, down from USD1.3190 at the London equities close Wednesday.

The euro was priced at USD1.1849, down from USD1.1896. Against the yen, the dollar was trading at JPY105.86 in London, up from JPY105.73.

In commodities, Brent oil was quoted at USD44.64 at Thursday's equities close in London, lower than USD45.26 a barrel Wednesday evening. Gold was trading at USD1,946.90 an ounce, down from USD1,958.00.

Crude oil has slipped on news of a two million-barrel oversupply from OPEC+ members.

"Nevertheless, despite this oversupply, it is the demand side which remains a thorn in the side of the crude market, with a slower-than-expected recovery in demand stifling the recovery which has seemingly ground to a halt over the past month," Mahony said.

In the economic calendar overnight Friday, there is a GfK consumer confidence reading and a Japan Jibun Bank manufacturing PMI. Then, in the morning, UK retail sales are due at 0700 BST.

Then, a slew of flash Markit composite PMIs are on tap, with France at 0815 BST, Germany at 0830 BST, eurozone at 0900 BST and the UK at 0930 BST, and the US at 1445 BST.

SpreadEx's Connor Campbell commented: "Looking to tomorrow and August’s flash PMIs could make or break market sentiment. For the Eurozone as a whole manufacturing is expected to improve from 51.8 to 52.7, but with services going in the opposite direction, from 54.7 to 54.6.

"In the UK, both manufacturing and services are forecast to rise, to 54.9 and 57.0 respectively. Meanwhile in the US, the manufacturing PMI is estimated at 51.9, against 50.9 in July, with services at 50.9 against 50.0."

There are no events scheduled in the UK corporate calendar Friday.

By Paul McGowan; paulmcgowan@alliancenews.com

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