LONDON MARKET MIDDAY: Bank Of England Says Negative Rates Not Imminent

(Alliance News) - Stock prices in London were lower at midday on Thursday, as the Bank of England's policy makers voted unanimously to leave UK interest rates unchanged.

The Monetary Policy Committee decided at its monthly meeting to keep the key Bank Rate at 0.1% and the size of its quantitative easing programme at GBP895 billion.

The central bank said it expects UK gross domestic product to shrink by about 4% in the first quarter of 2021, reversing its expectations back in November for a growing economy at the start of the new year.

The pound was quoted at USD1.3611 at midday Thursday, down from USD1.3651 at the London equities close Wednesday, in the wake of the BoE decision.

The FTSE 100 index was down 22.64 points, or 0.4%, at 6,485.13. The mid-cap FTSE 250 index was down 2.02 points at 20,750.43. The AIM All-Share index was up 0.1% at 1,199.97.

The Cboe UK 100 index was down 0.1% at 645.35. The Cboe 250 was down 0.1% at 18,265.31 and the Cboe Small Companies was flat at 12,365.54.

In mainland Europe, the CAC 40 in Paris was up 0.4% while the DAX 30 in Frankfurt was up 0.5%.

There will be a press conference with BoE Governor Andrew Bailey at 1300 GMT, and investors will be looking to see whether policymakers are closer to embracing the idea of using negative interest rates for the first time ever to try to stimulate an economy battered by the effects of Covid-19.

In its midday statement, the UK central bank said it is appropriate to start preparations for negative rates, if needed in the future, but it stressed that a negative Bank Rate is not imminent.

Among individual London stocks at midday, Compass Group was up 3.9% in the FTSE 100, after the contract caterer reported a more moderate decline in organic revenue for its first quarter and improved margins, the contract caterer having been hit hard by the virus pandemic and associated restrictions on travel and entertainment.

Organic revenue tumbled 34% year-on-year in the three months to December 31, which is the first quarter of Compass's 2021 financial year.

This marked an improvement on a 34% slide in the fourth quarter of its 2020 financial year and a 44% tumble in the third quarter. Compass's financial year runs to September 30.

Barratt Developments was up 2.3% after the UK housebuilder reported positive interim results and resumed dividend payments.

For the half year ended December 31, revenue rose 10% to GBP2.49 billion from GBP2.27 billion at the same time in 2019 and pretax profit was up 1.7% at GBP430.2 from GBP423 million.

Barratt declared an interim dividend of 7.5 pence against none in the prior year.

IG Group's Chris Beauchamp said: "In London, housebuilders have been given a lift by Barratt Developments, which has declared its intention to resume dividend payments after a solid first half – with the UK vaccinating at an increasingly fast pace a return to normality this year still looks possible, and this points towards a much more robust outlook for the market as buying and selling activity picks up too.

"Compass Group shares continued their rebound from the lows at the end of January, and while revenues remained under pressure in the first quarter of the year operating margins have picked up, while cost-cutting has meant all regions are now profitable once again. 2020 marked a rude interruption to the steady ascent of its shares, but the situation appears to have stabilised, and the outlook now seems much more promising."

Housebuilding peers Persimmon and Taylor Wimpey were up 1.8% and 1.7%, respectively.

At the other end of the large caps, Unilever was the worst performer, down 4.0%. The consumer goods firm posted an annual earnings fall, with revenue falling short of expectations, hurt by currency movements in its fourth-quarter.

For 2020, Unilever posted revenue of EUR50.72 billion, down 2.4% from USD51.98 billion in 2019. Revenue just missed forecasts of EUR50.81 billion. On a constant currency basis, however, revenue was up 3.5% in 2020.

Annual pretax profit fell 3.5% to EUR8.00 billion from EUR8.29 billion, though like revenue, it rose at constant currency, by 3.9%.

For the whole of 2020, underlying sales growth was 1.9%, in line with expectations.

Looking ahead, Unilever said it will aim for underlying sales growth ahead of its markets, delivering growth in the range of 3% to 5%, as well as profit growth ahead of sales growth.

Royal Dutch Shell's A and B shares were down 1.6% and 1.5%, respectively, after the oil major joined peer BP in swinging to a hefty annual loss.

Brent oil was quoted at USD58.86 a barrel Thursday midday, up from USD58.64 at the London equities close Wednesday.

For 2020, Shell swung to a loss attributable to shareholders of USD21.68 billion from a profit of USD15.84 billion in 2019. Adjusted earnings were USD4.84 billion, down 71% from USD16.46 billion - missing consensus forecasts for USD5.05 billion.

For the fourth quarter alone, Shell swung to a loss attributable to shareholders of USD4.01 billion from a USD965 million profit in 2019.

Free cash flow for 2020 was USD17.63 billion, down 12% from USD20.1 billion in 2019. Net debt increased by USD1.9 billion to USD75.4 billion in the fourth quarter, hurt by lower free cash flow, including a small working capital outflow.

Shell slashed its fourth quarter payout 65% to USD0.1665 from USD0.47. Its annual dividend was down 65% to USD0.6530. However, Shell expects that the first quarter dividend will be USD0.1735.

"Whichever way you look at it these numbers are disappointing, lower production volumes, reduced cash flow and a rise in net debt, and while CEO Ben van Buerden may point to a 'extraordinary year' pointing to implementing tough but decisive actions, the reality is there’s not a lot to cheer in these numbers," said CMC Markets analyst Michael Hewson.

BP shares down 0.9%.

On the economic front, the UK construction sector activity fell into contraction territory in January as concerns about the near-term economic outlook led to greater hesitancy among clients, IHS Markit said.

The IHS Markit/CIPS UK construction purchasing managers' index registered 49.2 points in January, down from 54.6 in December. The latest reading missed the market forecast, cited by FXStreet, of 52.9. Any reading below 50.0 points indicates contraction, while one above signals expansion.

Markit said the latest survey showed a slowdown in new order growth to its weakest since June 2020.

Gold was quoted at USD1,810.55 an ounce, lower against USD1,835.90.

The euro stood at USD1.1991 at midday, down from USD1.2022 late Wednesday after disappointing economic data from the continent.

Eurozone construction activity in January contracted at steepest rate since May 2020, figures from IHS Markit showed.

The IHS Markit eurozone construction total activity index fell to 44.1 points in January from 45.5 in December, to signal a sharp and accelerated decline in eurozone construction activity.

Against the yen, the dollar was trading at JPY105.30, higher from JPY105.05.

US stock market futures were pointing higher ahead of fourth-quarter earnings from tobacco firm Philip Morris International and carmaker Ford.

The Dow Jones Industrial Average was called up 0.1%, the S&P 500 up 0.2% and Nasdaq Composite up 0.4%.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

Copyright 2021 Alliance News Limited. All Rights Reserved.