(Alliance News) - Stock prices in London continued to slide at midday on Friday as investors scrutinised the hefty economic stimulus proposals in the US of the incoming Biden administration amid concern that equally hefty tax increases could be on the cards.
US President-elect Joe Biden will propose injecting USD1.9 trillion into the economy when he takes office next week, as evidence mounts that the recovery from the sharp downturn caused by Covid-19 is flagging.
Dubbed the American Rescue Plan, the proposal released Thursday includes a host of measures aimed at revitalising the world's largest economy.
The plans include an extra USD1,400 cash handout for individuals - to top up the USD600 in last month's stimulus - a hike in the minimum wage to USD15 an hour, and billions of dollars to ramp up vaccinations so that 100 million are administered in 100 days.
Top Senate Democrat Chuck Schumer and House Speaker Nancy Pelosi embraced Biden's plan, vowing to put it before lawmakers.
With his Democrats narrowly controlling both houses of Congress, Biden has a shot at passing what would be a third massive pandemic aid package. But the impending trial of Trump in the Senate will introduce a potentially nightmarish mix of scheduling complications and political drama.
In London on Friday, the FTSE 100 index was down 55.37 points, or 0.9%, at 6,746.59. The mid-cap FTSE 250 index was down 222.76 points, or 1.2%, at 20,552.99. The AIM All-Share index was down 0.8% at 1,173.16.
The Cboe UK 100 index was down 0.7% at 671.85. The Cboe 250 was down 1.0% at 17,810.11, and the Cboe Small Companies was down 0.3% at 12,300.56.
In Paris, the CAC 40 was down 0.9%, while Frankfurt's DAX 30 was 0.7% lower.
"Joe Biden has now released details of his proposed USD1.9 trillion stimulus plan and while positive for helping to revive the US economy, financial markets have already priced in the good news and are now starting to worry about the negative side, namely how it will be funded. The large scale of the proposed support measures adds fuel to the fire that taxes and interest rates will have to go up. Both have negative connotations for equities, therefore casting a cloud on the ability for stock markets to keep rallying at the same pace they have enjoyed for much of 2021," said AJ Bell's Russ Mould.
On the London Stock Exchange, Aveva Group was the best blue-chip performer at midday, up 5.1% after the industrial software company said its third-quarter revenue was boosted by contract renewals.
In the three months to December 31, organic constant currency revenue grew by more than 26%. Following the "strong quarter of renewals", Aveva's revenue in the nine months ended December grew 1.5% annually, on an organic constant currency basis.
"The board remains confident in the full year outlook for Aveva. Notwithstanding the disruption seen to the trading environment in 2020, the trend towards the digitalisation of the industrial world is strong and the board remains excited about the significant growth opportunities ahead," the company said.
In the FTSE 250, Indivior was the best performer, up 9.0% after the drugmaker raised its 2020 revenue guidance to a range between USD645 million and GBP650 million from a previous guided range of USD595 million to GBP620 million.
In addition, Indivior lifted its 2020 net revenue guidance for opioid-addiction drug Sublocade to USD128 million to GBP130 million from USD120 million to GBP125 million. As such, Indivior expects to deliver adjusted pretax profit ahead of its previous expectations.
At the other end of the midcaps, Petrofac was the worst performer, down 21% after the UK's Serious Fraud Office late Thursday said a former executive of the oilfield services company pleaded guilty to three counts of bribery.
Petrofac noted on Friday that no charges were brought against the company or any other officers and employees. In connection with the SFO's ongoing investigation into Petrofac, David Lufkin, its former global head of sales, on Thursday pleaded guilty at Westminster Magistrates' Court to three counts of bribery.
"A small number of former Petrofac employees are alleged to have acted together with the individual concerned, although none have been charged. No current board member of Petrofac Ltd is alleged to have been involved," the company said on Friday.
The offences relate to corrupt offers and payments made between 2012 and 2018 to influence the award of contracts to Petrofac in the United Arab Emirates worth approximately USD3.3 billion, the SFO said in a statement on Thursday.
Babcock International was down 17% after the defence contractor said the civil aviation market continued to struggle in its third quarter, as the sector was hit by a resurgent Covid-19, with prospects for its traditionally bumper final stretch of trading also uncertain.
Further, in a worrying update on a "review of contract profitability and balance sheet", Babcock cautioned on possible write-downs and continued to withhold financial guidance.
Underlying revenue for the nine months to December 31 was GBP3.40 billion, down 4.9% from GBP3.57 billion a year earlier. Babcock said that excluding disposals and foreign exchange, revenue was down 3%. Underlying operating profit for the nine months was down 37% annually to GBP202 million from GBP320 million, or down 34% excluding currency changes and disposals.
The pound was quoted at USD1.3646 on Friday at midday, lower from USD1.3681 at the London equities close Thursday, after data showed the UK economy shrank in November, sparking fears of a double-dip recession.
On a monthly basis, the UK gross domestic product shrank 2.6% in November after posting 0.6% growth in October, as restrictions were in place to varying degrees across all four nations of the UK during November.
Robert Alster, Chief Investment Officer at Close Brothers Asset Management said: "General consensus is that the UK economy is going to get worse before it gets better, which is reflected in November's GDP plummet after several months of tentative growth. The lockdown at the end of 2020 almost feels like old news as we undergo our third round of shutdown.
"A double dip recession is increasingly on the cards for Britain. Virus cases continue to climb, leaving policy-makers grappling with establishing an effective health policy whilst providing enough financial support for both individuals and businesses. With no set end-date for the current restrictions, investors will be hoping that the rapid vaccine roll out programme across the nation will get the UK economy up and running again, meaning there is light at the end of the tunnel."
The euro stood at USD1.2130, down from USD1.2145. Against the yen, the dollar was trading at JPY103.64, lower from JPY103.72.
Brent oil was trading at USD55.51 a barrel at midday, down from USD55.69 a barrel at the London equities close Thursday. Gold was priced at USD1,852.44 an ounce, higher than USD1,847.36.
US stock market futures were pointed to a lower open ahead as earnings season begins in earnest, with fourth-quarter results from Wall Street titans JPMorgan Chase, Citigroup and Wells Fargo.
The Dow Jones Industrial Average was called down 0.4%, the S&P 500 down 0.5% and the Nasdaq Composite down 0.3%.
"Traders will be most interested in the guidance from the US banks and what company executives are saying about the prospects for 2021 overall. With analysts forecasting a sharp pickup in growth as highly-effective COVID-19 vaccines roll out across the globe, traders will want to hear corresponding optimism from top US bankers," said Forex.com analyst Matthew Weller.
Friday's economic calendar has US retail sales at 1330 GMT followed by US industrial production at 1415 GMT.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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Petrofac (PFC)
Babcock (BAB)
Indivior (INDV)