LONDON MARKET MIDDAY: Eyes Turn To ADP Jobs After Brutal European Data

(Alliance News) - The FTSE 100 was posting solid gains at midday on Wednesday as some of the morning's caution ebbed, with ITV and Smith & Nephew among the stocks gaining.

However, blue-chip indices in mainland Europe lagged after a morning of awful data, capped off with a warning from Brussels that the eurozone economy could contract 7.7% this year.

The FTSE 100 index was up 34.12 points, or 0.6%, at 5,883.54 Wednesday midday. The mid-cap FTSE 250 index was up 81.75 points, or 0.5%, at 16,174.89. The AIM All-Share index was up 0.8% at 808.78.

The Cboe UK 100 index was up 0.5% at 9,955.18. The Cboe 250 was up 0.4% at 13,848.66, and the Cboe Small Companies up 0.2% at 13,848.66.

In mainland Europe, the CAC 40 in Paris was down 0.3% while the DAX 30 in Frankfurt was up 0.1%.

"Tentative gains throughout Europe have mimicked sentiment in Asia, with traders understandably lacking conviction given the plethora of contradictory drivers which are in play," said Joshua Mahony, senior market analyst at IG.

"Oil prices continue to gain ground in what has been an incredible period of upside for energy prices, bringing crude into levels not seen for over three-weeks. While fears remain over the potential breakdown in relations between the US and China, the lack of any evidence that this virus originated from a Wuhan lab highlights the feeling that the accusations will likely evolve into the lesser issue of failing to notify the world quickly enough," Mahony continued. "On a day that has seen sharp volatility, markets will be keeping a close eye out for today's ADP payrolls figure as we approach a likely record low non-farm payrolls figure."

US ADP employment change is at 1315 BST, the data a precursor to Friday's monthly jobs report. FXStreet consensus forecasts a loss of 20 million jobs in the US in April.

Already released, figures from IHS Markit showed the eurozone economy came under significant pressure in April due to Covid-19 lockdowns.

The euro bloc's composite purchasing managers' index dropped to 13.6 in April from March's previous record low of 29.7. April's flash reading was 13.5. Any reading below 50 indicates a weakening of conditions, and one above an improvement.

Among countries, Germany had a highest composite PMI reading of 17.4, while Spain's was the weakest at 9.2. All five countries surveyed, though, recorded survey lows in April.

The restrictions put in place to stem the spread of Covid-19 led to not only a sharp fall in activity, but also "steep and unprecedented" drops in new business. April's survey also showed a series record fall in new export sales.

The eurozone services business activity index slipped to a series low of 12.0 in April from 26.4 in March. April's flash reading had been 11.7.

This data was followed up with the European Commission warning that eurozone gross domestic product will contract 7.7% this year in a recession of "historic proportions".

The rate of unemployment in the 19-country currency area is also to rise to 9.6% in 2020, up from 7.5% last year, EU officials estimate.

"Europe is experiencing an economic shock without precedent since the Great Depression," EU economy commissioner Paolo Gentiloni said on Wednesday. "Both the depth of the recession and the strength of recovery will be uneven."

Eurozone GDP growth should rebound to 6.3% in 2021, EU officials estimate, while the rate of joblessness should improve to 8.6%. The forecast is based on the assumption that the coronavirus lockdown measures are to be gradually eased from May onwards, the EU executive stressed.

The euro took a beating on Wednesday. The single currency traded at USD1.0792, down on USD1.0842 late Tuesday.

The pound also weakened after IHS Markit showed UK construction activity sank to previously unseen levels.

The IHS Markit-Chartered Institute of Procurement & Supply construction total activity index plummeted to just 8.2 in April from 39.3 in March. April's reading was the lowest since data were first collected in April 1997, with the previous record low 27.8 in February 2009.

All three main categories of construction work suffered survey record falls in April, with declines in house building and commercial activity exceeding that for civil engineering.

Sterling was quoted at USD1.2372 in the morning, soft on USD1.2453 at the London equities close on Tuesday.

Against the yen, the dollar was quoted at JPY106.35 versus JPY106.58.

Gold was quoted at USD1,700.32 an ounce on Wednesday, higher than USD1,698.55 on Tuesday. Brent oil was trading at USD31.68 a barrel, up against USD30.22 late Tuesday.

In the US, Wall Street is on course for a stronger start to Wednesday's session than Europe. The Dow Jones is seen up 1.0%, the S&P 500 up 1.0% as well and the Nasdaq Composite pointed 0.9% higher.

In London, ITV was at the top of the FTSE 100, up 4.6%, despite saying advertising revenue fell by more than 40% in April and the broadcaster has been forced to furlough 15% of its UK workforce due to the Covid-19 pandemic.

Due to a "significant impact" on demand, advertising revenue slumped 42% in April.

Advertising revenue did edge 2.2% higher year-on-year to GBP426 million over the three months to March 31, ITV's first quarter, a period which for the most part was spared from the financial bite of the Covid-19 pandemic.

Total first quarter revenue was 3.7% lower annually at GBP842 million from GBP874 million in 2019. Broadcast revenue edged 2.2% higher to GBP500 million, but in production arm ITV Studios it was 11% lower at GBP342 million.

External revenue, which includes the advertising and non-advertising contribution, fell 6.5% year-on-year in the first quarter to GBP694 million.

Smith & Nephew shares advanced 2.7%. The medical device maker reported a decline in first quarter revenue as the Covid-19 pandemic curtailed the number of elective surgical procedures taking place.

S&N reported a 5.8% drop in revenue for the three months ended March 28 to USD1.13 billion from USD1.20 billion, a 7.6% drop on an underlying basis - in keeping with its March trading update.

All of its franchises had been "held back by impact of Covid-19 to varying degrees dependent on geography and exposure to elective procedures", S&N said. Fewer elective surgeries took place in the quarter as many were postponed or cancelled as a consequence of the pandemic and government measures surrounding it.

In April, revenue plummeted 47% on an underlying basis, which Smith & Nephew said reflected "suspension of elective procedures in most markets, somewhat offset by improving trading in China".

Ocado rose 2.2% after the online grocer said retail sales so far in the second quarter have jumped by 40% as demand surged in response to the pandemic.

Ahead of its annual general meeting, the FTSE 100 firm said retail revenue in its first quarter ended early March was 10% higher year-on-year. So far in its second quarter, sales have climbed 40% annually.

Consumers in the UK, during the early stages of the virus crisis, stockpiled on goods in fear of shortages further down the line. Ocado said demand ratcheted up "almost overnight".

FTSE 250-listed Virgin Money UK climbed 8.3%. The lender reported an interim loss as it upped credit loss provisions and saw income suffer from margin pressure.

Virgin Money was known as CYBG until the end of October 2019, changing its name as part of a rebranding following the purchase of challenger bank Virgin Money for GBP1.7 billion in October 2018. It also owns Clydesdale Bank and Yorkshire Bank.

In the six months to March 31, Virgin Money recorded a GBP7 million pretax loss compared to a GBP42 million profit in the same period a year before. Underlying profit slipped 58% to GBP120 million from GBP286 million.

Virgin Money upped its impairment losses to GBP237 million from GBP173 million a year before. Included in this is a GBP146 million impairment charge for expected losses from the Covid-19 pandemic.

Direct Line Insurance shares increased 5.2% as it reported growth in first quarter gross written premiums and a sharp fall in claims.

In the first quarter, ended March 31, the home and motor insurer said total gross written premiums rose 4.7% year-on-year to GBP789.6 million from GBP753.9 million.

Motor premiums were up 6.2% to GBP410.9 million. Claims inflation was in line with Direct Line's 3% to 5% long-term expectations. The insurer noted claims were down 70% in April on Covid-19 lockdown restrictions.

Elsewhere in London, Halfords shares rose 16% as the bicycle and car parts retailer reported better-than-expected sales.

For the year ending March 29, Halfords expects adjusted pretax profit at the upper end of its guided range between GBP50 million and GBP55 million.

"As a provider of essential products and services to the UK public, we have remained open during the lockdown period. We currently have 325 retail stores open on a dark-store basis, where serving customers from the front of the store ensures our colleagues can operate in safe working conditions. We also have 346 garages open and 77 mobile vans operating," Halfords said.

In the four weeks to May 1 the retailer's like for like group sales were down 23% year-on-year, but Halfords noted that this was better than expected.

By Lucy Heming; lucyheming@alliancenews.com

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