LONDON MARKET MIDDAY: FTSE Dives On Powell Remarks, Second Wave Fears

Thu, 14th May 2020 12:01

(Alliance News) -Â Losses in London accelerated as Thursday's session progressed with the mood knocked by gloomy remarks that day before by US Federal Reserve Chair Jerome Powell.

US and Asian insurer Prudential and UK housebuilders were bunched at the bottom of the FTSE 100 stock index, offsetting a good session for shares of wealth management platform Hargreaves Lansdown.

The FTSE 100 index was down 143.12 points, or 2.4%, at 5,760.93 midday Thursday. The mid-cap FTSE 250 index was down 475.59 points, or 3.0%, at 15,402.53. The AIM All-Share index was down 1.5% at 807.65.

The Cboe UK 100 index was down 2.3% at 9,740.74. The Cboe 250 was down 3.1% at 13,083.70, and the Cboe Small Companies down 1.1% at 8,772.35.

In mainland Europe, the CAC 40 in Paris and DAX 30 in Frankfurt were down 2.0% and 1.8% at midday on Thursday.

"European shares drifted lower on Thursday alongside Asian equities and US Futures on the S&P 500 as market sentiment slowly fades. Investors, who were already sceptical about further gains on stocks, have seen their risk appetite slashed by yesterday's comments from Jerome Powell," said Pierre Veyret, technical analyst at ActivTrades.

"The Fed chairman added to the current uncertainty by warning investors about the lasting damage to the economy caused by the coronavirus pandemic, and the fallout could worsen if no additional stimulus support is provided," Veyret added.

Fed Chair Powell on Wednesday said the central bank is not considering using negative interest rates as a means to curtail economic damage caused by the coronavirus outbreak.

Speaking at the Peterson Institute for International Economics in Washington DC via webcast, the Fed chief said negative interest rates are not under consideration, quelling speculation the central bank would push US rates below zero.

Powell also said crisis spending measures to confront the coronavirus pandemic are costly but worth the risk if they avoid even worse economic damage

As the shutdowns drag on, they could cause "lasting damage" to the US economy and more policies may be needed to deal with that possibility, including spending beyond the nearly USD3 trillion already approved by Congress, he warned.

The ActivTrades analyst added that volatility is likely to rise towards the end of the week as investors eye the afternoon's US jobless claims and Friday's Chinese retail sales and industrial production figures.

US jobless claims are due at 1330 BST on Thursday. Consensus, according to FXStreet, sees a further 2.5 million claims in the week to May 9, which would be down on 3.2 million the week before.

The dollar was stronger against most majors ahead of the jobs data.

Sterling was quoted at USD1.2205 midday Thursday, down from USD1.2222 at the London equities close on Wednesday. The euro traded at USD1.0795, lower than USD1.0845 late Wednesday.

However, the safe haven Japanese yen rose amid the risk-off sentiment. The dollar was quoted at JPY106.94, down from JPY107.11.

Wall Street is on course for a largely lacklustre start. The Dow Jones and S&P 500 are called down 0.3% and 0.2% respectively, but the Nasdaq is set to rise 0.1%.

Also ensuring Thursday's trade remained risk-off were fears over a second wave of Covid-19 infections.

A northeastern Chinese city has partially shut its borders, cut off transport links and closed schools after the emergence of a local Covid-19 cluster that has fuelled fears about a second wave of infections in China.

In South Korea - a country that has been held up as a global model for how to curb the virus - a spike of new cases driven by a nightclub cluster Seoul's Itaewon district forced authorities to delay this week's planned re-opening of schools.

Gold was quoted at USD1,716.30 an ounce on Thursday, up on USD1,714.70 on Wednesday. Brent oil was trading at USD30.44 a barrel, up against USD29.45.

In London, Prudential sank to the bottom of the blue-chips, the stock down 5.9% at midday.

The financial services firm said first quarter sales in Asia were weighed down by the effects of Covid-19 on mainland China and Hong Kong.

Asia APE sales excluding Hong Kong and China were up 1% for the three months ended March 31 compared to a year before, while total Asia APE sales fell 24% to USD986 million.

APE sales are "a measure of new business activity that comprises the aggregate of annualised regular premiums and one-tenth of single premiums on new business written during the year for all insurance products, including premiums for contracts designated as investment contracts under IFRS 4," Prudential explained.

Housebuilders continued to trade in the red after a report from surveyors suggested that UK house prices could take longer to recover than sales now that England's property market has been re-opened for business.

The Royal Institution of Chartered Surveyors said feedback suggests that a recovery in house prices could take a little while longer than a bounce back in sales levels, with property professionals suggesting, on average, prices would take 11 months to recover, compared with nine months for sales.

The findings were contained in Rics's UK-wide April survey, which said 35% of property professionals believed prices could be left up to 4% lower on the re-opening of the housing market, while more than 40% thought prices could fall by more than 4%.

Persimmon was down 5.2%, Berkeley down 4.6% and Taylor Wimpey down 4.4%.

Towards the top of the FTSE 100 was Hargreaves Lansdown, up 4.3% as net new business poured in.

In the four months to April 30, Hargreaves recorded GBP4.0 billion of net new business, with 94,000 new clients joining the firm. In the same period last year, Hargreaves recorded GBP2.9 billion in net new business.

Net new business growth was driven by the "usual factors", Hargreaves said, of existing clients using tax allowances during the ISA season, ongoing wealth consolidation onto its platform from existing clients and flows into its cash management service, Active Savings.

The growth was further accelerated following the significant market falls in early March, the fund supermarket added, as existing clients added money to accounts and new clients sought to take advantage of the opportunity to invest at lower prices.

In the FTSE 250, Countryside Properties slumped 17% as it reported a sharp drop in interim profit.

In the six months to March 31, Countryside's pretax profit slumped 38% to GBP43.7 million from GBP70.3 million the year before. Revenue slipped 5.1% to GBP481.2 million from GBP507.0 million.

The housebuilder's net reservation rate in the first half improved to 0.93 per open sales outlet per week, up from 0.86 a year before. The firm's average private selling price declined to GBP368,000 from GBP377,000.

Chief Executive Iain McPherson said: "As we move into the second half of the year, we have cautiously restarted construction on around 80% of our sites albeit with significantly reduced build rates as we adjust to new ways of working.

Countryside estimates around 184 completions, including 79 private sales, were lost due to the Covid-19 lockdowns. The firm also saw lowered construction activity, which resulted in the cancellation of five land sales.

Greencore was down 14% after Jefferies cut the stock to Hold from Buy.

By Lucy Heming;Â lucyheming@alliancenews.com