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LONDON MARKET MIDDAY: Stimulus Rally Ends; BoE Takes No Further Action

Thu, 26th Mar 2020 12:14

(Alliance News) - Stock prices in London remained in the red at midday on Thursday, but losses were less dramatic than than bruising hits seen in recent weeks, with markets retracing after two sessions of US stimulus-driven gains.

Focus in the day ahead lies on US initial jobless claims, due at 1230 GMT.

The Bank of England at midday in London left UK interest rates unchanged at 0.1%, having cut two times in recent weeks. The central bank kept its stock government bond purchases unchanged at GBP645 billion, but it said it can expand asset purchases further if needed.

The BoE said its Monetary Policy Committee expects a "very sharp" reduction activity due to the Covid-19 flu pandemic, with a risk of longer-term damage to the UK economy.

Sterling was quoted at USD1.1947 after the BoE, higher than USD1.1764 at the London equities close on Wednesday.

The MPC voted unanimously to keep Bank Rate at 0.1%, having cut it by 15 basis points in a special meeting last week. The MPC also voted to continue with its GBP200 billion programme of bond purchases, taking the total stock to GBP645 billion.

The bank warned that the spread of Covid-19 and the measures needed to contain it have "evolved significantly".

"The economic consequences of these developments are becoming more apparent and a very sharp reduction in activity is likely. Given the severity of that disruption, there is a risk of longer-term damage to the economy, especially if there are business failures on a large scale or significant increases in unemployment," the MPC said.

The FTSE 100 was down 124.29 points, or 2.2%, at 5,563.91 midday Thursday. The index remains up 8% since the week began, however.

The mid-cap FTSE 250 index was down 73.06 points, or 0.5%, at 14,746.85. The AIM All-Share index was down 0.1% at 661.37.

The Cboe UK 100 index was down down 0.6% at 9,492.57. The Cboe 250 was up 0.4% at 12,807.96, and the Cboe Small Companies down up 0.5% at 8,068.63.

In mainland Europe, the CAC 40 in Paris was down 1.7% while the DAX 30 in Frankfurt was 2.0% lower early afternoon on Thursday.

"Stock markets are back in the red on Thursday, but there is a feeling of calm currently, with the losses being seen very much in comfortable territory compared to what we've seen at times over the last month," said Craig Erlam, senior market analyst at Oanda.

"Everyone is eyeing the US jobless claims data today for an idea of just how devastating the shutdown of the economy has been. The PMIs earlier this week were horrible which doesn't offer much confidence. Investors may be more accepting though as they've had time to come to terms with the situation and now have a huge stimulus package to lean on," said Erlam.

The economic events calendar on Thursday has US GDP readings at 1230 GMT. At the same time are initial jobless claims, with FXStreet saying market consensus expects weekly claims to surge to 1.0 million from 281,000.

Ahead of the data, stocks in New York are pointed to a modest - relative to recent sessions - drop, with the Dow Jones seen down 0.3%, the S&P 500 down 0.7% and the Nasdaq down 0.6%.

New York authorities moved to avert a public health disaster in the city on Wednesday as its emergence as America's biggest coronavirus hot spot sent warnings to the rest of the country.

A makeshift morgue was set up outside Bellevue Hospital, and the city's police – their ranks dwindling as more fall ill – were told to patrol nearly empty streets to enforce social distancing.

Late on Wednesday night in Washington, the US Senate passed a USD2.2 trillion economic rescue package in response to pandemic. The House of Representatives will vote on the package on Friday.

US President Donald Trump said of the greatest public-health emergency in anyone's lifetime: "I don't think its going to end up being such a rough patch."

He said he anticipated the economy soaring "like a rocket ship" when the crisis was over, yet he implored Congress late in the day to move on critical aid without further delay. The measure is the largest economic relief bill in US history, and both parties' leaders were desperate for quick passage as the virus took lives and jobs by the hour.

In the UK, a financial package aimed at helping self-employed workers in the UK get through the coronavirus crisis will be announced by Chancellor Rishi Sunak this afternoon, with the government under growing pressure to throw the sector a lifeline.

The move comes after UK Prime Minister Boris Johnson told Parliament he wanted to achieve "parity of support" so the self-employed could have similar levels of protection to waged workers.

The chancellor will outline his measures the day the number of people testing positive for Covid-19 is likely to pass 10,000.

In the midst of all this, world leaders are to hold online crisis talks Thursday on the coronavirus pandemic that has forced three billion people into lockdown and claimed more than 21,000 lives.

The euro traded at USD1.0965 on Thursday, up from USD1.0834 late Wednesday. Against the yen, the dollar was quoted at JPY109.68, lower than JPY111.60.

Gold was quoted at USD1,618.35 an ounce Thursday, up from USD1,607.66 on Wednesday. Brent oil was trading at USD26.96 a barrel, down from USD27.08 late Wednesday.

In another day dominated by Covid-19 in London, British Land Co was up down 5.4% at midday as it announced plans to suspend all future dividend payments in the face of the Covid-19 crisis.

British Land also outlined rental deferral measures for some of its retail customers. Its portfolio has a 41% exposure to the sector as of September 30.

Earlier this week, the UK government introduced measures calling on non-essential retail stores to close in a bid to slow the spread of the deadly Covid-19 virus.

British Land said: "Our immediate priority is to support those customers who are being hardest hit. At sites we control, we are therefore releasing our smaller retail, food & beverage and leisure customers from their rental obligations for three months."

These measures will amount to GBP3 million in lost revenue and services charges.

"For other retail, food & beverage and leisure customers experiencing financial challenges because of Covid-19, we are prepared to defer the March quarter day rents and spread repayment over the six quarters from September 2020. On the sites we hold in joint venture or via fund structures, we are working with our partners to agree an appropriate approach."

Assuming this gesture is extended to joint-venture and fund properties, British Land expects a hit of around GBP40 million.

Spirax-Sarco was down 5.2% after Berenberg cut the stock to Hold from Buy.

In the FTSE 250, Synthomer rose 5.1% after the chemicals firm reported a limited impact from Covid-19 thus far.

On its trading, the company said it has made a "solid start" to its current financial year.

"Whilst the impact on both production and demand from Covid-19 has been limited to date, the ongoing spread of the virus clearly presents significant uncertainty," Synthomer said.

The company said that as a result, it will not recommend paying a final dividend for 2019.

Dixons Carphone was up 3.9% after warning it will miss its annual profit guidance but is seeing a boost to online sales as customers stock up on equipment to work form home.

In the 11 weeks to March 21, group like-for-like sales rose 4% and in the final three weeks of that stretch alone, they were 13% higher. For Electricals alone, the increases were 8% and 23%, respectively, while Mobile sales were down 15% and 24%. UK & Ireland Online like-for-likes soared 72% during the three weeks, and climbed 23% in the 11 weeks.

Dixons Carphone said it would have expected total sales in the rest of its financial year of about GBP400 million from the stores which have now closed. The company's financial year is to the end of April.

"There will be some recovery through Online operations but overall the loss of sales will adversely impact our full-year profitability and cash position," the company said.

It therefore does not expect to meet guidance of annual adjusted pretax profit of GBP210 million, nor of a lower net debt.

By Lucy Heming; lucyheming@alliancenews.com

Copyright 2020 Alliance News Limited. All Rights Reserved.

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