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LONDON MARKET MIDDAY: Stocks Down As China Retail Sales Disappoint

Thu, 16th Jul 2020 12:10

(Alliance News) - Stocks in London were lower at midday on Thursday as investors focused on weak retail sales figures from China and fresh spikes in coronavirus infections around the world.

The number of new coronavirus cases and fatalities continued to mount across the US on Wednesday, with Texas and Oklahoma recording new highs. Johns Hopkins University, which tracks the spread of the disease, said late Wednesday that 67,632 new cases of the disease had been reported across the country in the previous 24 hours, a new national record.

The FTSE 100 index was down 44.26 points, or 0.5%, at 6,248.39. The mid-cap FTSE 250 index was 111.39 points lower, or 0.6%, at 17,309.16. The AIM All-Share index was 0.1% lower at 874.32.

The Cboe UK 100 index was down 0.8% at 622.54. The Cboe 250 was 0.6% lower at 14,682.54, and the Cboe Small Companies index was flat at 9,184.06.

In mainland Europe, the CAC 40 in Paris was down 0.7% while the DAX 30 in Frankfurt was 0.5% lower.

"European shares slid lower on Thursday, mostly in profit-taking moves sparked by disappointing Chinese retail sales this morning. Even if trading optimism has recently been boosted by vaccine developments, today's poor Chinese data underline that market confidence remains feeble and reminded some investors the path to a full recovery may be longer than initially estimated," said analysts at ActivTrades.

China saw forecast-beating economic growth in the second quarter after a record contraction in the previous three months, as businesses cautiously returned to normality after strict lockdowns across the country.

Gross domestic product expanded 3.2% in April to June, the National Bureau of Statistics said, smashing expectations and a massive improvement on the 6.8% contraction in the first quarter. The growth reading, while smashing the 1.3% growth tipped in an AFP poll of analysts, is still among the lowest rates on record on a quarterly basis.

However, while the reading was welcomed, analysts said investors had largely priced in a recovery and pointed to a worse-than-expected drop in retail sales in June - a small rise had been forecast - suggesting consumers are still reluctant to spend.

China retail sales in June fell 1.8% year-on-year, falling short of market expectations of a 0.3% increase. The retail sector has taken on an increasingly significant role in China's economy as leaders look for consumers, rather than trade and investment, to drive growth.

"An overall positive morning for data - including a return to growth for China - didn't mean as much to the markets as yesterday's vaccine updates, meaning European markets started the session in the red on Thursday," said Spreadex analyst Connor Campbell.

In the FTSE 100, SSE was up 1.3% after the power company committed to paying dividends to shareholders, as many other companies refrain from payouts due to the coronavirus crisis.

The Perth, Scotland-based electricity utility said its five-year dividend plan to financial 2023 remains unchanged, including a planned payout of 80 pence plus RPI for the current year, incorporating a 24.4p interim dividend to be declared in November.

BP was up 0.5% after Jefferies raised the UK oil major to Buy from Hold.

At the other end of the large-cap index, GVC Holdings was the worst performer, down 4.7% after the sports betting company suffered the full effects of Covid-19, which saw its shops shuttered during the lockdown.

For the six months to June 30, net gaming revenue fell 11%, while online net gaming revenue was up 19% despite overall performance being hindered by the cancellation of sporting events due to the coronavirus. UK retail like-for-like net gaming revenue was down 86%, having been heavily hit due to closures.

In addition, GVC Chief Executive Kenny Alexander announced his retirement after a 13-year stint with the company. He will be replaced by Chief Operating Officer Shay Segev from Friday.

AJ Bell's Russ Mould commented: "Alexander is seen as the brains behind GVC's rapid ascent, moving from a small betting business to a member of the FTSE 100 during his tenure. Shareholders have been made very rich as a result of GVC's ascent up the gambling industry ladder, and so they might be nervous about his successor's ability to keep striking the right notes."

The pound was quoted at USD1.2545 at midday on Thursday, down from USD1.2604 at the London equities close Wednesday, amid fears the latest UK unemployment data masks the true scale of damage caused by Covid-19.

The UK jobless rate remained unchanged in the three months to June from the previous 3.9% in May, according to the Office for National Statistics. However, the number of UK workers on company payrolls has fallen by 649,000 during lockdown as the coronavirus crisis claimed another 74,000 jobs last month.

The ONS said early estimates showed the number of paid employees fell by 1.9% year on year in June to 28.4 million, and by 0.3% compared with the previous month. It said the pace of job losses appeared to have slowed in June, with claims under Universal Credit by the unemployed and those on low incomes falling by 28,100 between May and June to 2.6 million. But the claimant count has more than doubled since March - soaring 112% or by 1.4 million - indicating the severity of the jobs crisis facing the UK.

"Unfortunately, amid an increasing number of public job-related announcements, there's little doubt that unemployment will rise over the coming months. The gradual unwinding of the job retention scheme over the summer is being seen as a potential catalyst for firms to begin making changes, and the jury is out on how far the new government bonus scheme (incentivising firms to bring furloughed workers back) will cushion the blow," said analysts at ING.

"In short, the outlook for the job market looks challenging, and this is the key reason why we think the economy won't regain its lost ground until 2022 at the earliest," analysts at ING added.

The euro was changing hands at USD1.1367, down from USD1.1419, ahead of the European Central Bank's interest rate decision at 1245 BST. The central bank is widely expected to keep rates unchanged.

There will be a virtual press conference with President Christine Lagarde later in the afternoon.

ECB governors are expected to refrain from doling out fresh stimulus, hoping EU leaders will do their bit to shore up the crisis-hit region with a huge coronavirus recovery plan.

The ECB meeting comes on the eve of a crunch EU summit in Brussels on Friday and Saturday, at which leaders will wrangle over a proposed EUR750 billion recovery fund to kickstart the bloc's battered economy.

ThinkMarkets analyst Fawad Razaqzada commented: "Investors will still want to look for hints on future shifts in policy, as expectations remain that more asset purchases will be announced before the end of the year as the Eurozone's recovery from the coronavirus pandemic should remain bumpy, while many other economies outside of the single currency block - including some of its key trading partners - are still in deep recession.

"Christine Lagarde will continue to strike a dovish tone and express the ECB's commitment to act further if and when more policy response is needed. But this is priced in, and unless she comes out with something significantly more dovish then the euro may continue to drift higher, even though it has come off its recent highs amid profit-taking."

Stocks in New York look set for a lower open, ahead of second-quarter results from Morgan Stanley rounding off earnings from the 'Big Six' Wall Street banks. Streaming services provider Netflix reports earnings after the market close in New York.

The DJIA was called down 0.7%, the S&P 500 index down 0.8% and the Nasdaq Composite down 1.6%.

Already out Thursday, Bank of America reported second-quarter revenue of USD22.3 billion, down 3% from the second quarter last year. The bank said it generated earnings of USD3.5 billion, or 37 cents a share. Provision for credit losses increased to USD5.1 billion.

On Wednesday, Goldman Sachs delighted investors after beating earnings forecasts, a day after peer JPMorgan Chase also outperformed expectations.

Against the yen, the dollar was trading at JPY107.16, firm from JPY106.88, in London.

Brent oil was trading at USD43.52 Thursday midday, firm from USD43.42 a barrel late Wednesday. Gold was quoted at USD1,804.57 an ounce, down from USD1,809.00 an ounce.

The Organization of the Petroleum Exporting Countries and Russia are set to start rolling back record supply cuts agreed earlier in 2020, the Financial Times reported on Wednesday.

The oil cartel and its allies are set to scale back the cuts of 9.7 million barrels a day that took effect in May to 7.7 million barrels from August, the newspaper reported citing OPEC delegates. OPEC is expected to taper further to cuts of 5.8 million barrels a day between January 2021 and April 2022, according to the FT.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

Copyright 2020 Alliance News Limited. All Rights Reserved.

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