LONDON MARKET MIDDAY: Stocks Down As US Fed Chair Takes Centre Stage

Alliance News) - Stocks in London were mixed at midday on Thursday as investor focus turns to the start of the US Federal Reserve's virtual Jackson Hole symposium.

In London, the blue-chip FTSE 100 index was down 13.92 points, or 0.2%, at 6,031.68. The mid-cap FTSE 250 index was up 15.03 points, or 0.1%, at 17,768.60. The AIM All-Share index was down 0.2% at 963.71.

The Cboe UK 100 index was down 0.2% at 600.69. The Cboe 250 was up 0.3% at 15,143.68. The Cboe Small Companies was flat at 9,476.65.

In mainland Europe, the CAC 40 index in Paris was down 0.6%, while the DAX 30 in Frankfurt was down 0.2%.

New York is set to open lower, with the Dow Jones Industrial Average called down 0.5%, the S&P 500 down 0.4% and the Nasdaq Composite down 0.1%, based on futures trading.

Fed Chair Jerome Powell speaks at around 1500 BST, addressing the annual meeting of global central bankers, this year held online. He is expected to outline the Fed's plans for US monetary policy.

"The importance of the event has been magnified by the lack of big news this week on both the corporate and economic fronts, as if the stage had been deliberately cleared so that the world's most important central banker could be given the necessary scope for a major policy announcement. But of course it has been so widely-trailed and dissected already that the risk for markets may be that we now face a period of reversal, with equities giving back some gains and the dollar back in favour once again," IG Group's Chris Beauchamp commented.

The Fed has spent the past year and a half conducting a comprehensive policy framework review. In his speech Thursday, entitled Monetary Policy Framework Review, Powell is expected to outline the central bank's most strenuous efforts to spur inflation back to a healthy level.

Analysts believe the Fed chief could change the central bank's policy focus to allow inflation to rise above 2.0% for a time, allowing the economy to heat up and unemployment to fall.

In July, the US consumer price inflation rate picked up to 1.0% on an annual basis, from a rise of 0.6% in June.

In addition, investors are hopeful Powell will endorse an "average inflation targeting" policy.

Analysts at RaboBank said: "Judging by the slew of commentary that has preceded today's virtual gathering, expectations are riding high that Powell will provide some detail as to the conclusions drawn from the Fed's Policy Framework Review. One specific point that looks to be garnering the most speculation is that of the Fed citing a tolerance for overshooting inflation with many commentators anticipating a shift toward targeting average inflation.

"At first blush, one might expect such a development to result in wider long-dated breakevens and higher long-end nominal yields as the bank pledges to sit idly by and allow for greater inflation pressure to build before acting. This, though, misses the point that the Fed, in common with other developed world central banks, has failed to meet its current inflation target for years."

On the London Stock Exchange, WPP was the best blue-chip performer, up 4.3% after the ad agency said it will pay a dividend despite reporting a drop in advertising income during the Covid-19 pandemic.

For the six months ended June 30, WPP posted a pretax loss of GBP2.58 billion, swinging from a profit of GBP409 million a year prior. This was as revenue fell 12% year-on-year to GBP5.58 billion from GBP6.37 billion and administrative expenses jumped to GBP3.23 billion from GBP443 million.

Revenue less pass-through costs was GBP4.7 billion, down from GBP5.2 billion in the first half of 2019.

An interim dividend of 10.0p was declared, down 56% from 22.7p a year before. WPP said it has decided to review its dividend policy "in the context of our overall capital allocation priorities". It will provide an update as part of a capital markets event near the end of the year.

Looking ahead, WPP said that assuming no further Covid-19 lockdowns, it expects earnings for the full year to be in line analysts' expectations of a 10% to 12% decline in like-for-like revenue less pass-through costs, and a 10% to 13% headline operating margin.

WPP added that its share buyback is under review but intends to restart it once the current environment had stabilised.

At the other end of the FTSE 100 index, Rolls-Royce was the worst performer, down 6.5% after the jet engine maker unveiled the damage the coronavirus crisis has done to its earnings.

Passenger planes remain on the tarmac around the world as countries have introduced and reintroduced lockdowns and quarantines to contain the novel coronavirus.

For the half-year ended June 30, Roll-Royce's revenue fell 26% to GBP5.82 billion from GBP7.88 billion a year before, and the company swung to a pretax loss of GBP3.24 billion from a GBP93 million profit on an underlying basis.

Its reported pretax loss gaped to GBP5.37 billion from GBP791 million, including a GBP2.6 billion non-cash loss from revaluation of its foreign exchange hedge book.

The company reported free cash outflow of GBP2.8 billion, "deteriorated" from a GBP429 million outflow last year.

To ease pressure on its balance sheet, Rolls-Royce said it is targeting potential disposals to raise at least GBP2 billion, including putting ITP Aero in Spain up for sale among other businesses.

In addition, Chief Financial Officer Stephen Daintith has decided to leave Roll-Royce to take up the same role at online grocer Ocado. Daintith will replace Duncan Tatton-Brown at Ocado who decided to step down for family circumstances, the online grocer said. Ocado shares were up 0.8%.

"Asset sales will help Rolls-Royce in the short-term, and it will also save money through large job cuts. But it is clearly going to be a tough road ahead, which might explain why Chief Financial Officer Stephen Daintith is jumping ship to Ocado where the growth opportunities are plentiful," said AJ Bell's Russ Mould.

Homeserve was down 3.5% after Morgan Stanley downgraded the home emergency cover provider to Equal Weight from Overweight.

HSBC Holdings was down 2.5% after the Asia-focused bank was slammed by US Secretary of State Mike Pompeo over reports it had frozen access to credit card and bank accounts for executives of pro-democracy independent media group Next Media. Pompeo accused HSBC of bowing to Chinese pressure amid Beijing's imposition of a draconian security law on Hong Kong.

The pound was quoted at USD1.3208 at midday on Thursday, up from USD1.3186 at the London equities close Wednesday.

The euro stood at USD1.1820, flat from USD1.1819 at the European equities close Wednesday. Against the yen, the dollar was trading at JPY106.00, lower from JPY106.16.

In commodities, Brent oil was quoted at USD45.76 a barrel Thursday midday, up from USD45.58 at the London equities close Wednesday, as Hurricane Laura made landfall.

Hurricane Laura hit southwestern Louisiana as a ferocious Category 4 monster, swamping a low-lying coast with ocean water that forecasters said could be 20ft deep and unsurvivable.

The National Hurricane Centre said the storm, which intensified rapidly on Wednesday before ploughing into land, came ashore near Cameron, a 400-person community about 30 miles east of the Texas border.

Winds gusted above hurricane force to 128 mph while Laura's northern eyewall moved onshore over Cameron Parish. Authorities had implored coastal residents of Texas and Louisiana to evacuate, but not everyone did before howling winds began buffeting trees back and forth in an area that was devastated by Rita in 2005.

Some of the US's biggest oil refineries are located in the two states.

Gold was quoted at USD1,941.27 an ounce, down from USD1,944.17.

The economic calendar on Thursday has US initial jobless claims at 1330 BST and a GDP reading due at the same time.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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