LONDON MARKET MIDDAY: Stocks Slide As Virus Slams Europe Manufacturing

(Alliance News) - London stocks continued to languish deep in the red at midday on Wednesday following the release of some dire manufacturing data from Europe.

UK banks remained among the worst blue-chip performers as they confirmed they will not be paying dividends in 2020.

The FTSE 100 index was down 190.53 points, or 3.4%, at 5,481.43 Wednesday midday. The mid-cap FTSE 250 index was down 506.58 points, or 3.4%, at 14,594.55. The AIM All-Share index was down 2.2% at 667.25.

The Cboe UK 100 index was down 3.2% at 9,290.72. The Cboe 250 was down 2.8% at 12,630.43, and the Cboe Small Companies down 1.1% at 7,985.47.

In mainland Europe, the CAC 40 in Paris and the DAX 30 in Frankfurt were down 3.6% and 3.2% respectively on Wednesday.

"A sea of red evident throughout European indices serves to highlight the ongoing fears that are evident despite recent gains, with the forthcoming days likely to shift the focus back onto the impending global recession. Havens are gradually getting back into vogue, with the dollar and yen both gaining ground in early trade today," said Joshua Mahony, senior market analyst at IG.

Bringing the economic fallout from Covid-19 back to the fore on Wednesday were the latest manufacturing PMIs from Europe.

The eurozone manufacturing sector contracted further in March, hitting its lowest level in over seven years amid Covid-19 shutdowns.

The purchasing managers' index fell to a 92-month low of 44.5 in March from 49.2 in February. Consensus, according to FXStreet, had seen the reading falling to 44.7, which would have been just below March's flash reading of 44.8.

Any reading below 50 indicates contraction in the sector, while one above signals expansion.

Shutdowns related to Covid-19 drove output and orders lower, IHS Markit said, while jobs were cut "markedly". Confidence for the future sank to a historical low.

A total of 30,063 deaths have been recorded in Europe out of 458,601 cases, making it the continent worst hit by Covid-19. The most deaths were recorded in Italy, with 12,428 fatalities, followed by Spain with 8,189 and France with 3,523.

The lowest manufacturing PMI came from hard-hit Italy with its reading slumping to a near 11-year low of 40.3 from 48.7 in February. France's PMI came in at 43.2, slightly above the flash reading of 42.9, while Germany's figure was 45.4 versus the flash of 45.7.

In the UK, manufacturing activity fell to a three-month low.

The IHS Markit-Chartered Institute of Procurement & Supply purchasing managers' index fell to 47.8 in March from 51.7 in February, below both the no-change mark of 50 and the flash reading of 48.0.

Output fell to the greatest extent since July 2012 amid a "severe" reduction in intakes of new business, said IHS Markit. Downturns in output and new orders were widespread.

Pantheon Macroeconomics said the UK PMI "likely greatly understates the pace of the downturn" in the manufacturing sector.

"88% of responses to Markit’s survey were received by March 20 - the cut-off for the flash reading - just before schools were closed, hitting labour supply, and all non-essential shops were forced to shut. Responses received between March 20 and 26 were consistent with a 41.0 output index, the lowest level since February 2009," said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

"Looking ahead, demand for goods likely won't slump as much as for services, given that many are essential items that still can be purchased online," Tombs added. "But with consumers clamping down on all discretionary spending in the current uncertain environment, the manufacturing sector inevitably will struggle further."

Sterling was quoted at USD1.2371 Wednesday following the data, lower than USD1.2435 at the London equities close on Tuesday. The euro traded at USD1.0937, down from USD1.0996.

The safe haven yen edged higher amid Wednesday's risk-off mood. Against the yen, the dollar was quoted at JPY107.49 at midday versus JPY107.63 late Tuesday.

Gold was quoted at USD1,593.27 an ounce on Wednesday, lower than USD1,609.09 on Tuesday. Brent oil was trading at USD25.70 a barrel, slipping against USD26.61 late Tuesday.

In the US, stocks are pointed to a downbeat start, following Europe. The Dow Jones is called down 2.8%, as is the S&P 500, while the Nasdaq is seen 2.4% lower.

US President Donald Trump has warned Americans to brace for a "hell of a bad two weeks" amid White House projections of between 100,000 to 240,000 coronavirus deaths in the US even if social distancing guidelines are maintained.

Public health officials stressed the shocking number could be less if people across the country were diligent in keeping their distance from one another.

The jaw-dropping projections were laid out during a grim, two-hour White House briefing. Officials described a death toll that in a best-case scenario would likely be greater than the more than 53,000 American lives lost during World War I. And the model's high end neared the realm of possibility that Americans lost to the virus could approach the 291,000 Americans killed in World War II.

Lower in London on Wednesday were UK banks after suspending dividends and share buybacks in 2020.

The UK Prudential Regulatory Authority late on Tuesday said it "welcomed" a decision by large UK banks to suspend dividends and buybacks until the end of 2020 and also cancel any dividends for 2019 yet to be paid.

This followed a request by the regulator for the banks to preserve cash amid the economic uncertainty posed by Covid-19. The PRA noted the banks are "strong" financially with the capacity to weather severe economic shock.

Putting out their own statements on Wednesday confirming the halting of returns were lenders HSBC Holdings, Barclays, Royal Bank of Scotland Group, Lloyds Banking Group, and Standard Chartered.

HSBC was down 8.4%, Barclays down 6.1%, RBS down 5.2%, Lloyds down 5.4% and Standard Chartered 7.0% lower.

"Banks have historically been a key holding for anyone seeking to generate income from their investments. A history of paying generous dividends is a key reason why so many people held onto their Lloyds shares during and after the global financial crisis, despite the share price being on its knees," explained Russ Mould at stockbroker AJ Bell.

The FTSE 350 banks sector was the worst performing group on Wednesday.

Also lower was Auto Trader, down 8.9%, as it unveiled plans for an equity raise.

The FTSE 100 firm will place up to 46.5 million shares through a bookbuild which kicks off on Wednesday. Auto Trader said the pricing will be determined by the company and Bank of America, which is acting as the bookrunner.

With shares currently trading at 400 pence, the firm would raise just under GBP190 million if all the shares were taken up.

On its trading, the company said its results for the year ended March 31 will be "broadly in line with the market consensus", but it cannot provide guidance for financial 2021 due to uncertainty caused by the virus crisis.

Oil major BP was down 1.0% as it warned of a USD1 billion impairment as Covid-19 leads to a collapse in demand for fuel.

The impairment will be non-cash and non-operating, BP said. The company said the Downstream segment will be hurt in the first quarter by a "significant and growing" fall in demand for fuels, jet fuel and lubricants. BP said this has been particularly evident in China, and, towards the end of the first quarter, also in the larger US and European markets.

BP has reduced organic capital spending plans for 2020 by 25% to around USD12 billion. For 2020, underlying Upstream output will be below 2019.

In the FTSE 250, Future was down 7.4% as the UK competition watchdog opened a public consultation on the tie-up of the magazine publisher and TI Media before making its final decision.

Future announced the GBP140 million purchase of fellow magazine publisher TI Media last October.

The UK Competition & Markets Authority raised concerns in January, but last week the regulator said it would pass the acquisition if Future agreed to sell three competing titles. The CMA has until May 29 to make a final decision, though this could be extended to July 24.

By Lucy Heming; lucyheming@alliancenews.com

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