LONDON MARKET MIDDAY: Stocks Slip After Dismal Economic Forecasts

(Alliance News) - Stocks in London were sharply lower at midday on Tuesday as investors count the cost of the damage caused by the coronavirus outbreak on the global economy.

The European Commission expects gross domestic product to contract by 8.7% in the eurozone this year, according to its latest forecast, significantly deeper than the 7.7% decline predicted in May.

In 2021, the 19-country currency area should brace for a "slightly less robust" recovery than previously modelled, at 6.1% growth, according to a statement from the commission.

For the whole 27-member European Union, a GDP downturn of 8.3% is forecast in 2020, followed by a return to growth at 5.8% next year.

The forecast updates the grim picture of the bloc's economic health following months of Covid-19 containment measures that saw shops, restaurants and hotels shuttered. Many of these measures have been gradually lifted in EU countries.

The FTSE 100 index was down 89.14 points, or 1.4%, at 6,196.80. The flagship index closed up 128.64 points, or 2.1%, at 6,285.94 on Monday.

The mid-cap FTSE 250 index was down 168.38 points, or 1.0%, at 17,381.65. The AIM All-Share index was down 0.6%, or 4.86 points at 885.77.

The Cboe UK 100 index was down 1.4% at 617.44. The Cboe 250 was down 1.0% at 14,783.10, and the Cboe Small Companies was down 0.4% at 9,324.59.

In mainland Europe, the CAC 40 in Paris was down 1.2%, while the DAX 30 in Frankfurt was down 1.5%.

"Stocks in London and on the continent are lower as the EU Commission issues a bleak outlook for GDP growth, pouring cold water on the economic recovery narrative that had held sway over the past few sessions thanks to data from the US and China. It expects a deeper recession this year and a weaker bounceback next year, which does at least set the bar relatively low and allows for the possibility of beating expectations if things go better than forecast. But with stocks having rallied sharply over the last few sessions the market is not in the mood to hear much bad news, and we have seen the Dax and FTSE 100 both move sharply lower in early trading," IG Group's Chris Beauchamp said.

On the London Stock Exchange, housebuilders were among the blue-chip risers amid growing expectations that UK Chancellor of the Exchequer Rishi Sunak will announce a temporary stamp duty holiday to revive activity in his summer statement on Wednesday.

Barratt Developments was up 1.0%, Persimmon, up 0.9% and Berkeley Group, up 0.1%.

At the other end of the large-cap index, Whitbread was the worst performer, down 4.5% after the Premier Inn hotel chain owner said lockdown restrictions dealt a serious blow to first-quarter sales.

The company said 24 of its UK restaurants and more than 270 of its UK hotels are open again after the Covid-19 lockdown with the majority of the rest reopening in July. All 19 of its German hotels are open again. However, as expected given that lockdown restrictions forced almost all of Whitbread's estate to close from the end of March, sales fell sharply in the 13 weeks ended May 28.

UK like-for-like sales dropped 80%, including an 81% drop in Food & beverage sales and 79% fall in Accommodation sales. Total UK sales were also down 80% with a 79% Accommodation drop and 80% decline for Food & beverage. UK & International total sales fell 79% in Whitbread's first quarter, with an 80% fall for Food & beverage and Accommodation sales dropping 79%.

In the FTSE 250, Plus500 was the best performer, up 5.3% after the online trading company said it experienced a sharp rise in revenue for the six months to June 30.

Plus500 said it has onboarded a record number of new customers in the first half. Plus500 added 198,176 new customers in the first half, compared to 47,540 the year before. As a result, Plus500 said its revenue is expected around USD564.2 million, significantly higher than the USD148.0 million reported the year before.

The company said its second-quarter revenue was about USD247.6 million versus USD94.1 million the year before. Plus500 saw a record interim customer income, the company said, of about USD556.9 million - up sharply from USD175.0 million the year before. Plus500 said its financial position remains "robust".

At the other end of the midcaps, Micro Focus International was the worst performer, down 12% after the Newbury-based software firm said its loss widened substantially in the first half of its financial year following a USD922 million impairment charge.

Micro Focus posted a USD1.04 billion pretax loss for the six months ended April 30, hugely widened from a loss of only USD99.6 million the year before. This resulted from exceptional USD922.2 million goodwill impairment charge "attributable to the increased economic uncertainty as a result of Covid-19, which has led to an increase in the pretax discount rate and expected disruption to new sales activity and timing pressure on renewals."

No such charge was seen in financial 2019. Revenue was 13% lower at USD1.45 billion from USD1.66 billion the previous year. No interim dividend will be paid, after the company's board opted to suspend its final financial 2019 dividend amid Covid-19 uncertainty.

The pound was quoted at USD1.2481 at midday, lower from USD1.2492 at the London equities close Monday, as Brexit talks get set to resume.

The EU's chief Brexit negotiator Michel Barnier will travel to London on Tuesday for talks with his UK counterpart David Frost.

Last week, discussions between the two sides on a post-Brexit trade deal broke up early with "significant differences" remaining. But Barnier and Frost will meet face-to-face in London on Tuesday, before talks with the rest of their teams on Wednesday.

Meanwhile, nearly one in seven people in the UK might be unemployed by the end of this year if a second wave of the pandemic washes over the country, according to new estimates.

The Organisation for Economic Co-operation & Development said the UK's unemployment rate could reach 14.8% as its experts warned that global job losses could take unemployment rates to levels more comparable to the 1930s than 2008.

But even without a second wave of infections, the UK unemployment rate is likely to reach a record high of up to 11.7% by the end of this year, the OECD reported.

Next year it would fall to 7.2% if there is no second wave, but nevertheless a massive rise from the end of 2019, when the unemployment rate was 3.8%.

The euro stood at USD1.1271 at midday in London, down from USD1.1312 at the European equities close Monday.

Against the yen, the dollar was trading at JPY107.60, firm from JPY107.49 late Monday.

Stocks in New York are set to open lower as investors shift focus to the economic costs of the global coronavirus pandemic.

The DJIA was called down 1.1%, the S&P 500 index down 0.9% and the Nasdaq Composite down 0.5%. The tech-heavy Nasdaq index set a fresh record closing high of 10,433.65 on Monday.

The US is still "knee-deep" in its first wave of coronavirus infections and must act immediately to tackle the recent surge, the country's top infectious diseases expert said Monday.

Anthony Fauci said the number of cases had never reached a satisfactory baseline before the current resurgence, which officials have warned risks overwhelming hospitals in the country's south and west. "It's a serious situation that we have to address immediately," Fauci said in a web interview with National Institutes of Health director Francis Collins.

But Fauci added he did not strictly consider the ongoing rise in cases a "wave." "It was a surge or a resurgence of infections superimposed upon a baseline," he said. "If you look at the graphs from Europe, the EU as an entity, it went up and then came down to the baseline. Now they're having little blips, as you might expect, as they try to reopen. We went up, never came down to baseline, and now we're surging back up."

The death toll from the virus in the US hit 130,000 Monday, according to a tally by Johns Hopkins University, and the number of infections is nearing three million.

Brent oil was quoted at USD42.55 a barrel at midday, down from USD43.43 at the London close Monday.

AxiCorp's Stephen Innes said: "Crude prices are off modestly but sit firmly in the middle of the Brent USD40 to USD45 range the market has recently bookended. The supply-side of the equation is well understood, with OPEC registering in at 100 % compliance in June. Still, markets are focused on a rebound in any US curtailments (which now might be hindered in the Bakken by the closure of the Dakota Access line).

"However, and which is the colossal elephant in the room, there remains uncertainty on the pace of demand rebound, especially as virus outbreaks in the US southern states and other countries around the world confirm the difficulties of reopening economies safely as was evidenced today by the lockdown in Melbourne."

Gold was quoted at USD1,775.75 an ounce, lower against USD1,784.81 at the London equities close Monday.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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