LONDON MARKET OPEN: Cautious Open Ignoring Positive US Jobs, China PMI

Fri, 03rd Jul 2020 08:48

(Alliance News) - Stocks in London were mixed Friday morning as caution remained in the face of a solid US jobs report and China's service sector expanding.

The FTSE 100 index was down 4.36 points, or 0.1%, at 6,236.00 early Friday. So far this week, the blue chip index is up 1.2%.

The mid-cap FTSE 250 index was 49.42 points higher, or 0.3%, at 17,417.71. The AIM All-Share index was up 0.2% at 894.02.

The Nikkei 225 index in Tokyo closed up 0.7% on Friday. In China, the Shanghai Composite closed up 2.0%, and the Hang Seng index in Hong Kong is 1.0% higher in late trade.

"A stellar US jobs report saw Wall Street bound higher with the Nasdaq reaching another all time high and the S&P reaching its highest closing level since early June. The positivity spilled over into Asia where stocks are trading at 4-month highs, buoyed also by China's service sector growing at the fastest pace in over a decade in June," CityIndex analyst Fiona Cincotta said.

China's services sector grew at its quickest pace in more than 10 years as Covid-19 lockdown measures continued to ease, IHS Markit said on Friday. Caixin's seasonally adjusted headline business activity index came in at 58.4 in June, not only comfortably above the 50.0 no-change mark but also surging from 55.0 in May.

IHS Markit noted it was the fastest rate of expansion since April 2010, with new orders jumping at the fastest pace since August 2010.

"Caution remains despite increasing signs of a strong economic rebound, due to rising US coronavirus cases. The number of new daily cases crossed 50,000 for the first time reaching 51,200 in the last 24 hours a sign that the crisis is spiralling out of control. The economic recovery that was cheered in the previous session could soon be reversed as reopening plans are paused and in some cases rolled back," Cincotta added.

In mainland Europe, the CAC 40 in Paris was marginally lower, while the DAX 30 in Frankfurt was up 0.2% early Friday.

On the London Stock Exchange, DS Smith clawed back some of Thursday's losses, adding 1.8% in early trade. On Thursday, DS Smith ended the worst performer, down 6.9%, after the paper and packaging firm skipped its final dividend despite benefiting from increased online shopping during the pandemic.

DS Smith reported a rise annual profit - with box volumes ahead of internal targets - but has opted against a shareholder payout. For the 12 months to April 30, the London-headquartered packaging firm's pretax profit improved 5.1% to GBP368 million from GBP350 million. Revenue, however, slipped 2.1% to GBP6.04 billion from GBP6.17 billion.

At the other end of the FTSE 100, Next was down 2.4% and Associated British Foods was 1.6% lower after Goldman Sachs cut the firms to Sell from Neutral.

Rio Tinto was 1.1% lower after the miner's Oyu Tolgoi mine is expected to see a 21 to 29 month delay for first production. This will increase the development capital needed for the project by between USD1.3 billion to USD1.8 billion from the original USD5.3 billion.

The updated mine design is the result of the review announced by Rio Tinto in July 2019 when enhanced geotechnical and geological information obtained from drilling and mapping at depth suggested there may be "some stability risks" associated with the original mine design.

Rio Tinto's ownership share is 33.5% of Hugo Dummett North and 29.5% of Hugo Dummett North Extension - both at Oyu Tolgoi in Mongolia.

The probable ore reserves for Hugo Dummett North have been revised down to 400 million tonnes from 447 million at the end of 2019, while the North Extension seen its reserves revised upwards to 40 million tonnes from 32 million tonnes.

In the midcaps, Rank Group added 3.0%, as it will begin the reopening of its Mecca bingo clubs from Saturday.

Initially it will be opening 35 venues in England, with further 30 venues are expected to open in a phased approach throughout July and August including, when permitted, its venues in Scotland and Wales.

The remaining 12 venues will remain closed until October whilst Rank Group assesses their ongoing viability.

"Some restructuring of the cost base and format of these venues is likely to be necessary to allow them to reopen, including renegotiation of rents," the company said.

Underlying operating profit for the year ended June 30 is expected to be at the lower end of its previously provided guidance range of GBP48 million to GBP58 million, Rank Group said.

The company said this is due to the venues reopening costs being expensed.

Monthly net cash outflow has also been in line with previous guidance, Rank Group added, with cash and available facilities at July 1 of about GBP140 million. With the reopening of Mecca, the company expects its monthly cash outflow will reduce from about GBP10 million per month to GBP7 million per month and to be cashflow positive upon the reopening of Grosvenor.

Plastic and fibre product supplier Essentra gained 3.0% as its second-quarter performance saw a "profound impact" from the Covid-19 pandemic, but the hit was in line with internal expectations.

Group like-for-like revenue declined 17% in April, but this improved as the quarter progressed.

In May, it was down 10%, whilst in June it is expected to only record a 1% drop.

Essentra therefore expects that like-for-like second quarter performance will be down 10%, whilst its interim like-for-like revenue is guided to fall 9%.

Looking ahead, Essentra anticipates some continued disruption to its trading in the coming months but believes that it is still too early to outline the full impact on full year financial performance.

Elsewhere on the Main Market, CMC Markets jumped 17% in early trade. The online trading platform CMC Markets said its "entire business has continued to perform very well" in its first quarter.

Client trading activity remains around double that of the same period the year before, CMC added, with client income retention "materially" higher than the 82% reported in the first half of the previous financial year. Stockbroking net trading revenue also continues to benefit from the market conditions, the company added.

As a result, net operating income for the first quarter of financial 2021 is in excess of that reported for the first half of financial 2020 of GBP102.3 million.

"The board is confident that, even in the event that more normalised client trading activity returns, with the strong underlying performance of the business, 2021 net operating income will exceed the upper end of current market consensus," CMC added.

Sterling was quoted at USD1.2454 early Friday, down from USD1.2465 at the London equities close on Thursday.

Cincotta commented: "The pound is slipping versus the US dollar after Brexit talks ended a day early. The break down of negotiations shows just how much distance remains between the two sides. Michel Barnier confirmed in a statement that serious divergences remained, however he still believed that a deal could be reached, which has prevented the pound from falling further. Talks will resume in London next week as planned."

The euro traded at USD1.1228 early Friday, down compared to USD1.1236 late Thursday. Against the yen, the dollar was quoted at JPY107.50, down versus JPY107.55 late Thursday.

Gold was quoted at USD1,775.20 an ounce early Friday, flat from USD1,775.75 on Thursday. Brent oil was trading at USD42.66 a barrel early Friday, up slightly from USD42.30.

The economic events calendar on Friday has services PMI readings from France, Germany, the eurozone and the UK at 0850 BST, 0855 BST, 0900 BST and 0930 BST respectively.

Financial markets in the US will be shut Friday, as the country celebrates Independence Day.

By Paul McGowan; paulmcgowan@alliancenews.com