LONDON MARKET OPEN: FTSE 100 Dives As Markets Gripped By Risk-Off Mood

(Alliance News) - Wall Street's risk-off move overnight translated into a lower open for Europe on Thursday.

Oil majors BP and Royal Dutch Shell fell as Brent prices eased on Thursday's downbeat mood. Meanwhile, heavily shorted stocks saw further gains amid drama around Gamestop shares, which more than doubled in value on Wednesday in New York.

The FTSE 100 index was down 59.15 points, or 0.9%, at 6,508.22 early Thursday. The mid-cap FTSE 250 index was down 198.13 points, or 1.0%, at 20,080.22. The AIM All-Share index was down 1.1% at 1,162.81.

The Cboe UK 100 index was down 0.9% at 647.34. The Cboe 250 was down 1.0% at 17,532.16, and the Cboe Small Companies flat at 12,187.91.

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

"The Federal Reserve's statement released yesterday was a bit more dovish than the market expectations. The Fed acknowledged the fact the economic situation has derailed further. Jerome Powell, the Fed chairman, also said that it would take some time for the US economy to see substantial recovery," said Naeem Aslam at AvaTrade.

The Federal Open Market Committee on Wednesday decided to keep the target range for the federal funds rate unchanged at 0.00% to 0.25%.

"A resurgence in recent months of Covid-19 cases, hospitalizations and deaths is causing great hardship for millions of Americans and weighing on economic activity and job creation," the US central bank chief said, adding the outlook is "highly uncertain".

Aslam commented: "The message was clear: the Fed is in no mood to change its monetary policy anytime soon, and interest rates are going to stay at their current for an extended period."

Wall Street ended in the red follow the Fed statement on Wednesday, with the Dow Jones Industrial Average ending down 2.1%, the S&P 500 down 2.6% and Nasdaq Composite closing 2.6% lower.

In Asia on Thursday, the Japanese Nikkei 225 index closed down 1.5%. In China, the Shanghai Composite ended down 1.9%, while the Hang Seng index in Hong Kong closed down 2.6%. The S&P/ASX 200 in Sydney fell 1.9%.

Sterling was quoted at USD1.3647 early Thursday, lower than USD1.3698 at the London equities close on Wednesday.

The euro traded at USD1.2104 early Thursday, flat on USD1.2100 late Wednesday. Against the yen, the dollar was quoted at JPY104.31, up from JPY104.07.

"They may also be a fragility to the markets this Thursday, as the Gamestop/Reddit conundrum spreads to other heavily shorted stocks," commented Connor Campbell, financial analyst at Spreadex. Pearson and J Sainsbury, amongst London's most shorted stocks, were up 1.3% and 1.0% respectively in early trade Thursday.

Traders have been astounded in recent days by the surge in struggling video game retailer GameStop's share price, after a group of amateur investors banded together over the online platform Reddit to fight the Wall Street funds that had pushed its price lower.

The US Securities & Exchange Commission as well as the White House each issued statements on Wednesday saying officials are monitoring the volatility in stock market.

At the top of the FTSE 100 in opening trade was Diageo, rising 3.6%. The brewer and distiller managed to post interim organic net sales growth despite virus restrictions hitting bars and restaurants.

Sales for the six months to December 31 edged down 3.6% to GBP10.44 billion from GBP10.83 billion a year ago, with pretax profit falling 11% to GBP2.20 billion from GBP2.46 billion. Organic net sales rose 1.0%, the Smirnoff vodka maker noted, despite a hit to Travel Retail and on-trade restrictions. The on-trade market comprises outlets such as bars, restaurants and clubs, while off-trade is focused on at-home consumption. Travel Retail includes duty-free sales in airports.

"We rapidly pivoted to the channels and occasions most relevant to consumers and invested behind new opportunities. This more than offset the impact of on-trade restrictions and the decline in Travel Retail," Chief Executive Ivan Menezes explained.

Menezes added that North America, Diageo's largest market, performed "particularly strongly and ahead of our expectations".

Diageo said it expects a strong sequential performance improvement in all regions compared to the second half of the 2020 financial year, though anticipates a continued hit from on-trade restrictions and disruption to Travel Retail.

Diageo lifted its interim dividend by 2% to 27.96 pence.

Amongst the biggest blue-chip fallers were oil majors, with BP down 2.1% and Royal Dutch Shell 'A' and 'B' shares down 2.3% and 2.4% respectively.

Brent oil was trading at USD55.58 a barrel on Thursday, down from USD56.27 late Wednesday amid the wider risk-off move.

Precious metal gold suffered amid the strong dollar, quoted at USD1,838.82 an ounce early Thursday, falling from USD1,848.50 on Wednesday

easyJet fell 3.0% in the FTSE 250 as the airline posted a slump in passengers amid strengthened travel restrictions across Europe.

"These restrictions and the continued uncertainty regarding their future removal are the main driver of decreased customer demand. Despite this we have successfully maintained our disciplined focus and agile approach on matching capacity to available demand while maintaining high customer satisfaction," said easyJet.

The budget airline's first quarter ended on December 31. Passenger numbers in the quarter decreased by 87% year-on-year to 2.9 million, in line with a 82% fall in capacity to 4.4 million seats - representing 18% of 2019 financial year capacity levels, and in line with expectations that easyJet would fly no more than 20%. Load factor during the quarter was 66%.

Total revenue for the first quarter slumped 88% to GBP165 million, with passenger revenue down 90% to GBP118 million and ancillary revenue sliding by 84% to GBP47 million.

Headline costs, excluding fuel, were reduced by 52% at constant currency as easyJet achieved savings across airport fees, ground handling and crew and maintenance costs. The airline said it estimates that its fixed cost and capital expenditure cash burn in a fully grounded scenario has now fallen to around GBP40 million per week.

Based on current travel restrictions, easyJet said that, for its second quarter, it expects to fly no more than 10% of capacity in the same period of the 2019 financial year. easyJet said it is anticipating a release of pent-up demand for travel as vaccinations get underway, and retains the flexibility to rapidly ramp-up to capture this.

The economic events calendar on Thursday has German inflation at 1300 GMT and US GDP and jobless claims at 1330 GMT.

By Lucy Heming; lucyheming@alliancenews.com

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