LONDON MARKET OPEN: FTSE 100 Extends Decline After US Fed Damps Moods

(Alliance News) - The week's slump continued into Thursday with London stocks opening deep in the red after the Federal Reserve gave a glum assessment of the US economy this year.

The blue-chip FTSE 100 index was down 170.21 points, or 2.7%, at 6,158.92 early Thursday - at this level down 5% since the week began.

The mid-cap FTSE 250 index was down 485.47 points, or 2.8%, at 17,119.99. The AIM All-Share index was down 1.1% at 877.82.

The Cboe UK 100 index was down 2.6% at 10,434.29. The Cboe 250 was down 3.0% at 14,746.84, and the Cboe Small Companies down 0.9% at 9,819.79.

In mainland Europe, the CAC 40 in Paris and the DAX 30 in Frankfurt were both down 2.7% in early dealings.

In Asia on Thursday, the Japanese Nikkei 225 index closed down 2.8%. In China, the Shanghai Composite ended down 0.8%, while the Hang Seng index in Hong Kong is down 2.0% in late trade.

European stocks tumbled at the open after a "reality check" from the US Fed, said Fiona Cincotta at City Index.

"The gloomy outlook from the Fed combined with fears of a second wave of coronavirus in the US is keeping the lid on risk sentiment," she said.

At the conclusion of its two-day meeting, the Fed's policy-setting Federal Open Markets Committee confirmed it will keep the benchmark interest rate at zero until the recovery is underway.

The Fed also released economic projections of FOMC members for the first time since December. Their median forecast is for the economy to contract by 6.5% this year, with unemployment falling to 9.3% by the end of the year from its current 13%.

The median forecast of FOMC members shows they expect the key rate to stay the same through 2022 at least, before edging back up near 2.5% over the longer term. Only two central bankers projected the rate would rise off zero in 2022.

However, they expect a solid economic rebound in 2021, with growth of 5% that would then slow to 3.5% in 2022. Powell cautioned that "the path of the economy is highly uncertain".

The Fed's comments came as the number of confirmed coronavirus infections in the US topped two million on Wednesday, according to a tally by Johns Hopkins University. The pandemic has claimed the lives of more than 112,900 people in the US, which leads the world in the number of confirmed infections with 2.0 million, according to the Baltimore-based school's latest count.

Sterling was quoted at USD1.2668 early Thursday, lower than USD1.2760 at the London equities close on Wednesday. The euro traded at USD1.1357, firm versus USD1.1343 late Wednesday.

Against the safe haven yen, the dollar was quoted at JPY106.96, lower than JPY107.20.

Fellow safe haven asset gold was priced at USD1,727.71 an ounce early Thursday, higher than USD1,716.28 on Wednesday as the week's risk-off mood persisted. Brent oil was trading at USD40.44 a barrel, lower than USD40.70 late Wednesday.

Gold miners Fresnillo and Polymetal International were up 1.8% and 1.5% respectively in London early dealings on the back of the precious metal's price increase.

Ocado was down 6.1% after raising GBP1.01 billion from its placing and retail offer of shares and bond offer.

Ocado placed 33.2 million shares at a price of 1,960 pence each, with retail investors subscribing via the PrimaryBid platform for another 362,000 shares at the same price. Together, the fundraise comprised 33.5 million shares, generating gross proceeds of GBP657 million.

The placing price represents a 5.7% discount to the company's closing price of 2,079p on Wednesday in London, giving it a market capitalisation of GBP14.85 billion.

On top of the placing, Ocado has priced a GBP350 million bond offer of guaranteed senior unsecured convertible bonds due 2027 at 0.75% per annum. The online grocer said the bonds will be converted into shares at GBP26.46 each, representing a 35% premium to the placing price.

Just Eat Takeaway.com was down 2.3% after agreeing to acquire US peer Grubhub for USD7.3 billion to form the world's largest online food delivery company outside of China.

The deal comes as both companies have experienced strong growth in the wake of the coronavirus pandemic from customers stuck at home who have boosted digital orders. It also follows only months after the merger of the UK's Just Eat and Takeaway.com of the Netherlands was completed.

The combined company will have a major presence in four key markets – the US, the UK, Germany and the Netherlands – and position the enterprise for greater growth in the US, they said in a news release. Grubhub has been effective in navigating the "fragmented" US market – but "the US remains an underpenetrated market" that is "nowhere near its end-state", the companies said.

Grubhub had held talks previously with ride-hailing giant Uber, but the discussions fell apart over price after Uber proposed USD6 billion, a banking source told AFP recently. Under the Just Eat Takeaway.com deal, which must be approved by shareholders of both companies, investors in Grubhub will receive 0.6710 of Just Eat Takeaway shares for each Grubhub share.

That values Grubhub at USD75.15 a share, compared with a closing price Wednesday of USD59.05. Grubhub shares added 4.4% in after-hours trading in NY on Wednesday to USD61.65.

CMC Markets shares rallied 8.2% early Thursday in London. The online trading firm reported a dramatic surge in annual profit, and said momentum has continued into its new financial year.

Total revenue in the year to March 31 rose 80% to GBP298.1 million from GBP166.0 million the year before, with pretax profit surging to GBP98.7 million from just GBP6.3 million.

Contract for difference net trading revenue jumped 95% to GBP214.5 million with revenue per active client up 81% to GBP3,750.

On the back of the strong results, CMC boosted its dividend to 15.0 pence from just 2.0p the year before, saying this was in line with its policy of paying out 50% of post-tax profit. CMC noted it has taken no government support during the Covid-19 crisis.

Momentum has continued, with CMC saying CFD gross client income at the start of the new financial year has been "around double" that during the same period a year before with client income retention remaining strong.

"The heightened volatility and trading activity resulting from Covid-19 has continued into the first quarter of the financial year, and CMC continue to provide clients with market leading trading platforms and client service. I am also confident that, once the financial world returns to more normal conditions, the Group will continue to build on the underlying growth that was being displayed prior to the pandemic. This, in combination with our stable dividend policy and positive trading outlook, will enable CMC to continue to deliver considerable value to all of our stakeholders," said Chief Executive Peter Cruddas.

The economic events calendar on Thursday has US producer prices at 1330 BST with initial jobless claims due at the same time.

By Lucy Heming; lucyheming@alliancenews.com

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