LONDON MARKET OPEN: Looming US Fed tapering sends stocks lower

(Alliance News) - Stocks in London opened sharply lower on Thursday, following steep losses in New York on Wednesday, with investors taking a step back following hawkish minutes from the latest US Federal Reserve meeting.

The Fed's July policy meeting notes showed a reduction in monthly asset purchases could begin as early as this year.

Investors now expect Fed Chair Jerome Powell to make an announcement about tapering in the next few months, with the process likely to begin before the end of the year - with attention now firmly fixed next week's Jackson Hole central bank symposium.

Richard Hunter, head of Markets at interactive investor, said: "While no date has yet been confirmed, there is an increasing split within its members and it appears increasingly likely that the taper will begin before the end of the year. Alongside some mixed retailer results, the unrest in Afghanistan, and an apparently weakening Chinese economy, this has been a week to test the mettle of investors."

The FTSE 100 index was down 124.29 points, or 1.7%, at 7,045.86 on Thursday. The mid-cap FTSE 250 index was down 250.78 points, or 1.1%, at 23,585.41. The AIM All-Share index was down 0.5% at 1,260.61.

The Cboe UK 100 index was down 1.7% at 700.84. The Cboe 250 was down 1.0% at 21,446.97, and the Cboe Small Companies was 0.2% lower at 15,439.26.

The Fed's minutes led to a spike in the dollar overnight. The pound was quoted at USD1.3699 early Thursday, down from USD1.3750 at the London equities close Wednesday. The euro was priced at USD1.1676, down from USD1.1705.

However, against the Japanese yen, the dollar was trading at JPY109.87, soft from JPY109.92.

In mainland Europe, the CAC 40 stock index in Paris was 1.9% lower, while the DAX 30 in Frankfurt was down 1.2%.

"In the UK, the market is not immune from the growing level of global considerations and has also been under some pressure amid lighter summer trading volumes, which tend to exacerbate share price movements. In addition, the FTSE 100 is being additionally hampered by the general weakness in commodity prices and a clutch of stocks being marked ex-dividend," interactive investor's Hunter added.

Anglo American, M&G, Phoenix Group, Imperial Brands and HSBC were among a slew blue-chip stocks going ex-dividend on Thursday, losing 10%, 4.4%, 4.1%, 3.2% and 2.2%, respectively.

Antofagasta also went ex-dividend - the stock down 3.9% - and the Chilean miner additionally guided for lower production in 2021.

Anto's first half revenue surged on the back of strong copper demand and multi-year high prices.

In the six months to June 30, pretax profit spiked to USD1.78 billion from USD387.5 million a year before. Revenue surged 68% year on year to USD3.59 billion from USD2.14 billion.

Copper sales volume slipped 6.3% to 325,100 tonnes, and gold sales fell 4.3% to 103,700 ounces, but the firm's realised copper price jumped 80% to USD4.42 per pound while the gold price increased to USD1,776 per ounce from USD1,680 a year before.

As a result, Anto's cash flow from operations grew to USD2.46 billion from USD906.9 million, allowing the miner to declare a dividend of 23.6 US cents, up from 6.2 cents a year before.

"Our key growth projects are on track, and we remain focused on operating discipline and cost control, while producing copper responsibly and sustainably for all our stakeholders," Chief Executive Ivan Arriagada said.

Anto noted the driest year of a 12-year drought in Chile will hurt production in the second half. The miner lowered its full-year outlook for copper production to be between 710,000 to 740,000 tonnes versus previous guidance of 730,000 to 760,000.

The drought could also hurt output next year, Antofagasta warned.

The worrying outlook led to peer's Rio, Glencore, Evraz and BHP giving back 2.9%, 2.6%, 2.2% and 2.3%, respectively.

Adding to the sector's woes on Thursday morning were weaker commodity prices. Brent oil was quoted at USD67.19 a barrel Thursday morning, down from USD68.75 late Wednesday. Gold was trading at USD1,776.70 an ounce, lower against USD1,779.25.

Among London midcaps, Marshalls was the best performer, up 3.1%, as the landscaping products firm said its trading continues to improve and recent order intake has been "good".

The company swung to a first-half pretax profit of GBP38.9 million from a GBP16.0 million loss a year before, as revenue in the six months to June 30 grew to GBP298.1 million from GBP210.5 million, as well as topped 2019's first half revenue figure of GBP280.1 million.

Marshalls declared an interim dividend of 4.70 pence, in line with 2019 after withholding its shareholder payout last year.

The company raised its outlook for 2021 and 2022.

Chief Executive Martyn Coffey said: "The Construction Products Association's recent summer forecast predicts year-on-year increases in UK market volumes of 14% in 2021 and 6.3% in 2022, and the group expects to meet or outperform the market. Market conditions remain supportive, despite certain supply chain challenges, which are leading to inflationary pressures across the sector."

Coffey is "encouraged" by the strength in demand.

"The board is confident of making further progress and is accordingly raising its expectations for 2021 and 2022," he added.

At the other end of the FTSE 250, Rank Group was down 6.0%, as its annual net gaming revenue slumped, leading to a loss for the casino operator.

In the year that ended June 30, the firm fell to a pretax loss of GBP107.3 million compared to a GBP13.4 million profit the year before.

Net gaming revenue dropped 48% to GBP329.6 million from GBP629.7 million.

"The year to June 30 was exceptionally challenging for the group and, frankly, we are delighted it is over," Chief Executive John O'Reilly said.

Rank noted 79% of its revenue is derived from its venues businesses, so closures imposed by UK government's response to the pandemic amounted to 59% of available operating days being shut. It also said capacity constraints and reduced opening hours further held back revenue in the period.

O'Reilly continued: "We are now well into a new financial year with our venues open and trading positively. Good progress is being made in our digital businesses and there is a renewed sense of confidence as we focus on the growth initiatives within our clearly defined transformation programme.

"Rank was delivering strong revenue and profit growth before the pandemic and the steps we have taken over the last 18 months, particularly in carefully managing our liquidity and developing the transformation plans, will enable the group to return to that growth trajectory as the impact of the pandemic reduces and consumer confidence for indoor leisure experiences grows."

In Rank's Grosvenor brand venues, like-for-like net gaming revenue from reopening on May 17 to August 15 was down 19% on the same 13-week pre-pandemic period in 2019. Average weekly revenue since reopening has been GBP5.7 million, ahead of the company's breakeven of GBP4.4 million per week.

Rank's Mecca brand has seen a "slightly slower" recovery, with like-for-like revenue down 21% in the 13-week period.

In Tokyo, the Nikkei 225 index closed down 1.1% on Thursday. In China, the Shanghai Composite closed 0.6% lower, while the Hang Seng index in Hong Kong was down 2.6%. The S&P/ASX 200 in Sydney ended down 0.5%.

Still to come on Thursday are US jobless claims at 1330 BST.

CMC Market analyst Michael Hewson said: "Today's focus will be on the latest US weekly jobless claims which are expected to come down further to 365,000, from 375,000, and continuing claims which are expected to slow to 2.8 million."

By Paul McGowan; paulmcgowan@alliancenews.com

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