LONDON MARKET OPEN: Stocks Muted As Rising Virus Cases Offsets Data

Wed, 01st Jul 2020 09:03

(Alliance News) - Stocks in London were cautious Wednesday morning, with strong China manufacturing data offset by rising US coronavirus infections.

The FTSE 100 was down 5.53 points, or 0.1%, at 6,164.21 on Wednesday morning.

The mid-cap FTSE 250 index was up 0.4% at 17,187.45. The AIM All-Share index was 0.2% higher at 885.23.

Fiona Cincotta, CityIndex analyst, said: "The number of US coronavirus cases is also increasing at an alarming rate with 47,000 new cases a day, its biggest single increase since the outbreak began. The surge in cases in the US has dampened the equities rally in recent weeks as investors grow increasingly concerned that the rolling back of reopening measures or the return to full on lock down in parts of the country will knock the economy when it is already on its knees."

In mainland Europe, the CAC 40 in Paris was down 0.1%, while the DAX 30 in Frankfurt was up 0.7%.

The Japanese Nikkei 225 index closed down 1.0%. In China, the Shanghai Composite closed 1.4% higher, while the Hong Kong market is shut for a local holiday on Wednesday.

The Chinese manufacturing sector improved in June, the second month in a row of improvement according to IHS Markit data on Wednesday.

The headline Caixin seasonally adjusted purchasing managers' index, a composite indicator intended to provide a snapshot of the manufacturing economy's operating conditions, stood at 51.2 in June compared to 50.7 in May. This represented a second consecutive month of improvement in the sector.

Both June and May were above the 50-point mark that separates growth from contraction.

Chinese manufacturers said they had experienced "increased production for the fourth month running in June" as they kept on recovering from shutdowns and restrictions in the wake of the Covid-19 pandemic.

The rate of output growth has softened compared to May but was "solid overall" and "new orders expanded for the first time since January, albeit modestly".

In Japan, the manufacturing sector improved slightly in June compared to May but remained firmly in contraction territory, data from IHS Markit showed.

The headline au Jibun Bank purchasing managers' index edged higher at 40.1 in June compared to May's 38.4. Nonetheless, it remained below the 50 mark and so well within contraction territory - a reading above 50 would have meant expansion.

Close to half the survey panel, 48%, recorded a drop in production while only 13% expanded output during the month.

In London, Sainsbury's was 2.1% higher in early trade, one of the best performers in the FTSE 100 index.

The supermarket chain said it saw "strong" grocery and Argos sales in its first quarter. Grocery sales rose 11% year on year, with general merchandise - including Argos sales growing 11% - advanced 7.2%. Sainsbury's also noted its digital sales more than doubled in the quarter.

Holding back group sales, however, was a 27% drop in clothing sales.

As a result, total retail sales were 8.5% higher, with like-for-like sales growing 8.2% - both excluding fuel.

Chief Executive Simon Roberts said: "Our business has changed fundamentally from four months ago. We have more than doubled our weekly sales of online groceries in recent weeks, SmartShop now accounts for more than half of sales in some supermarkets and Argos sales were strong while operating as an online-only business for almost twelve weeks.

"Warm weather boosted food sales and sales in seasonal categories in Argos, but sales of clothing and fuel and trading in city centre Convenience stores were all significantly down year on year as a result of lockdown."

Looking ahead, Sainsbury's said it will remain "cautious" but expects a further weakening of consumer spending.

"It remains impossible to predict the full nature, extent and duration of the impact of Covid-19 on sales and costs. Our base case scenario continues to underpin an expectation of broadly unchanged group underlying profit before tax for the full year," the supermarket added.

Medical devices firm Smith & Nephew advanced 2.7%. The company expects second-quarter underlying revenue to plunge 29%. But it said this is in line with internal expectations.

Smith & Nephew said it was "encouraged" by its improving performance as the quarter progress - with underlying revenue declines of 47% in April, 27% in May, and around 12% in June.

"Performance was correlated strongly with the easing of lockdown restrictions and resumption of elective surgeries. Nevertheless, there continues to be significant uncertainty and geographical variation," the company said.

Smith & Nephew added: "The impact of the Covid-19 pandemic has been most pronounced on our Orthopaedic Reconstruction, Sports Medicine and ENT businesses, driven by lower levels of elective surgery in the quarter. Our Advanced Wound Management and Trauma businesses have been more resilient."

As a result Smith & Nephew continues to expect its first-half trading margin will be "substantially" down on the prior year.

Among London midcaps, Meggitt was 1.9% higher after the company agreed to sell its US subsidiary - Meggitt Training Systems - to private investment firm Pine Island Capital Partners for USD146 million in cash.

In 2019, Meggitt Training Systems generated GBP104 million revenue and had gross assets of GBP149 million, with profits attributable to the assets of GBP11.2 million.

Meggitt said the net proceeds will be used for general corporate purposes and will further strengthen its liquidity.

Babcock International rose 2.5%. The aerospace and defence contractor has appointed former Cobham CEO David Lockwood as its own chief executive.

Lockwood will replace outgoing Babcock CEO Archie Bethel, who earlier this year announced his intention to retire. Lockwood will join Babcock's board on August 17 then become CEO on September 14. Prior to running Cobham, he was CEO of Laird.

Close Brothers was up 3.3% after Royal Bank of Canada upped the merchant bank to Outperform from Sector Perform.

Petropavlovsk gained 7.0%. The London-based Russia-focused gold miner said it has appointed Martin Smith as a non-executive director and Pavel Maslovskiy as chief operating officer, with immediate effect.

The miner also noted Danila Kotlyarov will remain chief financial officer.

CEO Alya Samokhvalova said: "Given the board changes we announced yesterday, I am pleased that Maslovskiy has agreed to take up the position of COO in the interim period whilst the company seeks to reconstitute the board. In this role, he can fully focus on our operations and ensure the group continues its positive trajectory with its assets and POX Hub. This is particularly important as we are nearing the start-up of our second flotation plant, at Pioneer, which forms an integral part of our development and acts as a feeder for the POX Hub."

On Tuesday, Petropavlovsk announced the election of a new chair, chief executive and two directors, but said it believes the voting process at its annual general meeting to appoint the new board members was skewed.

Proposals by the board to re-elect or re-elect Pavel Maslovskiy as CEO, Danila Kotlyarov as chief financial officer, Fiona Paulus as chair designate, Harry Kenyon-Slaney as senior independent director, Robert Jenkins as audit committee chair, Damien Hackett as risk commitee chair, and Timothy McCutcheon as director were voted against.

Petropavlovsk said its analysis of the voting showed that votes cast against the existing board members were cast almost entirely by four shareholder groups - Joint Stock Company Uzhuralzoloto Group of Cos which accounted for 22%, Everest Alliance and Slevin, which accounted for 12% combined, and Fortiana Holdings which accounted for 5%.

At the other end of the FTSE 250, John Laing lost 8.1% after the infrastructure investor said the "exceptional impact" of Covid-19 - which has hit power prices - has "more than offset" the underlying performance of its portfolio.

The investor expects to take a GBP100 million hit from Covid-19, or 4% of its NAV - equivalent to 12 pence per share.

As a result, John Laing's NAV, before deducting dividends, for the first half of the year is expected to show a single digit decline.

SSP Group share fell 4.5%. The travel food kiosk operator said the Covid-19 pandemic has had an "unprecedented" hit to the travel sector, so it is reorganising its UK business.

Sales in April and May were about 95% below last year. During June, sales recovered "slightly" and are now running at about 90% below last year, with stronger performances in Continental Europe and North America reflecting the gradual easing of lockdowns in these regions offset by the UK and Rest of World, where sales remain below this level.

"The reality is that passenger numbers still remain at very low levels, a reflection of the extent and duration of the current restrictions in place. In the Rail sector, which represents the majority of SSP's UK operations, passenger numbers remain about 85% lower year on year and the UK Air sector has to date been largely closed," SSP said.

SSP expects only about 20% of its UK units will have opened by the autumn.

"We have therefore come to the very difficult conclusion that we will need to simplify and reshape our UK business, and we are now starting a collective consultation on a proposed reorganisation," the company said. "If the pace of the recovery continues at the current level, this could lead to up to about 5,000 roles becoming redundant from within the head office and UK operations. Clearly, these decisions are very difficult, and our priority is to conduct this process fairly and to support those affected."

SSP expects this reorganisation to cost between GBP8 million to GBP10 million.

In the US on Tuesday, Wall Street ended firmly in the green, finishing the second quarter on a strong note despite surging virus cases in the US threatening plans to reopen the economy.

The Dow Jones Industrial Average closed up 217.08 points, or 0.9%, at 25,812.88 - meaning the index gained 18% in the quarter ended June 30.

The S&P 500 ended up 47.05 points, or 1.5%, at 3,100.29 on Tuesday and the Nasdaq Composite finished 184.61 points higher, or 1.9%, at 10,058.77.

The pound was quoted at USD1.2383 early Wednesday, flat from USD1.2384 at the London equities close Tuesday.

The euro was quoted at USD1.1229, down from USD1.1246 late Tuesday in London. Against the yen, the dollar was trading at JPY107.59, soft on JPY107.77.

Brent oil was trading at USD42.28 a barrel Wednesday morning, up from USD41.66 a barrel at the London equities close Tuesday. Gold was priced at USD1,788.50 an ounce, higher than USD1,782.27.

The economic calendar on Wednesday has manufacturing PMI from the UK at 0930 BST.

US ADP employment is at 1315 BST, with an IHS Markit manufacturing PMI for the US at 1445 BST and the ISM's manufacturing data at 1500 BST.

By Paul McGowan; paulmcgowan@alliancenews.com