(Alliance News) - Stocks in London are set to open higher on Wednesday, boosted by a weaker pound after the Bank of England surprised markets with an interest rate cut to cushion the UK economy in response to the Covid-19 virus outbreak.
Equity markets in New York and Asia overnight were mixed with investors remaining cautious over the spread of coronavirus in both Europe and the US.
IG says futures indicate the FTSE 100 index of large-caps to open 48.67 points higher at 6,008.90 on Wednesday. The FTSE 100 closed down 5.54 points, or 0.1%, at 5,960.23 on Tuesday.
The Bank of England early Wednesday followed the US in announcing a surprise interest rate cut as it responded to the "economic shock" from the Covid-19 virus.
The Monetary Policy Committee unanimously decided to cut UK interest rates by 50 basis points to 0.25% from 0.75% at a special meeting ending on Tuesday, back to the record low reached in the aftermath of the vote to leave the EU in 2016.
The rate cut, coming just ahead of the UK government budget due at midday Wednesday, followed the US Federal Reserve last week unexpectedly cutting the federal funds rate by 50 basis points.
The Bank Rate cut should "help to support business and consumer confidence at a difficult time", the BoE said, as well as bolstering cash flows of businesses and households.
Ipek Ozkardeskaya at Swissquote said: "The surprise BoE cut sent cable below the USD1.29 mark and should encourage a further weakness toward the 200-day moving average, which currently stands near USD1.2720. Cheaper sterling could help tempering the sell-off across British equities, but it may not do much to sooth concerns about coronavirus-led global slowdown and tumbling oil prices."
Sterling was quoted at USD1.2894 early Wednesday, down from against USD1.2942 at the London equities close on Tuesday.
Attention in the UK on Wednesday now turns to Chancellor Rishi Sunak and his budget at 1230 GMT.
"The Conservative party cleaned up in traditional Labour areas in the December election so Mr Sunak might be inclined to ramp up investment in areas such as the Midlands, the north of England and Wales. Ultra low gilt yields could provide an opportunity for big infrastructure projects. The Chancellor might tackle business rates in order to assist the struggling high street," said David Madden at CMC Markets.
Elsewhere in the economic calendar on Wednesday, there is a UK GDP reading at 0930 GMT followed by US inflation at 1230 GMT.
The number of novel coronavirus cases in the US surged past 1,000 on Tuesday, after public health experts criticized authorities for downplaying the epidemic and lagging behind in testing efforts.
At least 28 people have died and 1,025 people have been infected in the US, according to a running tally by Johns Hopkins University – nearly double the 550 total confirmed cases the day before. Epidemiologists have said faulty test kits coupled with a diagnostic strategy that initially targeted too few people allowed the disease to spread beyond US authorities' ability to detect it.
Meanwhile, Italy's death toll from Covid-19 has risen by a third to 631. The number of cases in the UK has risen to 382 with six deaths confirmed.
China remains the hardest-hit overall with more than 80,000 cases and over 3,000 deaths, out of a global total of 117,339 cases and 4,251 deaths across 107 countries and territories, according to an AFP tally.
In the US on Tuesday, Wall Street ended higher, with the Dow Jones Industrial Average ending up 4.9%, the S&P 500 up 4.9% and Nasdaq Composite closing 5.0% higher. The Dow reclaimed half of its 'Black Monday' loss, adding 1,167.14 points on Tuesday after dropping 2,013.76 points on Monday.
In Asia on Wednesday, the Japanese Nikkei 225 index ended down 2.3%. In China, the Shanghai Composite closed down 0.9%, while the Hang Seng index in Hong Kong is down 0.8%.
ING said markets will remain in a "holding pattern" while they await US stimulus to counteract the virus's economic fallout.
US President Donald Trump promised to announce "major" economic measures on Tuesday, and he made a rare trip to Capitol Hill for talks with his Republican party lawmakers. By day's end there was a notable lack of detail about Trump's entire relief plan, especially how the tax cut would be funded.
"Let us put the proposal out in concrete details," Trump's economic advisor Larry Kudlow told a news conference, asking for more time when pushed to explain.
In early UK company news, FirstGroup said it has started a formal sales process for its North American businesses First Student and First Transit, with "significant interest expressed" by a "range" of potential buyers.
First Bus and First Rail will form the "core" of the ongoing group.
"We have now commenced a formal process to sell our North American contract businesses. We firmly believe that a sale of these assets is the best way to unlock material value for all FirstGroup shareholders, having completed a detailed review and analysis with advisers appointed by the board to explore all options," said Chair David Martin.
On current trading, the transport operator said revenue is up 7.5% in the year-to-date with no significant impact from Covid-19 seen yet.
Construction firm Balfour Beatty reported a rise in profit and lifted its dividend.
Revenue for 2019 rose to GBP8.41 billion from GBP7.81 billion, with pretax profit rising to GBP138 million from GBP123 million. Balfour lifted its dividend to 6.4p from 4.8p.
Looking ahead, the firm said it has "confidence" it will continue to deliver "profitable managed growth".
"While Covid-19 continues to evolve, Balfour Beatty is monitoring developments closely, looking to mitigate the risk that it may have on the group's employees, customers and supply chain. At this point in time, all sites and offices in the UK, the US and Hong Kong remain open. However, it is too early to fully assess any impact of the outbreak on the operational and financial performance of the group," said Balfour.
B&M European Value Retail said it has agreed to sell its German business following a strategic review.
It will sell its entire 80% stake in JA Woll-Handels to a purchasing consortium led by AC Curtis Salta, a company funded by Adiuva Capital. The total consideration payable for the deal is EUR12.5 million in cash.
The discount retailer said EUR2.5 million is payable on completion of the transaction, and EUR10 million due at the end of the year, conditional on the on-going trading of Jawoll.
Euromoney Institutional Investor said it has experienced disruption due to the Covid-19 outbreak, in line with other events operators.
So far, the business publisher and event organiser said it has cancelled 25 events resulting in a revenue hit of GBP3 million, and has postponed 55 events, with 9 moving into the next financial year, for an additional GBP3 million hit. The overall impact on the current financial year from this will be a GBP6 million hit to revenue and a GBP5 million reduction in operating profit.
"Our expectations of the impact on revenue and adjusted operating profit are based on our current assessment and are subject to change if COVID-19- related market disruption increases or improves. We have made no changes at this stage to events originally scheduled from July up to and including September," Euromoney warned.
The euro traded at USD1.1353 early Wednesday, firm versus USD1.1342 late Tuesday. Against the yen, the dollar was quoted at JPY104.52, up from JPY103.94.
Gold was quoted at USD1,660.02 an ounce early Wednesday, up from USD1,655.61 on Tuesday. Brent oil was trading at USD38.07 a barrel early Wednesday, higher than USD36.63 late Tuesday.
By Lucy Heming; lucyheming@alliancenews.com
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Balfour Beatty (BBY)
Firstgroup (FGP)
B&M (BME)