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FTSE 100 tanks over 2% as global economic cost of pandemic begins to sink in

Britain's benchmark index closed on Tuesday down over 136 points down, or 2.12%, at 6,335

British American Tobacco PLC -
Madden suggested share dealers have been "shrugging off the terrible economic indicators that were released recently"
  • FTSE 100 index closes down over 136 points
  • US indices mainly down
  • IATA warns of "worst year" ever for airlines

5.15pm: FTSE 100 closes sharply lower

FTSE 100 index closed deeply in the red as global markets took a pounding again as the harsh reality of the damage caused by the pandemic began to sink in.

Britain's benchmark index of the biggest UK companies closed down over 136 points down, or 2.12%, at 6,335. FTSE 250 also staggered to the close, plunging 381 points at 17,755.

"Yesterday, the World Bank forecasted the global economy will contract by 5.2% in 2020, which would be the largest contraction since the second world war," noted analyst David Madden, at CMC Markets.

Moreover, the fact that so many countries have suffered means the scale of the downturn is worse than any recession in 150 years, the World Bank also added on Monday.

Madden suggested that share dealers have been shrugging off the "terrible economic indicators that were released recently as they just focused on the reopening of economies, but now it seems they are facing up to the harsh reality of the situation".

In London, the sell-off was broad, with mining, oil, banking, airline, hospitality, and house building stocks all heading south.

Meggitt PLC (LON: MGGT), the engineering titan, was the biggest Footsie laggard, dropping almost 8% to 329p.

3.35pm: FTSE 100 in the doldrums

Heading into the final hour of Tuesday’s session, the FTSE 100 had failed to make much positive headway and was down 141 points at 6,330 at around 3.35pm.

The blue-chip index is being followed by the US markets, which are also in a sea of red as optimism carried over from last week’s job report seems to have finally worn off and traders seem content to wait for the outcome of the Fed’s meeting on Wednesday.

Sentiment is also likely to have been shaken by sharp falls in trade from France, Germany and the rest of the eurozone, while bleak forecasts for the airline industry from the IATA are unlikely to have helped matters.

Coming at the bottom of the FTSE 100’s fallers was engineering group Meggitt PLC (LON:MGGT), which was down 7.6% at 330.4p in late-afternoon, while at the top of the risers list was industrial software group AVEVA Group PLC (LON:AVV), which jumped 4.6% to 4,203p following a 97% surge in full-year profits.

2.40pm: Wall Street opens lower

The US markets have opened in negative territory as investor enthusiasm continued to pull back from Monday’s highs.

Shortly after the opening bell, the Dow Jones Industrial Average fell 1.28% to 27,218 while the S&P 500 slipped 1.08% to 3,197 and the Nasdaq dropped 0.6% to 9,865.

Wall Street seems unlikely to lodge any new records as traders seem to have begun questioning the wisdom of the market as optimism seems to have pulled too far from the situation on the ground, particularly the continuation of a global pandemic and social unrest across the world.

An indication of the economic damage wrought by the coronavirus gained more clarity earlier today when the International Air Transport Association (IATA) warned that the airline industry could suffer the worst year in its history with 2020 losses expected to total US$84bn.

Investors may also be looking to keep their powder dry ahead of the Fed’s economic forecasts due after its meeting tomorrow.

Meanwhile, in London, the FTSE 100 was also firmly in the red, down 116 points at 6,356 shortly before 2.40pm.

12.55pm: US indices to step back

Investors have allowed an element of doubt to creep in after a run that saw the Footsie return to pre-lockdown levels.

London’s index of blue-chip shares was down 103 points (1.6%) at 6,370.

“All this comes after a stellar Monday session in the US, one that saw the Nasdaq hit an all-time high and the Dow Jones reach a 15-week peak,” observed Spreadex’s Connor Campbell.

“Those long- and short-term records, however, may well have inspired Tuesday’s losses. Investors might be questioning the wisdom of such highs in a world still very firmly in the middle of a pandemic.

“The Dow Jones looks like it has been infected by Europe’s concerns. The futures have the index losing 300 points when trading gets underway stateside, a decline that would send the Dow back under 27.300,” he added.

In the UK, the NFIB index of small business activity and sentiment for May rose to 94.4 from 90.9 in April. The consensus forecast had been for a reading of 92.5.

“The NFIB small business jobs report, released last Thursday, clearly hinted at a rebound in the headline index today, reporting a seven-point jump in hiring plans. The full report today also shows sales expectations surging 18 points—a result of the reopening—and economic expectations rising five points,” said Ian Shepherdson, the chief economist at Pantheon Macroeconomics.

“Earnings expectations fell, though, perhaps suggesting that business owners recognise that not all of the lost ground will be recovered. Elsewhere, capex plans rose two points, and selling prices rose four points, though that’s probably due mostly to the rebound in gasoline prices. All the numbers, however, remain depressed, with the exception of the economic expectations component, which is the most sensitive to the near-term performance of the stock market,” he added.

11.40am: Gloomy jobs outlook

File under “Things we probably didn’t need to be told”. An employment survey by recruitment firm Manpower says the outlook for jobs is very gloomy.

The survey reported that companies in all big sectors of the economy are more likely to cut jobs than to hire people over the next three months, from July to September.

The net employment outlook figure, calculated simply by subtracting the number of employers per 100 who are looking to cut staff from the number per hundred who are looking to recruit, fell to -12.

It’s the weakest forecast since Manpower began the survey in 1992.

"The level of disruption is unprecedented and many will be looking closely at what happens next with how COVID-19 progresses, how consumers respond and what all this means for their own operations,” said Mark Cahill, the managing director of ManpowerGroup UK.

Meanwhile, in the stock market, the FTSE 100 was ending the morning shuffling sideways. The index was down 115 points (1.8%) at 6,358.

10.20am: Oil majors add to the Footsie's woes as Brent crude price slides

London’s index of leading shares is nursing a triple-digit loss despite sterling losing almost a cent against the dollar on forex markets.

The FTSE 100 was down 111 points (1.7%) at 6,382, with the heavily-weighted oilers adding to the woe, as the price of Brent crude slides to US$39.97 a barrel on the futures market from US$40.80 overnight.

Royal Dutch Shell (LON:RDSB) was down 5.1% at 1,388p while BP PLC (LON:BP.) was down 2.4% at 357.15p.

Software company AVEVA Group PLC (LON:AVV), which derives around 40% of its revenues from the oil and gas industry, defied the trend with a 4.6% hike to 4,203p following its full-year results.

Adjusted underlying earnings (EBIT) surged 23.3% to £216.8mln from £1754.9mln the year before.

9.20am: Retail sales "less terrible" in May

“About turn,” was the command this morning, with the Footsie led lower mostly by those companies that have led it higher recently.

London’s index of leading shares was down 43 points (0.7%) at 6,429, with British Airways owner International Consolidated Airlines (LON:IAG) the top faller, down 6.5% at 309.9p.

Retailers were holding up well reasonably well after data from the British Retail Consortium (BRC).

The BRC’s survey of its members indicated that the value of retail sales at High Street retailers was down 5.9% year-on-year in May, which was the second-sharpest drop since the survey started but was a big improvement on the 19.9% plunge in April.

“Sales in May demonstrated yet another month of struggle for retailers across the country, despite an improvement on the previous month. Nonetheless, as the sun came out and restaurants lay dormant, food sales rose with consumers taking to their local parks for beers, BBQs and picnics. Clothing and beauty sales improved slightly on April, as people left their homes to meet outside with friends and family,” commented Helen Dickinson, the chief executive of the BRC.

“Continuing the lockdown trend, office supplies, fitness equipment and bicycles all performed well, thanks to strong online sales and DIY was boosted by the opening of garden centres; however, for those shops whose doors remain shuttered it was once again a tough month and even those who stayed open suffered reduced footfall and huge costs implementing social distancing measures,” she added.

Bike seller Halfords PLC (LON:HFD) did not derive any boost from the BRC’s comment about booming bicycle sales – the shares were down 1.4% at 182.4p – and likewise, DIY retailer Kingfisher PLC (LON:KGF), down 3.5% at 203.5p, felt no benefit from reports of the smell of burning meat in Britain’s back gardens, probably because traders had spotted these trends a while back.

8.40am: Profit-takers move in

Traders apparently neglected to read the script with the FTSE 100 opening lower on Tuesday in spite of a bumper close to proceedings on Wall Street overnight, US markets having now clawed back almost all of their losses since February's collapse.

The UK large-caps index, however, opened down 24 points at 6,449.02, reversing some of its recent rally.

Here in the UK, irrational exuberance has been replaced by circumspection with the UK blue-chip index seemingly stalled around the 6,500-mark, more than a 1,000-points below its year high.

Eurozone GDP numbers later may offer a guide, but not a definitive reading on how the near continent has fared during the coronavirus lockdown – and may account for the caution.

On the market, the travel stocks continued to bubble along in positive territory, buoyed by hopes restrictions on international movement may be further lifted.

Cruise operator Carnival (LON:CCL) steamed to the top of the Footsie risers list with a 9% gain. British Airways owner IAG (LON:IAG) was up 3.3%.

British American Tobacco (LON:BAT) fell 3% after stricter than expected lockdowns in some of its major Latin American territories resulted in a mini-earnings alert.

But as Interactive Investor stocks guru Richard Hunter pointed out: “The road ahead may be strewn with obstacles, but BATS’ historic resilience will likely give the company a fighting chance in maintaining its premier position.

“Providing guidance and confirming dividend aspirations are becoming increasingly rare in the current environment, but in a refreshing change BATS has delivered both.”

Proactive news headlines:

Bahamas Petroleum Company PLC (LON:BPC) has expanded its footprint, acquiring acreage offshore Uruguay. The company said it has been awarded the OFF-1 licence which has been estimated internally to host 1bn barrels of oil equivalent resource potential. Specifically, the company noted the presence of multiple exploration plays in relatively shallow waters across the new licence, which spans some 15,000 square kilometres.

Braveheart Investment Group PLC (LON:BRH) has delivered an update on the development of a coronavirus (COVID-19) test by its investee company, Paraytec Limited, in partnership with the University of Sheffield. The AIM-listed firm said the required affinity macromolecule, an aptamer that binds to the SPIKE glycoprotein on the surface of the virus, has now been successfully synthesised and supplied to Paraytec. The aptamer is designed to trap the virus on the testing service so it can be coated with a fluorescent module that allows detection.

Blue Star Capital PLC (LON:BLU) said it has raised £500,000 via a stock placing at 0.12p a share, a modest discount to Monday’s closing price. Backing the fundraiser was Paniolo Ventures Inc, a Canadian investment fund, which bought £250,000 of stock and now has 5.55% of Blue Star's enlarged equity base. Existing investor Nicholas Slater has increased his shareholding to 13.41% from 10.72% after buying shares worth £175,000.

SigmaRoc PLC (LON:SRC) has revealed that it generated revenues of £42mln during the five months to the end of May 2020. This represents 84% of revenues recorded for the same period in 2019 on a like-for-like basis, adjusting for subsequent acquisitions. Comparing pro-forma monthly performance to the prior year, group revenues tracked at 60% in April and recovered to 98% in May. Each platform within the group, and the group itself, has been EBITDA positive for each month of this year-to-date, the group said in a trading update.

S & U PLC (LON:SUS) is seeing activity levels in its motor finance and property bridging businesses starting to return towards normal levels as the coronavirus (COVID-19) pandemic lockdown eases. In a statement released ahead of the company’s virtual annual general meeting, the company’s chairman, Anthony Coombs pledged that the company’s conservative style of management, its strong treasury position and its relationship with its customers “will now pay dividends, both literally and figuratively”.

Caledonia Mining Corporation PLC (LON:CMCL) said it has been notified that Mark Learmonth, a director of the company has sold 10,000 depositary interests in common shares of the company at a price of 12.025p each. It noted that Learmonth now holds 139,775 depositary interests which represent a holding of approximately 1.2% of the share capital of the company.

ADES International Holding PLC (LON:ADES), a leading oil & gas drilling and production services provider in the Middle East and North Africa (MENA), has said it will be posting its first-quarter 2020 trading update on June 11, 2020, through which the group will update the market on its key financial and operational highlights for the first three months ending March 31, 2020.

Alien Metals Ltd (LON:UFO), a minerals exploration and development company, has said it will be hosting a webinar presentation and Q&A session which will go live on Tuesday, June 23 at 3.00pm GMT. The presentation will be made by Bill Brodie Good, Alien Metals’ technical director, who will update shareholders and interested parties on the company's current exploration programs. Any questions investors have to be submitted via [email protected] by Monday, June 15, 2020, so they can be incorporated into the Q&A session. Those looking to take part will be able to access the webinar shortly before 3pm on Tuesday, June 23 via the following link: https://www.bigmarker.com/share-talk/Alien-Metals-PLC-Investor-Presentation-and-Q-A-Session

APQ Global Limited (LON:APQ) has announced that with effect from today, its registered office address has changed to PO Box 142, The Beehive, Rohais, St Peter Port, Guernsey, GY1 3HT.

6.25am: Footsie set to play follow the leader 

The FTSE 100 is tipped to trundle higher on Tuesday, following strong gains overnight on Wall Street as coronavirus (COVID-19) pandemic worries ease further.  

London’s blue chips were being called 38 points higher by traders at CMC Markets, having dropped almost 12 points or 0.2% to 6,472.59 the day before.

US stocks enjoyed a bumper session at the start of the week, outdoing their European counterparts as the Federal Reserve gave more encouraging signals. 

The Dow Jones Industrials Average added 461 points or 1.7% to close at 27,572.44, while the broader S&P 500 climbed 1.2% and the tech-laden Nasdaq Composite rose 1.1%.

The S&P is now less than 1% below where it started the year at and the Nasdaq is more than 9% higher, while the blue-blooded Dow remains the laggard, still down more than 4%.

Encouragement from the Fed came in the form of an expansion to its Main Street Lending Program, allowing more small and medium businesses to access support 

“That should be screaming to one and all that the Fed will have no surprises when it announces its latest rate decision tomorrow night,” said Jeffrey Halley, market analyst at Oanda.

“That should mean that there will be no surprises to derail the buy everything post-COVID-19 rally that is still in full swing. The rally in equities has not been built on a V-shaped recovery by the world economy … Instead, it is built on the almost limitless amounts of unconventional easing by the world’s central banks in its myriad forms. And, it appears in the Fed's case especially, a determination to backstop any losses by investors, no matter how stupid or greedy they are.”

Investors in Britain will wake up to a sprinkling of new results and updates, including first-quarter numbers from cigarette maker British American Tobacco PLC (LON:BATS).

Demand for tobacco products tends to be largely unaffected by macroeconomic conditions, and so far the coronavirus pandemic has done little to impact the FTSE 100 group's operations.

BAT has guided to revenue growth this year at the lower end of its medium-term 3%-5% range, so shareholders are likely to eye any potential changes to this forecast, as well as the dividend.

There will also be a focus on the housebuilding sector, with a trading statement expected from Bellway PLC (LON:BWY).

House price data last week pointed to falling prices and these updates will provide more detail on the restart of activity post-lockdown, including sales volumes and pricing too.

In late April, Bellway said it was gradually reopening building sites under new coronavirus social distancing guidelines, beginning with properties in the later stages of construction.

Around the markets:

  • Pound: down 0.1% to US$1.2711
  • Oil: up 0.2% to US41.03
  • Gold: down 1% to US$1,692

Significant events expected on Tuesday:

Trading updatesBritish American Tobacco PLC (LON:BATS), Bellway PLC (LON:BWY)

Finals: AVEVA Group PLC (LON:AVV), Big Yellow Group PLC (LON:BYG), CML Microsystems Plc (LON:CML), Mckay Securities PLC (LON:MCKS), Oxford Instruments PLC (LON:OXIG), Schroder Real Estate Investment Trust Ltd (LON:SREI)

City headlines:

FT

  • Hong Kong hedge funds eye exit as national security law looms - City’s status as the premier Asian destination for industry talent is at stake.
  • Majority of UK cabinet want to cut 2m social distancing - Boris Johnson is sympathetic to calls for a relaxation of the rule to boost the economy.
  • ‘Glimmers of hope’ in UK retail and consumer spending in May - decline is far less severe than in April but is the second-largest contraction in more than 25 years.

The Times

  • The Nasdaq closed at a record high last night, becoming the first of the big Wall Street indices to confirm a new bull market. Remarkably, it did so only 16 weeks after lockdowns sent equity markets tumbling and pushed the American economy into recession.
  • Cracks are starting to show in nuclear power generators - the pressure is growing on Britain’s ageing reactors as problems begin to emerge.
  • The co-founder of Iceland, has acquired a majority stake in the frozen foods retailer for the first time since it was established 50 years ago.

Telegraph

  • One in six firms set to slash more staff - 'rapid rise' in workers being made unemployed or furloughed, warns Bank of England chief economist Andy Haldane.
  • Scrappage scheme may fail to rev up British car makers - restricting incentives to all-electric cars means UK jobs will not be protected as few models are yet made in British factories.
  • Coronavirus 'to plunge almost every nation into recession' - the global economy faces its biggest crash since the Second World War, with a recession three times as steep as the financial crisis.

Guardian

  • The United States is officially in a recession, ending the longest economic expansion in US history, the committee that calls downturns announced on Monday.
  • British households are expected to rack up debts worth a combined £6bn because of the coronavirus crisis, as millions of people fall behind on credit card payments, council tax and utility bills.
  • Britain’s retailers suffered a second successive slump in monthly sales during May as the coronavirus shutdown took its toll on the high street.

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