ADVFN Morning London Market Report: Wednesday 12 August 2020

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London open: Stocks gain despite dire GDP data

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London stocks rose in early trade on Wednesday despite confirmation that the UK economy has fallen into its worst recession on record.

At 0845 BST, the FTSE 100 was up 0.6% at 6,190.29, while sterling was down 0.1% against the dollar at 1.3042.

Figures released earlier by the Office for National Statistics showed the economy shrank by a fifth in the second quarter of 2020 as the country sank into the deepest recession on record because of the Covid-19 crisis.

Gross domestic product dropped 20.4% in the three months to the end of June from the previous quarter. This was bigger than reported to date by any EU member and double the fall recorded in the US. The record drop, broadly in line with expectations, was caused by the near shutdown of the economy from late March as the government sought to stem the spread of the coronavirus.

The second-quarter plunge followed a 2.2% contraction in the first three months of 2020 which covered the early stages of the virus’s spread in the UK and the start of the economic shutdown.

Still, investors appeared to be taking some comfort from the June figures, which showed that GDP increased 8.7% as shops, factories and construction sites started to reopen, although the economy is still 17.2% smaller than before the virus hit the UK.

Spreadex analyst Connor Campbell said the June growth “has sparked hopes that the country can turn the ship around”.

In equity marketsAdmiral rallied as the insurer reinstated its special dividend and reported a better-than-expected jump in first-half pre-tax profit after motor claims fell as drivers stayed home during the lockdown.

Just Eat Takeaway was also in the black as first-half earnings and revenue grew as it benefited from lockdowns.

M&G gained even as it said first-half profit more than halved as the savings and investments company suffered fund outflows and pressure on retail margins.

On the downside, Spirax-Sarco fell as it said organic revenue growth in the second half of the year will be lower than it anticipated in May.

Avast was weaker even as the cybersecurity firm said full-year organic revenue should be at the upper end of forecasts as it reported a strong first half driven by more people working from home during lockdown.

In broker note action, shares of British Airways and Iberia parent IAG flew lower after a downgrade to ‘neutral’ at Davy, while Dunelm was boosted by an initiation at ‘overweight’ by Barclays.

 

Top 10 FTSE 100 Risers

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# Name Change Pct Change Cur Price
1 Admiral Group Plc +5.47% +138.00 2,663.00
2 Hsbc Holdings Plc +2.99% +10.35 356.35
3 Fresnillo Plc +2.32% +28.00 1,234.50
4 Standard Chartered Plc +2.29% +9.80 437.90
5 Royal Dutch Shell Plc +2.29% +26.80 1,198.20
6 Prudential Plc +2.09% +26.50 1,293.50
7 Hiscox Ltd +2.06% +16.60 823.80
8 Bt Group Plc +1.83% +2.00 111.05
9 Tesco Plc +1.69% +3.80 228.50
10 Hikma Pharmaceuticals Plc +1.65% +37.00 2,284.00

 

Top 10 FTSE 100 Fallers

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# Name Change Pct Change Cur Price
1 Tui Ag -4.29% -16.40 366.20
2 Land Securities Group Plc -2.15% -12.60 573.00
3 Spirax-sarco Engineering Plc -2.06% -220.00 10,440.00
4 Coca-cola Hbc Ag -1.72% -37.00 2,115.00
5 International Consolidated Airlines Group S.a. -1.60% -3.50 215.20
6 Pearson Plc -1.32% -8.20 614.60
7 Compass Group Plc -1.01% -12.50 1,227.50
8 Bhp Group Plc -0.72% -13.00 1,797.60
9 Halma Plc -0.71% -16.00 2,225.00
10 British Land Company Plc -0.63% -2.40 376.90

 

US close: Stocks slide as vaccine optimism leads to tech sell-off

Wall Street stocks closed lower on Tuesday despite Russia giving regulatory approval for the world’s first Covid-19 vaccine.

At the close, the Dow Jones Industrial Average was down 0.38% at 27,686.91, while the S&P 500 was 0.80% weaker at 3,333.69 and the Nasdaq Composite saw out the session 1.69% weaker at 10,782.82.

The Dow closed 104.53 points lower on Tuesday, reversing gains recorded in the previous session after Donald Trump signed an executive order extending the nation’s Covid-19 unemployment relief programme.

Both the Dow and S&P 500 initially rallied higher after Russian President Vladimir Putin claimed the nation had granted regulatory approval for the world’s first Covid-19 vaccine. While concerns about how quickly Russia had managed to develop a safe vaccine abounded, the announcement left market participants optimistic about the race for an inoculation.

Johnson & Johnson also claimed it could produce as many as 1.0bn doses of its own Covid-19 vaccine candidate if it proves successful.

Stocks poised to benefit from an economic reopening such as GapNorwegian Cruise Line and Wynn Resorts were all higher at the end of the session. However, the tech-heavy Nasdaq slumped as a result of a rotation out of the sector, which eventually dragged down the other major indices later in the session.

On the macro front, small business sentiment in the US deteriorated in July as coronavirus cases rose, according to the latest survey from the National Federation of Independent Business. The small business optimism index fell to 98.8 from 100.6 in June, missing expectations for a reading of 105.9.

NFIB chief economist Bill Dunkelberg said: “This summer has been challenging for many small business owners who are working hard to keep their doors open and remain in business.”

Elsewhere, US producer prices increased more in July than in the last 18 months, according to the Labor Department, with the producer price index for final demand rising 0.6% last month, driven by a surge in portfolio management fees and rising costs for gasoline.

In corporate news, Eastman Kodak shares slumped overnight after a US federal agency stated it was now reviewing a previously announced $765m loan to assist the photography outfit in producing drug ingredients following recent allegations of wrongdoing.

 

Wednesday newspaper round-up: Serco, Amazon, British Airways

The government has been urged to demonstrate there was no favouritism at play in awarding Serco a contact-tracing contract worth £108m, as a leaked memo revealed the outsourcing firm was enlisted to help with the Covid-19 response as early as January. Serco is facing growing calls to be axed from any future involvement in contact-tracing services amid concerns over the performance of private firms contracted to trace people who have mixed with infected individuals. – Guardian

Online political advertisements could require labels for the first time under plans unveiled by the government, in an effort to inject more transparency into digital campaigning. The rules would require a “digital imprint”, revealing who is behind the message, to be included on formal campaign ads as well as “organic” content made by certain campaigners and candidates on sites such as Twitter, Facebook and YouTube. – Guardian

Airbnb is planning to file for a US float in the coming weeks, putting the short-term rental company on course to go public by the end of this year. – Telegraph

Amazon has come under further pressure to reverse its decision to pass on the digital services tax to small businesses in Britain after eBay said that it would absorb the levy. The digital services tax was introduced in April as part of the government’s efforts to level the playing field with high street shops and to tackle online companies that pay little tax on their huge revenues. The levy is a 2 per cent tax on revenues generated in the UK. It is thought that the tax will cost eBay at least £20 million this year, based on its last available accounts, which show that the online marketplace made sales of £1 billion in 2018. – The Times

British Airways has made what it calls “significant progress” in talks with unions over plans to restructure its business. In a letter sent to staff, which has been seen by The Times, Alex Cruz, chief executive, said that the airline had signed an agreement in principle over the future of parts of its workforce. – The Times

 

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