- FTSE 100 index sheds 29 points
- Lenders suffer with central bank policies
- Bank of England leaves policy unchanged
- US stocks expected to head lower
12.30pm: Bank stands pat, sending sterling lower
The pound dropped after the Bank of England left things as they are following its September monetary policy committee (MPC) meeting.
BoE policymakers voted unanimously to keep things as they are, as expected.
In its statement alongside the decision, the MPC noted that UK economic growth in July was around 18.5% above its trough in April but still around 11.5% below the fourth quarter of 2019, with employment falling by around 700,000 between February and August.
Furthermore, while recent payment data suggests consumption has continued to recover more strongly during the summer than the MPC expected, business investment intentions have remained very weak and uncertainty is elevated.
Furthermore, the committee noted that given the current risks, “it is unclear how informative” recent economic data can be about how the economy will perform further out.
“The recent increases in Covid-19 cases in some parts of the world, including the UK, have the potential to weigh further on economic activity, albeit probably on a lesser scale than seen earlier in the year,” the MPC said, adding that there “remains a risk of a more persistent period of elevated unemployment” than its central forecast.
Repeating that its “stands ready” to adjust interest rates, bond buying and other monetary policy if necessary, the policymakers also restated that they do not intend to tighten policy “until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably”.
UK consumer price inflation fell to a five-year low of 0.2% last month.
Following the BoE announcement, sterling dropped 0.5% to US$1.2905, releasing some pressure on the FTSE 100, which reduced its arrears to 29 points on the day, or 0.5%, to 6,049.31, with UK high street lenders remaining around the day’s lows.
11.55am: FTSE eyes BoE, Wall Street set for slide
Ahead of the Wall Street opening bell, traders are expecting US stocks to continue to retreat, as many did yesterday.
The Dow Jones, which was the only one of the main blue chip indices to remain in the green on Wednesday, is expected to join in with some blood-letting on Thursday.
Tech, which dominates the Nasdaq Composite and is about a quarter of the S&P 500, led the decline in the previous session, whilst energy rallied on oil prices strengthening.
Market analyst Chris Beauchamp at IG said: “A lingering sense of disappointment hangs over global markets in the wake of the Fed meeting last night.
“Investors had evidently hoped for something much more concrete than the relatively vague policy outlook provided by Powell and co, with equities struggling in early trading and the dollar finding some support.
“From the accompanying press conference, it is clear that the Fed finds itself in a similar situation to the ECB; content to err on the side of caution for now with regard to doing any more, but painfully aware that fiscal stimulus needs to pick up the slack even as the chances of that stimulus seem to be receding.
“With an election looming neither party in Congress wishes to give their opponents anything that could be transmuted into electoral advantage, and so the deadlock goes on. Improved GDP forecasts could help firm up the dollar, but will have equity traders worrying that a faster-than-expected rebound will prompt the Fed to ease off stimulus more rapidly than expected.”
Back in Blighty, the Footsie has climbed away from its worst lows but is still well in the red ahead of the Bank of England decision, down 43 points or 0.7% at 6,035.93.
“With the Bank of England (BoE), it’s more a matter of ‘when’, not ‘whether’ or ‘what’,” said Marshall Gittler at BDSwiss, noting that BoE governor Andrew Bailey said in a recent speech that “we are not out of firepower by any means” and with the market is pricing in a Bank Rate of -0.10% by next June, versus a target rate of +0.10% today.
Economists at investment bank ING said: “While it’s unlikely the Bank will rock the boat too much this week, there are two interesting questions. Firstly, will policymakers acknowledge that the downside risks to their August forecasts are growing? Certainly, some MPC members have been sounding more cautious in recent weeks.
“Secondly, will the Bank offer any clues as to how it might increase the level of stimulus in November? Despite the recent hype surrounding negative rates, Governor Andrew Bailey has indicated that he believes quantitive easing (QE) is a more useful marginal policy tool, and this is likely to be at the centre of the stimulus package we expect in the autumn.”
The pound is back to flat on the day ahead of the announcement, at US$1.2969.
10.50am: UK banks under pressure
UK banks were under pressure after the latest monetary policy statements from the US Federal Reserve and the Bank of Japan, as both authorities promise to anchor interest rates at record lows.
Analysts say the Bank of England is unlikely to be any more aggressive, given the uncertain economic backdrop, record levels of global indebtedness and its desire to keep cheap credit flowing.
“But central bank policies may be (unwittingly) doing more harm than good when it comes to the major lenders,” noted Russ Mould, AJ Bell Investment Director.
“Low base rates drag down the interest rates that banks can charge on loans and Quantitative Easing (QE) is designed to flatten out borrowing costs too, with the result that credit spreads (the premium in interest rate that a company has to pay relative to a Government) are also relatively low.”
“The net result is that the net interest margin on banks’ loan books is under fierce pressure, seriously undermining banks’ profitability and their ability to earn decent returns on equity… Until Governments pull the trigger on more spending and higher deficits, banking stocks may continue to recoil from central bank policy statements which promise low-interest rates for longer or even the dreaded prospect of negative interest rates.”
The wider blue-chip index was down 56 points to 6,021.
9.50am: John Lewis scraps staff bonus as Co-op posts sales surge
FTSE 100 trimmed its losses in mid-morning, dropping 44 points to 6,034, while sterling dipped 0.1% to US$1.2952.
John Lewis Partnership said it will not give a bonus to staff for the first time since 1953 after posting a £55mln loss for the six months to July 25.
Sales rose 1% but higher costs related to COVID-19 hit profits.
The early weeks of the second half have been encouraging in both of its brands, John Lewis and Waitrose, although it was announced yesterday the supermarket would close four more stores.
Meanwhile, fellow grocer Co-op reported an increase of 7% to £5.8bn in revenue for the half year to July 24, though costs related to the pandemic will come in at £97mln for the full year.
Profit before tax jumped 35% to £27mln while the supermarket chain also paid out £13mln in thank-you bonuses to staff.
8.50am: Retreat for Footsie
The FTSE 100 index opened lower on Thursday as it looks increasingly likely the UK is headed towards some sort of limited lockdown to ward off a coronavirus second wave.
London’s blue-chip benchmark opened 55 points lower at 6,023.99.
The prospect of further national restrictions came amid howls of protest from all sectors at the apparent failure of wholesale testing and sparked worries over the economic impact of moves to flatten the infection curve.
After hours Wednesday, the US Federal Reserve received what the Financial Times called mixed reviews for its vow to keep monetary policy loose while attempting to spell out what ‘loose’ meant in reality.
“The move did reinforce the Fed’s dovishness,” said the FT. “But some economists and investors doubted whether the more specific guidance would be effective in achieving the central bank’s ambitious economic objectives, leaving it under pressure to deploy other more aggressive tools to help the recovery.”
Meanwhile, Bank of England governor Andrew Bailey and fellow members of the Monetary Policy Committee look set to stand pat on the UK base rate, which is sitting at a historic low of 0.1% following their latest meeting.
The powder is expected to remain dry on further stimulus efforts, which are expected to be deployed later this year when the Treasury’s furlough scheme comes to an end.
Elsewhere, the partial climbdown from Boris Johnson on the controversial Internal Market Bill failed to calm nerves over Brexit.
However, Next (LON:NXT) led the blue-chip index with a 2.2% gain after the retailer proved resilient to the current carnage on the High Street.
“The pace of change enforced by the lockdown towards online sales was one which Next was ready to embrace,” said Richard Hunter, head of markets at Interactive Investor.
“Its online presence had long been a cornerstone of its success, and where customers continued to shop – inevitably on a lower scale – the business was quickly ramped up to meet demand. In addition, with much of its store portfolio based out of town, the more recent tentative return to physical shopping has also played into Next’s hands.”
The current market volatility appears to have been good news for the spread betting firm IG Group, which topped the FTSE 250 index with a 6.2% rise in the wake of first-quarter results.
Proactive news headlines:
Tiziana Life Sciences PLC (NASDAQ:TLSA) (LON:TILS) has signed an agreement to use its “potentially transformative” approach to modulating the immune system in a human clinical study of patients with coronavirus (COVID-19). Work will get underway in Brazil starting next month, with the company’s drug, Foralumab, administered by nasal spray either on its own or in combination with an orally-taken anti-inflammatory called dexamethasone. Tiziana has moved straight into human trials because it had already secured safety data for the nasal application for the drug from a phase I clinical assessment carried out a year ago.
Eden Research PLC (LON:EDEN) has announced that its commercial collaborator, Eastman Chemical Company has received authorisation for the sale of its Cedroz product in France. The AIM-quoted company, which is focused on sustainable biopesticides and plastic-free formulation technology for use in the global crop protection, animal health and consumer products industries, said the French regulator has also approved Eden’s biofungicide, Mevalone, for use in organic agriculture in France. Separately, the group added, it has been notified that Mevalone has received authorisation for use on table and wine grapes in Serbia via regional distributor K&N Efthymiadis (KNE).
OptiBiotix Health PLC (LON:OPTI) said its subsidiary ProBiotix Health has signed an exclusive distribution agreement for Brazil with local group Ayalla Marketing. The UK company’s new partner will distribute the cholesterol-reducing probiotic, LPLDL, both as an ingredient and as four finished products – CholBiome, CholBiomeX3, CholBiomeBP and CholBiome. OptiBiotix said the deal offered an “agreed and expected” first order within 30 days from approval by the Brazilian authorities of its food technology.
FastForward Innovations Ltd, the AIM-quoted company focused on making investments in fast-growing and industry-leading businesses, has noted that its investee company Juvenescence Limited has signed a partnership deal with Evgen Pharma PLC.FastForward has around a 0.63% interest in the issued stock of Juvenescence. In a statement on Wednesday, Juvenescence – a life sciences company focused on modifying ageing and increasing human healthspan – said Evgen has licensed its sulforaphane stabilization technology for use in several non-pharmaceutical applications led by its JuvLife division.
Supermarket Income REIT PLC (LON:SUPR) has said it is to raise £150mln to take advantage of opportunities that have become available since the onset of coronavirus restrictions. The trust invests in sites occupied by the major supermarket chains such as Tesco, Sainsbury’s, Morrisons and Waitrose and has identified £400mln worth of omnichannel sites that meet its criteria of size and online fulfilment potential. Property funds having to meet redemptions are one source of sites, it said, and due diligence has already been carried out on three worth £135mln in total. The REIT also announced it was increasing its dividend target for 2021 to 5.86p after raising the dividend by 4% to 5.8p in the year to June just ended.
Keywords Studios PLC (LON:KWS), the ever acquisitive video games services firm, has confirmed a 13% increase in first-half revenue at €173.5mln, with organic revenues marking an 8% rise, as it also inked a new deal. The group’s underlying earnings (adjusted EBITDA) jumped 19% to €30.8mln for the six months ended June 30, 2020, versus €25.8mln in the same period of 2019. Keywords highlighted strong demand for its services and a robust trading performance with its largest service line, game development, showing particularly strong growth. Keywords also announced its latest bolt-on through the US$13.3mln acquisition of LA-based Heavy Iron Studios Inc, a technical specialist that mainly works on top-tier game titles – most recently, for example, it has been contracted to Crystal Dynamics for its new Marvel Avengers title and has worked on Activision’s Call of Duty franchise. A structured deal sees the company pay US$4mln of cash upfront, US$500,000 on the first anniversary of the deal, and up to US$8.8mln of contingent payments tied to performance targets across the first two years under the Keywords’ banner.
ADM Energy PLC (LON:ADM) told investors it has formally submitted a bid to the Nigerian Department of Petroleum Resources as part of the 2020 Marginal Field Bid Round. Nigeria’s licensing process has made up to 57 marginal field assets available for oil and gas companies to bid for. These span projects that are onshore, swamp and shallow offshore. ADM is participating in the process alongside partner OilBank International, with the partners previously pre-qualifying for the bid round.
[email protected] Capital PLC (LON:SYME) has distanced itself completely from what it says was a fake article that appeared on Wednesday that claimed to contain bullish recommendations from several high profile fund managers. In a statement, the AIM-listed online inventory platform said: “It is a totally erroneous article reviewing a series of fabricated SYME forecasts that was issued yesterday afternoon. This appeared on more than one ‘fake news’ website.“SYME wishes to make clear that the article was both inaccurate and misleading and that it totally dissociates itself with the content.”
Mosman Oil and Gas Limited (LON:MSMN) the oil exploration, development, and production company, said it has received notification to exercise warrants over a total of 62,500,000 new ordinary shares in the company at a price of 0.15p per share. The group said the funds from the warrants exercise of around A$165,000 will be added to its existing cash reserves.
Integumen PLC (LON:SKIN) announced that it has received notification from multiple warrant holders to exercise warrants over 42,500 shares in the company at an exercise price of 20p each. The consideration for the exercise of the warrant shares amounts, in aggregate, to a cash value of £8,500.
Galileo Resources PLC (LON:GLR) confirmed that it has issued a total of 6,250,000 fully paid ordinary shares in the company at a price of 0.6p per share following the exercise of warrants under the terms of its placing agreement dated October 17, 2019.
6.50am: Weak start for Footsie
The FTSE 100 is set to start on the back foot on Thursday ahead of the latest Bank of England policy meeting, which comes after the US Federal Reserve issued its latest policy decision last night.
CFD and spreadbetting firm IG Markets sees the blue-chip benchmark falling by around 39 points, making the price 6,040 to 6,043 with just over an hour to go before the open.
“There has been a lot of chatter in recent months about the likelihood of whether the Bank of England would go down the negative rate route, to the extent that it has become rather tedious, and a little predictable,” said Michael Hewson, analyst at CMC Markets.
“While Bank of England officials have been careful not to rule out the possibility of such a move the reality is that any such move would be extremely damaging to the UK financial sector which makes up such an important part of the UK economy.
“At least the US Federal Reserve has implicitly ruled out the prospect of such a move, perhaps mindful of the damage it has done in Europe and Japan,” he added.
The Federal Reserve surprised nobody last night, as the US central bank made no changes to policy. It did, however, guide that it intends to keep interest rates low until 2023 – a clear signal that rates will remain supportive in the short and medium-term.
In New York, the Dow Jones Industrial Average finished Wednesday in positive territory adding 36 points or 0.13% at 28,032. But the S&P 500 index dropped 0.46% closing at 3,385 and the Nasdaq Composite shed 1.25% to 11,050.
There was volatility for America’s big-name tech stocks as Facebook found itself in the sights of federal regulators. The social network will reportedly come under the scrutiny of an antitrust investigation by the Federal Trade Commission. Google may also be put under the microscope.
Asian stock indices were also lower. Japan’s Nikkei 225 index lost 140 points or 0.6% trading at 23,334 whilst Hong Kong’s Hang Seng fell 367 points or 1.49% to 24,357. The Shanghai Composite was down 0.69% at 3,261.
Around the markets:
- The pound: US$1.2931, down 0.28%
- Gold price: US$1,943 per ounce, down 0.77%
- Silver price: US$26.84 per ounce, down 1.19%
- Brent crude: US$41.72 per barrel, up 2.9%
- WTI crude: US$39.61, up 3.4%
- Bitcoin: US$10,917, up 1.09%
6.45am: Early Markets – Asia/Australia
Stocks in Asia-Pacific markets were lower on Thursday as investors reacted to overnight developments from the US Federal Reserve.
Hong Kong’s Hang Seng index led losses with a 1.47% fall and China’s Shanghai Composite was down 0.85%.
South Korea’s Kospi slipped 1.42%, while Japan’s Nikkei 225 was down 0.64%.
In Australia, the S&P/ASX 200 was 1.06% lower even as the country’s unemployment rate dropped to 6.8% in August, an improvement from 7.5% in the previous month.
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Proactive Australia news:
Blackstone Minerals Ltd (ASX:BSX) has completed its placement raising $17.82 million before costs to support ongoing exploration, resource drilling and future studies at the Ta Khoa Project in Vietnam.
Orthocell Ltd (ASX:OCC) has had the positive pre-clinical and clinical results for the use of CelGro® in enhancing repair of critical bone defects published in the highly regarded Tissue Engineering journal.
Predictive Discovery Ltd (ASX:PDI) is strengthening its landholding within the prolific Siguiri Basin in Guinea with the acquisition of Argo exploration permit and granting of the Bokoro exploration permit.
Mako Gold Ltd (ASX:MKG) has extended gold mineralisation 250 metres along strike at Tchaga prospect within the Napié Gold Project in Côte d’Ivoire where reverse circulation and diamond drilling is ongoing.
Carnarvon Petroleum Limited’s (ASX:CVN) interpretation of new 3D seismic data has provided a higher level of confidence over the Apus, Petrus and Kepler targets near the Dorado discovery within the Bedout sub-basin on Western Australia’s North West Shelf.
Highfield Resources Ltd (ASX:HFR) has been granted administrative authorisation for construction of key sections of the high voltage electrical supply line needed to build its Muga Potash Mine in Spain.
Auroch Minerals Ltd (ASX:AOU) is leveraged to the expected nickel super-cycle with Australia’s nickel export earnings forecast to strengthen on the back of growing export volumes and recovering prices.
GTI Resources Ltd (ASX:GTR) is moving fast towards its maiden gold drilling at Niagara Gold Project, southwest of Kookynie in Western Australia, with the company on track for September and October drilling.
Emerald Clinics Ltd (ASX:EMD) has entered a professional services agreement with the Precision Recovery team at New York’s Mt Sinai Hospital, one of the USA’s leading teaching and research hospitals, to support ongoing development of Emerald’s Openly clinical service.
Fe Limited (ASX:FEL) is extending its exposure to an iron ore industry that is performing strongly with positive fundamentals for future growth, through acquiring a 51% interest in the Mining Rights Agreement for a production-ready WA project.