- FTSE 100 index closes down 56 points
- Shell to take big hit in second quarter as oil price slump bites
- IHG sees huge decline in RevPAR
5.05pm: FTSE 100 closes in red
FTSE 100 index closed down in the dumps on Tuesday as big oil weighed on the UK benchmark index.
Footsie closed down around 56 points, or 0.90%, at 6,169.
"Royal Dutch announced a large impairment charge and the fall in the underlying oil market has hit BP too," noted David Madden, analyst at CMC Markets.
Royal Dutch Shell (LON:RDSB) was among top laggards, down 3.68% to 1,224p after it revealed its second quarter update would include an impairment charge of between US$15 and US$22 billion because of changed price forecasts for oil and gas. BP (LON:BP.) shares fell 2.45% to 307.20p.
Sentiment in equities was also impacted on Tuesday yet again by worries about the rising number of coronavirus cases, and the increase in localised lockdowns. In addition, various US states have witnessed a jump in the number of infections.
On Wall Street, stocks were relatively muted. The Dow Jones Industrial Average gained almost 26 points at 25,621 and the S&P 500 added around 25 points.
4pm: FTSE led lower
Oils led the Footsie lower on Tuesday with a soupcon of help from travel stocks.
Londons index of big-cap shares was down 75 points (1.2%) at 6,151.
Royal Dutch Shell (LON:RDSB), down 3.3% at 1,220p was friendless after it revealed plans to write down the value of its assets in its second-quarter results.
British Airways owner International Consolidated Airlines (LON:IAG) was off 4.2% at 220.9p while elsewhere in the travel and leisure sector, hotels group, Intercontinental Hotels Group PLC (LON:IHG) gave up 3.0% at 3,536p in the wake of its trading update.
The group expects to report a like-for-like decline of around 75% in revenue per available room for the second quarter.
3.00pm: Tech stocks wanted stateside
US markets were ex[ected to open lower but demand for tech stocks propelled the S&P 500 into positive territory.
While the Dow Jones was down 64 points (0.3%) at 25,531, the S&P advanced 6 points (0.2%) to 3,059 and the tech-laced NASDAQ Composite surged 67 points (0.7%) to 9,941.
The US Consumer Confidence index in June rebounded to 98.1 from 85.9 in May, comfortably above the consensus forecast of 90.8.
In London, the FTSE 100 was coasting gently downhill in the late afternoon to 6,154, down 72 points (1.2%).
1.50pm: US indices to come off the boil
After yesterdays storming session, US indices are set to open softer on Tuesday.
The Dow Jones, which added 580 points yesterday, is tipped to open around 90 points lower at 25,506. The S&P 500 is seen opening 6 points weaker at 3,047.
“US futures are edging lower ahead of the open on Tuesday, as the stock market recovery continues to send flagging signals on the back of numerous reopening setbacks,” said Craig Erlam, the senior market analyst at OANDA Europe.
“It's been an incredible bounce-back quarter for stock markets, building on the recovery that started in the final week of March, as central banks and governments around the world launched enormous stimulus programmes in order to prevent a catastrophic economic collapse. The efforts were warranted but have resulted in equity markets looking quite disconnected from the reality of what we're seeing around the world.
“This month has seen the rally running on reserves and we're now heading into the end of the quarter in a consolidation phase and looking a little vulnerable to a correction. It's hard to build a case for a correction in markets that are so buoyed by the level of stimulus we're experiencing but the red flags are popping up,” Erlam suggested.
In London, a scintillating quarter looked set to end on a subdued note with the FTSE 100 down 56 points (0.9%) at 6,170.
1.00pm: Build, build, build
Tony Blair has “education, education, education”; Boris Johnson has gone for “build, build, build”.
That was the slogan on his podium and the main theme of his speech at an appearance at the Dudley College of Technology in which he vowed not to follow the example of one of his predecessors, David Cameron, and cut spending while the economy was contracting.
“Were not going to cheese-pare our way out of trouble, because the world has moved on since 2008,” Johnson said.
Johnson, in a heavily leaked speech, said there would be radical reforms to make it easier for property developers to get the green light for their projects,
He announced £1.5bn of expenditure for hospital maintenance, £1bn for new schools and another £560mln for school upgrades plus £200mln to improve cottages, and £100mln for road projects.
“We seem set to spend our way to fiscal health and to ensure, in particular, that there is finally a genuine home-building revolution to match similar investment intentions in the transport, education and health sectors. What a welcome relief this is and at just the right time,” said James Forrester, the managing director of estate agent Barrows and Forester.
An investor survey by fund management giant Fidelity International suggested that investors recognise the need for drastic measures to support business recovery, with 58% in favour of cutting taxes and 61% of respondents supporting unprecedented levels of borrowing.
“The research reveals theyre also willing to play their part, with more than half (51%) supportive of companies cancelling or suspending dividend payouts to shareholders in order to focus on their long-term viability,” said Tom Stevenson, the investment director at the Personal Investing division of Fidelity.
“What really matters going forward is the health and resilience of the economy and the well-being of the people that live and work within it. The outlook for shares is ultimately dependent on multiple factors, a key one of them being fiscal and monetary support for businesses. Its therefore, not surprising that support for further Government-led measures goes hand in hand with investors willingness to accept cuts or suspensions of dividend payments for the sake of the future survival and recovery of UK businesses and the economy,” Stevenson suggested.
“The investors in our research also understand that growth, by itself, is meaningless if it is achieved at the expense of the economy that supports it and of peoples mental and physical health,” he added.
Given that Johnsons speech had been heavily trailed in the press, there was not much of a reaction from investors.
The FTSE 100 was down 20 points (0.3%) at 6,206 while the FTSE 250, which is less international in its outlook, was up 7 points (0.0%) at 17,206, despite a 14% slump to 26.7p by mining group Petropavlovsk PLC (LON:POG) after more discord in the board room.
Candidates unanimously proposed by the board for election or re-election at the annual general meeting all got the elbow.
“Analysis of the voting shows that the votes against the existing board members were cast almost entirely by four shareholder groups – Joint Stock Company "Uzhuralzoloto Group of Companies" ("UGC") (22.37%), Everest Alliance ("Everest") and Slevin (12.09% combined) and Fortiana Holdings (4.62%),” a statement from Petropavlovsk said.
The board believes the outcome of the voting has been engineered by Konstantin Strukov's UGC and Nikolai Lustiger (who has over the past two years represented the combined interests of Everest and Slevin) against the wishes of the independent majority of shareholders.
11.45am: The Footsie pares its losses
The Footsie has pared its early losses thanks in part to positive responses to updates from Smiths Group PLC and Standard Life Aberdeen PLC.
Londons index of heavyweight shares was down 30 points (0.5%) at 6,196.
Smiths (LON:SMIN) was the best performing blue-chip, up 7.1% at 1,390.5p after the company revealed a restructuring plan.
Standard Life (LON:SLA) was second in the queue, up 4.0% at 276.4p, as the market applauded the appointment of former Citigroup luminary Stephen Bird as the successor to Keith Skeoch as chief executive officer.
Howard Archer, the quote machine at the EY ITEM Club has weighed in on this mornings gross domestic product (GDP) data.
“Revised data show the first quarter of 2020 saw the equal largest quarterly GDP contraction since the third quarter of 1979 and followed a flat performance in the fourth quarter of 2019. GDP was down 2.2% quarter-on-quarter and 1.7% year-on-year in the first quarter of 2020, an even larger decline than the originally indicated 2.0% quarter-on-quarter and 1.7% year-on-year,” Archer reported.
“Despite improvements in May and June, it is evident that the UK economy witnessed a record GDP contraction in the second quarter. The EY ITEM Club suspects that the economy likely contracted around 17% quarter-on-quarter in this period.
“The EY ITEM Club also expects the economy to return to clear growth in the third quarter with GDP expanding close to 10% quarter-on-quarter. This assumes a further gradual easing of lockdown restrictions across the UK,” Archer said.
Meanwhile, HM Customs and Revenue has revealed that around 9.3mln workers are currently on furlough and 1.1mln employers are participating in the governments furloughing scheme.
The total subsidy claimed to date under the scheme is £25.5bn.
The Job Retention Scheme launched on 20 April.
By midnight on 28 June there were a total of:
9.3m jobs furloughed *
Apply for a grant to cover the wages of your furloughed staff now: https://t.co/txF4TJcCLZ pic.twitter.com/8eTqvdZh6R
— HM Revenue & Customs (@HMRCgovuk) June 30, 2020
10.15am: Oil majors weigh heavy on the Footsie
Red remains the predominant colour on traders screens with the Footsies losses extended by a lack of enthusiasm for oil stocks.
Londons index of leading shares was down 56 points (0.9%) at 6,169, thanks in no small part to losses of around 2% on the heavily-weighted oil majors, Royal Dutch Shell (LON:RDSB) and BP PLC (LON:BP.).
Shell has warned that significant adjustments to longer-term oil price and interest rate expectations will result in impairments of US$15bn-US$22bn to the value of its assets in the second quarter.
Nicholas Hyett, an equity analyst at Hargreaves Lansdown, said there was “nothing overly surprising” about todays announcement of write-downs.
“The real question going forwards is whether Shells fairly downbeat expectations are downbeat enough. Oil prices have spent a large part of the last five years under $60 a barrel and while the collapse of several large US shale names might reduce global supply, the outlook for demand is hardly robust,” Hyett suggested.
Meanwhile, the price of Brent crude on futures markets has fallen 49 cents (1.2%) to US$41.36 a barrel.
Another set of figures that were not “overly surprising” were this mornings final set of gross domestic product numbers (GDP) for the UK in the first quarter.
GDP fell by 2.2%, which a bit more severe than the 2.0% fall economists had predicted.
“The updated Q1 GDP figures provided no major surprises, although they showed that economic output dropped slightly more (by 0.2ppt) than previously thought as the initial shift to lockdown hit activity. Indeed, the decline of 2.2% Q/Q [quarter-on-quarter] in GDP in Q1 was a touch sharper even than during the worst quarter of the global financial crisis and thus the steepest since Q379,” observed Daiwa Capital Markets.
“Of course, the magnitude of this drop will be dwarfed by Q2, when GDP is likely to have dropped by more than 15%Q/Q,” it added.
GDP fell by a revised 2.2% in Q1 (Jan to Mar) 2020, with services (-2.3%), manufacturing (-1.1%) and construction (-1.7%) all falling significantly https://t.co/lQYvPEx0zN pic.twitter.com/T9WQgJjIiH
— Office for National Statistics (ONS) (@ONS) June 30, 2020
8.40am: More sanguine view
The FTSE 100 ignored the hype on Wall Street to open in negative territory on Tuesday as traders took a more realistic view of the market, driven by a dour economic outlook.
The UK blue-chip index dropped 20 points to 6,206.19.
Market commentators on this side of the Atlantic certainly werent getting carried away by the 580-point spike of the Dow Jones Industrials Average on Monday or the NASDAQs recent charge – all of which has been funded by cheap money.
“With stock markets across the world being driven increasingly by huge increases in central bank liquidity and some valuations looking increasingly expensive, it is becoming increasingly difficult to not only find value but also to decide which sectors of the market have the potential to remain resilient in the midst of a changing global outlook,” said Michael Hewson of CMC Markets.
“The coronavirus pandemic has not only upended the global economy, but it has also changed the way the investors look at the future when it comes to investing their money.
“The traditional bellwethers of the business cycle of industrials, as well as oil and gas, have taken an absolute beating in the past few months, and more and more investors have started to look to the future as new working patterns come into focus as the consequences of the economic lockdowns of the last few weeks continue to reverberate across the world.”
Here in the UK, Smiths Group (LON:SMIN) lead the Footsie leader board as the engineers trading update and restructuring plans met with City approval, nudging the shares up 5%.
On the FTSE 250, builder Redrow (LON:RDW) took a knock after it said the outlook for the sector was uncertain and announced it is pulling out of London due to home-buyers' changing demand for housing because of coronavirus. The shares fell 6.75%. (Read more on the story here.)
Proactive news headlines:
Inspired Energy PLC (LON:INSE) chairman Michael Fletcher will tell Tuesdays annual general meeting that the group's order book increased to £61.1mln as of May 31, 2020, up from £60.1mln the month before. In a statement to be delivered to the meeting, which investors are encouraged not to attend in person in respect of social distancing rules, the AIM-listed firm's chairman said it was largely unaffected by the coronavirus pandemic until very late in March and the business delivered a strong performance in the first quarter, with trading in line with expectations at the time and ahead of the same period last year.
World High Life PLC (LON:LIFE) (OTCQB: WRHLF) announced that its wholly-owned subsidiary, Love Hemp's global online CBD retailer, CBDOilsUK has launched a new look for its website, www.cbdoilsuk.com. The group said the new website has been optimised for growth, functionality, and an enhanced end-to-end user experience, with over 2,900 integrated customer reviews. Since launch, World High Life added, the new website has experienced a 52% increase in traffic, returning customer rates are up 110%, whilst revenue has increased 8% in the last 30 days.
Redx Pharma PLC (LON:REDX) has said it is raising US$30mln ostensibly via the issue of convertible loan notes. Funds Redmile Group and Sofinnova Partners are putting up US$19mln and US$10mln respectively. The remainder is coming from a direct subscription of shares by Sofinnova. The fresh injection of cash will be used to repay US$6.1mln of short-term debt, and, perhaps more importantly, to take its oncology and fibrosis drugs to “key inflexion points”. In a separate announcement, RedX unveiled its interim results to March 31 – a period in which it made significant clinical progress. RedX ended the six months to March 31, 2020, with cash US$2.3mln and a loss from operations of US$4.4mln.
Powerhouse Energy Group PLC (LON:PHE), the waste to energy group, has said its DMG technology continues to attract substantial interest internationally. In its 2019 results statement, the company said it is carefully filtering potential opportunities to engage exclusively with experienced project developers and so maximise its future licensing revenues. "2019 has been a transformative year for Powerhouse with the first commercial plant using our DMG technology now under development,” said Cameron Davies, the chairman of Powerhouse.
IronRidge Resources Ltd (LON:IRR) has been granted a new exploration licence in Ghana at Mankessim South. The licence provides IronRidge with full ownership of a contiguous prospective lithium exploration licence adjacent to its Ewoyaa lithium project, which already boasts a 14.5mln tonne resource. Field teams have been re-mobilised to the site to commence low-cost regional exploration programmes, including grid auger drilling, mapping and sampling within the newly-granted license and surrounding resource footprint area.
Rose Petroleum PLC (LON:ROSE), the Rocky Mountain-focused oil and gas company, is to change its name to Zephyr Energy, reflecting a fresh start for the company. In its results statement covering 2019, the company noted that last year saw an overhaul of the management team and a sharpening of the companys focus to concentrate on responsible exploration and production investment in the Rocky Mountain region of North America. “The company is now positioned as a clean, low-overhead, unlevered and value-focused vehicle from which to build. I believe we have the team, strategy and value set to deliver on all of our ambitious objectives, and I look forward to the future with cautious optimism," said Rick Grant, the non-executive chairman of Rose.
Power Metal Resources PLC (LON:POW) closed out the six months to March 31, 2020, with net assets of £2mln, after booking a £240,000 loss. The metals exploration and development company had a busy first financial half, as it struck deals on assets in Botswana and the USA, and undertook exploration in Tanzania and the Democratic Republic of Congo. After the period end, deals were also done in Australia, and further progress made on the African portfolio.
Oriole Resources PLC (AIM:ORR) has raised £419,500 via a placing and subscription of shares at 0.3p. The placing price represents a 14% discount to the price of the company's shares at the close of market on June 29, 2020, and an 11% discount to the 30-day volume-weighted average price (VWAP). The proceeds will primarily be used to support ongoing exploration at the company's projects in Cameroon, including moving the programme at Bibemi towards drill mobilisation later this year.
ADM Energy PLC (LON:ADME) said it believes it has the foundation to expand its investment portfolio as oil majors continue to seek exit strategies in West Africa. Alongside the AIM-listed companys results for the past calendar year, ADM's chief executive Osamede Okhomina said 2019 “was an important year to lay the foundation for our growth strategy”, where the group is focused on adding highly accretive proved and probable (2P) reserves assets in West Africa on top of its stake in the producing asset at the Aje field offshore Nigeria.
Vast Resources PLC (LON:VAST) has been granted an exploitation licence for the Manaila Carlibaba project in Romania, which will allow the company to re-examine the exploitation of the mineral resources within the larger licence area. The Manaila Carlibaba exploitation perimeter contains a JORC 2012 compliant measured and indicated resource of 3.6mln tonnes at 0.93% copper plus other associated metals, with 1mln tonnes inferred grading 1.10% copper. The enlarged exploitation license is 138.6 hectares in size, an increase of 410% in surface area from the existing exploitation license at Manaila.
Canadian Overseas Petroleum Limited (LON:COPL) has reported a loss of US$301,00 in the three months to March 31, 2020, and ended the period with cash resources of US$0.05mln. Since May, however, COPL's share price has risen nine-fold as the junior oiler settled principle with partner Essar in their dispute over the OPL 226 licence offshore Nigeria, with the company now carried on an appraisal well. COPL has also refinanced itself through two placings to raise £1.2mln in addition to a US$2mln equity funding facility.
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