UK stock markets fell sharply in opening trading on Thursday after the Bank of England forecast a slower-than-expected rebound from the Covid-19 pandemic, while Glencore’s (GLEN) dividend cut and several heavy hitters going ex-dividend dragged on markets.
The benchmark FTSE 100 dropped nearly 1.5% in early trading to 6,018.33 as investors retreated from equities, following a weak end to the session on Asia’s largest markets and a slow start across Europe.
MSCI’s broadest index of Asia-Pacific shares outside Japan hit an early-session six-and-a-half-month peak but fell back to be flat after drops in China and Hong Kong. Japan's Nikkei declined 0.5%, while in Europe, the Euro Stoxx 50 index made modest 0.2% gains.
The Bank of England said on Thursday the British economy would not recover its end-2019 size until the end of next year, later than its earlier estimate of a recovery by the second half of 2021. In its policy decision, the central bank made no changes to its key interest rate or its bond-buying programme.
Sterling strengthened to a new five-month high against the dollar and headed for the $1.32 mark after the Bank of England indicated that any move to cut rates below 0% was not imminent despite the economy’s slow recovery from the coronavirus hit.
Much of the gain in the pound came shortly after the BoE announcement. The currency rose as much as 0.5% extending its run to a high of $1.3184, highest since March 9, before easing a touch to $1.3112, up 0.3% on the day.
ANOTHER DIVIDEND SCARPPED
Mining group Glencore tumbled on Thursday after scrapping its dividend to pay down debt. Shares in the firm fell nearly 4% to 188.77p as it also booked a $3.2 billion (£2.44 billion) impairment charge, driving the stock lower.
It was not alone in the sector, Evraz (EVR) dropped 1.9% to 315.8p as it cut its interim dividend and reported operating profit fell 2.4% to $891 million as revenue was down 18.8% to $5 billion in the six months to 30 June 2020.
But Glencore was not the biggest FTSE 100 casualty on Thursday, that ignominious badge was worn by ITV (ITV), Britain’s biggest free-to-air commercial broadcaster.
ITV slumped 5% to 57.87p after it posted a 50% drop in first-half adjusted earnings as it paid a heavy price for weakened advertising during the pandemic.
On a brighter note, Aviva (AV.) soared more than 5% to 298.75p, topping the FTSE leader board, as new CEO Amanda Blanc said the British life, motor and home insurer would reduce its focus on Asia and Europe, a strategy change welcomed by analysts.
Aviva’s strategy update came as it posted a 12% drop in first-half operating profit.
British outsourcer Serco (SRP) was the biggest mid-cap loser on Thursday, plunging 13% to 147.2p, as investors pulled out following a strong Covid-19 recovery rally.
The sharp pullback came despite Serco reporting a 53% jump in first-half profit on 24% revenue growth. Its results were boosted by contract wins in 2019 and the acquisition of the Naval Systems Business Unit of Alion last August.
RESPONSE FALLS ON DEAF EARS
Also firmly in reverse was British engineer Meggitt (MGGT), despite its repost to press speculation about its funding and liquidity. The company said its financial position and liquidity remain strong in a statement, yet investors were clearly spooked, sending the share price down nearly 8% in early trade to 272.1p.
British shopping centre operator Hammerson (HMSO) dipped 1% to 55.34p after telling the market that it planned to raise £825 million through a rights issue and sell its 50% stake in joint venture VIA Outlets to its partner APG.
Packaging company Mondi (MNDI) bounced 4% to £14.82 as it announced that ‘softer pricing’ prompted a decline in revenue for the first half of 2020 and lower underlying earnings.
But the company said that its strong financial position had allowed it to resuming paying dividends.
Cigarette maker Imperial Brands (IMB) said chief financial officer Oliver Tant has decided to retire, sending the stock 1.6% lower to £12.695.
Insurer Phoenix (PHNX) posted an 11% rise in half-year earnings and raised its 2020 cash generation target. Robust new business and its acquisition of ReAssure in July were behind the optimism, pushing the share price more than 4% higher to 721.2p.
GlaxoSmithKline (GSK) fell 0.9% to £15.58 as the pharmaceutical giant said the US Food and Drug Administration had approved its a drug used to treat blood cancer patients.
Estate agency Savills (SVS) dipped 0.4% to 767.5p after reporting a 69% drop in first-half pre-tax profit.