12 June 2020

British Stocks Tumble for Fourth Day Straight

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News shaping
the markets today

     

What’s happening: British stocks fell sharply on Thursday as markets digested the recent announcements by the US Federal Reserve.

What happened: Investors responded to the Fed’s economic projections yesterday, as London’s stock market remained closed on Wednesday when the central bank made its policy announcement.

London stocks declined for the fourth consecutive trading session yesterday, due to the Fed’s gloomy outlook and fears of a second wave of coronavirus infections in the US.

With companies looking to maintain liquidity during the pandemic crisis, stocks listed on Britain’s sub-market join firms belonging to the country’s main index to announce the lowering or scrapping of their dividends.

Why it matters: With total covid-19 cases exceeding 2 million in the US on Wednesday, some experts are expecting related deaths to reach 200,000 by September. Some states in the country have also begun witnessing a rise in coronavirus infections, fuelling fears of a second wave of infections.

Despite the Fed’s reassurances of its full support to the markets during the crisis, investors chose to focus on the central bank’s pessimistic outlook of a 6.5% contraction in the country’s economy in 2020.

London’s stock and indices trading are now on course to record their first weekly losses of the last four weeks, with hopes of a faster economic recovery fading due to worries of the pandemic continuing. The FTSE 100 index’s decline for the fourth straight day marked its biggest losing streak in around three months.

Travel and leisure stocks were among the top losers on Thursday, with Carnival’s shares leading the decline on the FTSE 100 index. Carnival’s stock plummeted around 12%, with shares of EasyJet and Cineworld also closing lower in the previous session.

Unilever announced plans to create a single company by combining its UK and Dutch units, ditching its dual Anglo-Dutch structure to give itself more flexibility for deal making.

Amid weakening trading conditions, the FTSE 100 index declined by 4%, while the British mid-cap index declined 3.6% on Thursday, recording its worst session in around two months.

With 119 companies suspending, cancelling or lowered their dividend payments between March 17 and May 27, only around a third of AIM-listed (Alternative Investment Market) stocks are currently paying dividends to investors, and the number is expected to decline significantly following the renewed coronavirus fears.

What to watch: Markets may recover today from yesterday’s slump, with investors looking for entry points and CFD share trading opportunities. Investors will look out for the various economic reports scheduled to released by the UK today. The country is expected to release data on balance of trade, construction output, industrial production, manufacturing production, gross domestic product and goods trade balance.

The UK’s construction output, which fell 7.1% year-over-year in March, is expected to tumble 36.2% in April. Analysts expect industrial production to decline 19.3% in April, versus an 8.2% drop in March. Manufacturing production is also projected to tumble 19.9% in April. Britain’s GDP is projected to shrink 22.6% in May.

Investors will also continue assessing covid-19 infections in the country. The UK has so far reported 292,860 infections with 41,360 deaths.

The Markets Today

     

The Canadian dollar will be in focus today, ahead of some economic reports scheduled for release later in the day.

Context: The Canadian dollar declined to its lowest level versus the greenback in around two weeks, as investors turned to safe-haven currencies with fading optimism over an economic recovery in the near term. The decline the crude oil prices also sent the loonie lower.

Details: Overall investor sentiment took a beating on Thursday, given the US Fed’s pessimistic economic outlook, resulting in shares and stock index futures globally recording their biggest decline in around five weeks. New covid-19 infections in the US rose again, after declining for five weeks.

Prices of crude oil, Canada's major export, also came under pressure from the Fed's projections and a record surge in US crude inventories for the latest week. US crude oil tumbled 8.2% to $36.34 a barrel on Thursday.

The Canadian dollar lost more than 1.5% to reach 1.362 versus the greenback on Thursday, after recording its strongest intraday level of 1.3311 in over three months on Wednesday. The USD/CAD rose slightly to 1.3633 in the Asian session.

What to watch: Traders wait for Canada to release its capacity utilisation and new motor vehicle sales data. The country’s industries are expected to operate at 80% of their production capacity in the first quarter, down from 81.2% in the last quarter of 2019.

Markets will also keep an eye on covid-19 numbers, with the country reporting 99,150 cases and 8,070 deaths so far.

Other Markets: European indices trading closed lower on Thursday, with the French 40, Dax 30 index and Spain’s IBEX 35 down by 4.7%, 4.5% and 5%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

France’s inflation rate, Spain’s inflation rate, Turkey's current account, retail sales and industrial production, Eurozone’s industrial production, India’s foreign exchange reserves, industrial production, retail price inflation and manufacturing production, China’s foreign direct investment, South Africa's SACCI business confidence index as well as the US University of Michigan's consumer sentiment index, import prices, export prices and Baker Hughes crude oil rigs.

 

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