London midday: Stocks fall further after manufacturing data; banks slide
By Michele Maatouk
Date: Wednesday 01 Apr 2020
(Sharecast News) - London stocks had fallen further into the red by midday on Wednesday after the release of weak UK manufacturing figures and with banks under pressure as they were pressed to cancel their dividends to help weather the coronavirus pandemic.
The FTSE 100 was down 3.7% at 5,464.68 after data showed that UK manufacturing output fell in March at its fastest rate in eight years, while employment declined at the fastest rate in more than a decade as the coronavirus outbreak and efforts to slow its spread took their toll.
The IHS/Markit CIPS manufacturing purchasing managers' index came in at 47.8, down from 51.7 in February, below the flash estimate of 48.0 but above consensus expectations for a reading of 47.0. This marked the fastest rate of decline since July 2012. A reading above 50.0 indicates expansion, while a reading below signals contraction.
Meanwhile, employment fell for the eleventh time in the past 12 months and at the fastest rate since July 2009. Job losses were linked to lower levels of production and new orders, in many cases due to the outbreak of Covid-19.
Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: "The manufacturing sector was knocked sideways by the impact of Covid-19 and into contraction territory, experiencing some of the most challenging trading conditions since PMI records began.
"Closed borders, significant shipping delays and a reluctance from clients to authorise new instructions resulted in the sharpest contraction in orders from domestic and overseas markets since 2012. Business optimism dropped to historical lows as manufacturers struggled to get essential raw materials, whilst some fortunate few were able to stockpile to a limited extent before the opportunities vanished."
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the PMI likely "greatly understates" the pace of the downturn now underway in the manufacturing sector.
The escalating coronavirus pandemic also weighed on sentiment. Nigel Frith, senior market analyst at AskTraders, said US President Trump's prediction that up to 240,000 Americans could lose their lives as a result of the virus "sent a chill down the spine of the markets".
"These numbers are truly horrifying," added.
On the UK corporate front, banks were under the cosh, with Barclays, RBS, Lloyds, HSBC and Standard Chartered all sharply lower as they suspended dividend payments due to the outbreak.
In response to a request from the Prudential Regulation Authority, the banks agreed to scrap 2020 interim dividend payments, cancel their payments for 2019 and not undertake any share buybacks on ordinary shares until the end of the year.
Shore Capital said that by taking this action, the banks could save around 50-150 basis points in core tier 1 capital over the course of the year, which can then be used to support lending into the economy.
"In addition, we believe that this action reduces the risk of potential future dilutive equity issuance to recapitalise balance sheets as a result of any losses generated due to higher impairments, while also helping to support tangible net asset values.
"We think that the UK banks entered this crisis well positioned to weather the storm with well-capitalised, well-funded and liquid balance sheets. The actions taken to suspend dividends and share buy-backs further strengthen their position."
Elsewhere, Taylor Wimpey was in the red after it said executives at the housebuilder had agreed to cancel bonuses and take a 30% base salary for the duration of the coronavirus lockdown.
Defence company Qinetiq fell after saying it will postpone a decision on whether to pay a final full-year dividend until later in the year, when there is greater clarity on the impact of the coronavirus pandemic.
Auto Trader retreated as it announced a share placing equal to 5% of its share capital and reductions to directors' pay to strengthen its finances during the Covid-19 crisis.
Real estate agent Savills was down after saying it was pulling its final and supplemental interim dividends to save cash in response to the coronavirus pandemic.
Market Movers
FTSE 100 (UKX) 5,464.68 -3.65%
FTSE 250 (MCX) 14,567.95 -3.53%
techMARK (TASX) 3,235.11 -2.75%
FTSE 100 - Risers
Royal Dutch Shell 'B' (RDSB) 1,374.80p 1.10%
Fresnillo (FRES) 673.00p 0.93%
Royal Dutch Shell 'A' (RDSA) 1,430.00p 0.78%
British American Tobacco (BATS) 2,766.00p 0.25%
Smith & Nephew (SN.) 1,436.50p 0.14%
Admiral Group (ADM) 2,232.00p 0.09%
Hikma Pharmaceuticals (HIK) 2,022.00p -0.64%
Ocado Group (OCDO) 1,212.00p -0.66%
BP (BP.) 340.70p -1.02%
Imperial Brands (IMB) 1,479.50p -1.16%
FTSE 100 - Fallers
3i Group (III) 713.60p -9.92%
Rolls-Royce Holdings (RR.) 308.40p -9.45%
Legal & General Group (LGEN) 175.85p -9.29%
Auto Trader Group (AUTO) 398.50p -9.25%
Meggitt (MGGT) 264.60p -8.85%
ITV (ITV) 60.26p -8.72%
HSBC Holdings (HSBA) 416.00p -8.42%
Persimmon (PSN) 1,758.50p -8.24%
Standard Life Aberdeen (SLA) 205.90p -8.04%
Prudential (PRU) 956.80p -7.60%
FTSE 250 - Risers
Aston Martin Lagonda Global Holdings (AML) 109.00p 71.22%
Watches of Switzerland Group (WOSG) 192.00p 3.62%
PPHE Hotel Group Ltd (PPH) 1,010.00p 3.59%
G4S (GFS) 95.18p 3.12%
Ibstock (IBST) 156.20p 2.76%
Marks & Spencer Group (MKS) 101.60p 2.38%
Royal Mail (RMG) 127.25p 1.64%
Drax Group (DRX) 156.20p 1.63%
Fisher (James) & Sons (FSJ) 1,278.00p 1.59%
Avon Rubber (AVON) 2,340.00p 1.52%
FTSE 250 - Fallers
Cineworld Group (CINE) 42.33p -14.71%
OneSavings Bank (OSB) 215.40p -14.11%
Elementis (ELM) 42.64p -12.98%
Airtel Africa (AAF) 36.55p -11.11%
Bank of Georgia Group (BGEO) 814.00p -11.04%
Greencore Group (GNC) 147.00p -10.88%
GVC Holdings (GVC) 500.80p -10.73%
WH Smith (SMWH) 1,025.00p -10.17%
Paragon Banking Group (PAG) 299.00p -10.05%
Provident Financial (PFG) 198.20p -8.71%
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