London pre-open: Stocks seen lower as UK GDP plunges 20.4%
By Michele Maatouk
Date: Wednesday 12 Aug 2020
(Sharecast News) - London stocks were set to fall at the open on Wednesday amid fading hopes of a US stimulus deal and as figures showed the UK economy has fallen into recession for the first time in 11 years due to the Covid-19 pandemic.
The FTSE 100 was called to open 11 points lower at 6,143.
Data released by the Office for National Statistics showed the economy contracted by 20.4% between April and June, having shrunk 2.2% in the first quarter. Analysts had been expecting a 20.5% contraction.
Dashed hopes of further US stimulus were also set to weigh on the mood.
CMC Markets analyst Michael Hewson pointed to the fact that US stocks turned red overnight.
"It wasn't immediately apparent what the actual catalyst was for the sudden change in sentiment, but it soon became apparent that downbeat comments by Mitch McConnell, the Republican leader of the US Senate about the imminent prospect of an agreement on a stimulus deal, may well have played a part in the late sell-off.
"For several days now markets have been working on the assumption that US politicians would reach a deal in some form, after President Trump's executive orders at the end of last week. This now seems rather premature, and could actually be causing these same politicians to drag their heels in coming to an agreement. A rising stock market doesn't exactly fuel a sense of urgency, and as such could be counter-productive. On the other hand, a market puke might actually concentrate minds and focus attention on the job in hand."
In UK corporate news, M&G's first-half profit more than halved as the savings and investments company suffered fund outflows and pressure on retail margins.
Adjusted operating pre-tax profit fell to £309m from £714m in the six months to the end of June as fee-based revenue dropped to £580m from £637m. The company declared an interim dividend of 6p a share.
Elsewhere, construction giant Balfour Beatty swung to an interim loss as the coronavirus lockdown shut down building sites, but increased its order book and maintained full-year guidance.
The company reported a pre-tax loss of £26m for the six months to June 26 compared with a profit of £63m. No dividend was declared. Balfour's group order book increased to £17.5bn from £14.3bn at the end of 2019.
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