LONDON MARKET OPEN: Stocks Down As Shell To Take USD22 Billion Hit

(Alliance News) - Stock prices in London opened mixed on Tuesday following a strong close on ...

Alliance News 30 June, 2020 | 8:48AM
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(Alliance News) - Stock prices in London opened mixed on Tuesday following a strong close on Monday, with Royal Dutch Shell weighing on the FTSE 100 index after warning it will take a big hit from a lower oil & gas prices and narrowed refining margins.

The FTSE 100 was down 15.14 points, or 0.2%, at 6,210.63. The UK's flagship stock index closed up 66.47 points, or 1.1%, at 6,225.77 on Monday.

The mid-cap FTSE 250 index was flat at 17,196.57. The AIM All-Share index was up 0.1% at 884.33.

The Cboe UK 100 index was down 0.4% at 10,501.43. The Cboe 250 was down 0.1% at 14,705.10, and the Cboe Small Companies was up 0.1% at 9,305.59.

In mainland Europe, the CAC 40 in Paris was down 0.1%, while the DAX 30 in Frankfurt was up 0.1%.

On the London Stock Exchange, Smiths Group was the best blue-chip performer, up 4.7% after the engineer announced a strategic restructuring programme to help weather the Covid-19 storm and be "better able to deliver consistent outperformance".

Smiths said the programme is across the group and has an operating cash cost of GBP65 million, which will be spread across financial 2020 and 2021. Savings will substantially offset costs in 2021 and deliver the full annualised benefit of approximatively GBP70 million from 2022 onwards.

Turning to trading, Smiths said in the ten months ended May 31, underlying revenue from Continuing Operations was up 2% and year-to-date revenue increased 6%. For the four months of the second half ended May 31, underlying revenue was up 1%.

Standard Life Aberdeen was up 2.0% after the asset manager said Chief Executive Keith Skeoch is stepping down after five years at the helm. Skeoch is to be replaced by Stephen Bird who will assume the role on Wednesday. Bird is former CEO of global consumer banking at Citigroup, a post from which he retired in November. Bird had been touted as a potential chief executive at HSBC - a role that ultimately went to Noel Quinn.

At the other end of the large-cap index, RELX was the worst performer, down 2.0% after Exane BNP double downgraded the publishing and data analytics firm to Underperform from Outperform.

Royal Dutch Shell 'A' and 'B' shares were down 2.1% and 2.0%, respectively.

The oil major said that a more sombre view on oil and gas prices and refining margins means it will take impairments that will have a pretax impact of USD20 billion to USD27 billion.

The Anglo-Dutch firm is London's largest company by market capitalisation.

Shell said it will take post-tax impairments of USD15 billion to USD22 billion in the second quarter of 2020. It said there will be no cash impact from these impairments.

They stem from Shell's revised view of mid-to-long-term commodity prices and refining margins. Shell said it expects Brent oil to average USD35 a barrel in 2020, rising to USD40 in 2021, USD50 in 2022 and USD60 in 2023. It expects USD60 to be the long-term average.

Similarly, Shell revised down by 30% its expectation for long-term refining margins. Peer BP was down 1.8% in a negative read-across.

Brent oil was quoted at USD41.54 a barrel on Tuesday morning, up slightly from USD41.24 a barrel at the London equities close Monday.

The Japanese Nikkei 225 index closed up 1.3%. In China, the Shanghai Composite ended up 0.7%, while the Hang Seng index in Hong Kong is up 1.0%.

China's factory activity picked up pace in June, official data showed, although analysts warned weak global demand and a potential coronavirus resurgence are weighing on its longer-term recovery.

China's purchasing managers' index, a key gauge of activity in factories, came in at 50.9 points in June, better than the 50.5 forecast in a Bloomberg News poll of analysts and up 0.3 points from May. Anything above 50 indicates expansion. The non-manufacturing PMI came in at 54.4 points, up from 53.6, according to the National Bureau of Statistics.

Meanwhile, China passed a sweeping national security law for Hong Kong, a historic move that critics and many western governments fear will smother the finance hub's freedoms and hollow out its autonomy. The legislation was unanimously approved by China's rubber-stamp parliament on Tuesday morning.

The pound was quoted at USD1.2274 on Tuesday morning, flat from USD1.2271 at the London equities close Monday, after data showed the UK economy recorded its largest fall since 1979.

Figures from the Office for National Statistics showed UK gross domestic product decreased by 1.7% in the first quarter on an annual basis. This was a downward revision of 0.1 percentage points from the previous estimate.

On a quarterly basis, UK GDP shrank by 2.2% in the first three months of 2020, after showing no growth in the previous period and compared with a preliminary estimate of 2.0%. The ONS said this was the largest fall in GDP since the third quarter of 1979 as a coronavirus lockdown from mid-March forced non-essential businesses to close and consumers to stay at home.

UK Prime Minister Boris Johnson is promising a "New Deal" with billions of pounds of investment to ease the UK through the aftermath of the coronavirus pandemic.

The prime minister will use a keynote speech in the West Midlands on Tuesday to say he wants to follow in the footsteps of President Franklin Roosevelt, who led the US out of the Great Depression in the 1930s.

Johnson will say his message is "build, build, build" as the UK comes out of lockdown after the Covid-19 pandemic. The PM will say the government intends to spend GBP5 billion "to accelerate infrastructure projects".

The euro was quoted at USD1.1231, lower from USD1.1243 late Monday in London. Against the yen, the dollar was trading at JPY107.73 in London, flat on JPY107.71.

Gold was priced at USD1,771.88 an ounce, up from USD1,760.70.

In Tuesday's economic calendar, eurozone inflation is due at 1000 BST and US Federal Reserve Chair Jerome Powell testifies before Congress at 1730 BST.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

Copyright 2020 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Rating
BP PLC 290.80 GBX 0.28
Standard Life Aberdeen PLC 263.20 GBX 2.13 -
Smiths Group PLC 1,430.50 GBX 2.11
Royal Dutch Shell PLC B 1,188.80 GBX 0.64
RELX PLC 1,810.00 GBX 0.17
Royal Dutch Shell PLC Class A 1,246.40 GBX 1.23 -

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