(Alliance News) - Stock prices in London opened lower on Friday as investors continued to fret over elevated yields on US government bonds, while NatWest was higher after the UK government reduced its holding in the bank.
The 10-year US Treasury yield stood at 1.69% on Friday morning, narrowing from 1.72% at the same time on Thursday, but had jumped above 1.75% at its high on Thursday, reaching widest point since January 2020. This was after the US Federal Reserve expressed its willingness to allow an overshoot in inflation.
The FTSE 100 index was down 55.27 points, or 0.8%, at 6,724.06. The mid-cap FTSE 250 index was down 159.61 points, or 0.7%, at 21,408.95. The AIM All-Share index was 0.4% lower at 1,194.67.
The Cboe UK 100 index was down 1.0% at 669.32. The Cboe 250 was down 0.8% at 19,089.66, and the Cboe Small Companies down 0.1% at 13,929.44.
In mainland Europe, the CAC 40 in Paris was down 0.7%, while the DAX 30 in Frankfurt 0.6% lower.
In the FTSE 100, NatWest was up 1.6% at 193.75 pence after the UK government said it has lowered its stake in blue-chip lender, raising over GBP1 billion for the tax payer.
UK Government Investments - which was set up by former UK chancellor George Osborne to offload UK government-owned companies - cut its stake in NatWest to 59.8% from 61.7%.
NatWest said it agreed with the Treasury to make an off-market purchase of 590.7 million shares from UK Government Investments at Thursday's closing market price of 190.50 pence per share, worth GBP1.12 billion. The UK government now holds 6.92 billion NatWest shares.
NatWest said it plans to cancel 390.7 million of UK government shares and hold the remaining 200 million in treasury. The bank, formerly known as Royal Bank of Scotland, said the off-market purchase of shares also required it to contribute GBP500 million to its main pension scheme, under an agreement announced back in 2018.
After tax relief, the contribution will reduce tangible equity by GBP365 million, the bank said, of which GBP99 million will be cut from its CET1 ratio. As result of the share purchase and pension contribution, NatWest said its CET1 ratio as at December 31 will be reduced by 72 basis points.
At the other end of the large-caps, oil majors BP, Royal Dutch Shell 'A' and 'B' were among the worst performers, with shares down 2.5%, 2.0% and 1.8% respectively, tracking spot oil prices lower.
Brent oil was quoted at USD62.77 a barrel on Friday morning, down sharply from USD65.14 late Thursday.
"Traders are worried about some new restrictions, which are being imposed by some European countries due to the rise in coronavirus numbers. Basically, investors are worried that the new coronavirus wave could adversely influence the oil demand," explained AvaTrade analyst Naeem Aslam. "In addition to this, we have also seen a slowdown in the vaccination process in Europe. Although, Germany, France, and some other counties, have resumed the AstraZeneca's vaccine process which was stopped due to the fear of blood clots."
Scottish Mortgage Investment Trust was 1.6% lower, tracking a fall in Tesla and Amazon, in which it owns shares. The trust has a 5.1% stake in Elon Musk's Tesla and a 5.9% holding in Jeff Bezos's Amazon. Shares in Tesla and Amazon closed down 6.9% and 3.4% in New York respectively on Thursday, as the Nasdaq Composite index lost 3.0%.
In addition, Scottish Mortgage said joint portfolio manager James Anderson will step down in April 2022 and named Lawrence Burns as deputy portfolio manager.
"News that James Anderson is stepping down as joint portfolio manager on the Scottish Mortgage Investment Trust will potentially cause some worry to the thousands of investors who have made fantastic returns over many years," noted Ryan Hughes, head of active portfolios at AJ Bell.
"Anderson has helped build Scottish Mortgage into a phenomenal investment trust over many years with his clear, high conviction approach being a driving force behind its willingness to invest in early stage companies and hold them while they become global winners with Amazon, Tesla and Alibaba all being great examples. Since being appointed manager on the trust on the 1 April 2000 he has delivered a staggering 1,700% returning, equivalent to turning a GBP1,000 investment into GBP18,000 compared to just GBP4,440 if invested in the FTSE All World benchmark. These returns have propelled the trust into the FTSE 100, remarkably making it the 31st biggest company in the market," Hughes added.
In the FTSE 250, Apax Global Alpha was the worst performer, down 12% at 184.75p. Jefferies placed 32.7 million shares in the private equity and derived investments-focused firm at 180p. The shares had been owned by Future Fund Board of Guardians. Following the placing, Future Fund no longer holds any shares in Apax Global Alpha.
JD Wetherspoon was 1.5% lower. The pub chain swung to an interim loss as pub closures due to tight UK restrictions continued to frustrate the company.
For the half year ended January 24, JD Wetherspoon swung to GBP61.4 million pretax loss from a GBP42.0 million profit the year before on revenue of GBP431.1 million, down 54% from GBP933.0 million.
JD Wetherspoon said it was not recommending interim dividend "in current circumstances", as the company complained bitterly about having to cope with Covid-19 rules with "no real basis in common sense or science".
The Japanese Nikkei 225 index closed down 1.4%. In China, the Shanghai Composite ended down 1.7%, while the Hang Seng index in Hong Kong finished down 1.4%. The S&P/ASX 200 in Sydney ended 0.6% lower.
The Bank of Japan on Friday maintained its negative interest rate but tweaked its monetary easing programme.
The adjustment, which marginally expands the fluctuation in long-term rates for 10-year bonds that the bank will accept, is seen as a potential forerunner to further tweaks in policy.
The central bank said the range of 10-year government bond yield fluctuation would be "between around plus and minus 0.25%" from the target level in order to conduct yield curve control flexibly.
The bank also said it would allow more flexibility in its stock purchases, dropping a target for its intervention in the Tokyo stock market, which has strongly recovered since crashing in spring 2020.
In its policy review, the central bank dropped its pledge to purchase exchange-traded funds at an annual rate of JPY6 trillion, about USD55 billion, while keeping an upper limit of JPY12 trillion.
The bank's policies were otherwise largely left untouched after its two-day meeting, with an interest rate of negative 0.1% left intact, as well as an annual ceiling on stock purchases.
The pound was quoted at USD1.3947 on Friday morning, flat from USD1.3949 at the London equity market close on Thursday.
The euro was priced at USD1.1933, little changed from USD1.1935. Against the yen, the dollar was trading at JPY108.71, lower from JPY108.95.
Gold was priced at USD1,741.05 an ounce Friday morning, up from USD1,735.34 late Thursday.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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