LONDON MARKET MIDDAY: Eurozone recession and Barclays slide quash gain

(Alliance News) - Friday's positive start in London waned as the morning progressed, with Barclays shares falling and the eurozone entering a double-dip recession.

The FTSE 100 index was just 0.48 of a point lower at 6,961.00 at midday. The mid-cap FTSE 250 index was down 13.58 points, or 0.1%, at 22,379.36. The AIM All-Share index was down 0.2% at 1,271.99.

The Cboe UK 100 index was up flat at 692.90. The Cboe 250 was down 0.1% at 20,021.97, and the Cboe Small Companies up 0.4% at 14,660.35.

In mainland Europe, the CAC 40 in Paris was down 0.2%, while the DAX 30 in Frankfurt was 0.3% higher.

After a green start to Friday, the mood was darkened by figures showing the eurozone economy shrank at the start of 2021 and the bloc entered into a double-dip recession.

Eurozone gross domestic product contracted 0.6% quarter-on-quarter for the first three months of 2021, following a 0.7% decline in the fourth quarter of 2020. The latest reading was slightly better than expectations, according to FXStreet, of a 0.8% decline.

A technical recession is two consecutive quarters of GDP decline. The eurozone entered a technical recession after the second quarter print for 2020 showed a quarter-on-quarter slump of 12% after a 3.6% fall in the first three months of the year, but the bloc rebounded strongly in the third quarter of the year with growth of 13%.

Germany, the eurozone's largest economy, saw GDP shrink 1.7% in the first three months of 2021 on a sequential basis, while France fared slightly better as its economy grew 0.4%.

Pantheon Macroeconomics said the main hit to eurozone growth came from the drop in Germany.

However, Pantheon's chief eurozone economist, Claus Vistesen, commented: "We are sticking to our forecast that Q2 in the EZ as a whole will be better. We look for reopening in the latter part of the quarter, before a more sustained upturn in H2. As it stands, this also means that we are now more confident that EZ GDP will increase by close to 4% this year, in contrast to our previous expectation of a 3.5% increase.

"This number, however, is at the mercy of the pace of the still-unpredictable post-reopening rebound."

The euro traded at USD1.2096 following the figures, falling from USD1.2120 late Thursday.

Sterling was quoted at USD1.3914 on Friday, down on USD1.3950 at the London equities close on Thursday. Against the yen, the dollar fell to JPY108.87 on Friday versus JPY108.94 late Thursday.

Gold was quoted at USD1,769.34 an ounce, slightly up on USD1,768.68 on Thursday. Brent oil was trading at USD67.70 a barrel, down from USD68.35 late Thursday.

Wall Street was on track for a lower open on Friday, with the Dow Jones called down 0.3%, the S&P 500 down 0.4% and the Nasdaq Composite down 0.6%.

Twitter shares are likely to weigh on the Nasdaq index, trading 12% lower pre-market after the micro-blogging platform warned that user growth could slow in the coming quarters as activity seen during the coronavirus pandemic fades.

For the first quarter to March 31, revenue was up 28% at USD1.04 billion from USD807.6 million a year before and net income at USD68.01 million, swinging from a loss of USD8.40 million. However, the company cautioned that the "significant pandemic-related surge we saw last year" creates challenging comparatives going forward.

The market reacted better to Amazon's results, the stock trading 2.1% higher ahead of the New York open as its net income more than tripled for the first quarter of 2021, driven by double-digit growth in sales from all regions. For the three months ended March 31, the Seattle, Washington-based technology and e-commerce behemoth posted net income of USD8.11 billion, up sharply from USD2.54 billion the prior year.

In London, shares in lender Barclays were weighing on the FTSE 100 after its first-quarter results.

"The decision not to adjust its previous bad debt estimates, unlike most of its peer group, appears to have spooked the market along with a patchy investment banking performance and a cautious view on costs as Barclays looks at reducing its physical footprint," said Russ Mould, investment director at AJ Bell.

The stock traded 5.6% lower despite a record quarterly profit figure as credit impairment charges were reduced. However, Barclays saw income drop following a disappointing period for the cards and UK businesses.

Pretax profit was a "record" GBP2.40 billion for the first quarter of 2021, up sharply from GBP913 million a year ago. Credit impairment charges were cut by 97% to GBP55 million from GBP2.12 billion.

The bank's high street division had a mixed period as the recent lockdowns reduced consumer spending, but the stamp duty holiday continued to help the housing market and its mortgage division. Barclays UK income fell 8% to GBP1.58 billion.

At the top of the index were Smurfit Kappa, up 3.8%, and AstraZeneca, rising 3.5%.

Packaging firm Smurfit Kappa said underlying revenue rose 6% to EUR2.27 billion in the first three months of the year. Earnings before interest, tax, depreciation and amortisation were 1.6% higher year-on-year at EUR386 million from EUR380 million.

AstraZeneca, meanwhile, posted a hike in first quarter earnings as it said it generated USD275 million in Covid-19 vaccine sales.

The jab's use has been restricted by age in many countries over links to rare blood clots - with this also listed as a side effect for the Johnson & Johnson Covid-19 vaccine - but regulatory agencies have stressed that the benefits outweigh the risks.

AstraZeneca's revenue in the first quarter of 2021 jumped 15% to USD7.32 billion from USD6.35 billion a year earlier. Pretax profit climbed 72% to USD1.61 billion from USD935 million.

"Against the backdrop of a global pandemic and GSK's recent lacklustre earnings, AstraZeneca appears to be setting the benchmark for success amongst the world's big pharma' players," said Sebastian Skeet, senior analyst at Third Bridge.

GlaxoSmithKline shares ended flat after the release of its own quarterly results on Wednesday, as the pharma peer reported a 18% fall in revenue and 16% drop in operating profit. Glaxo was up 0.5% on Friday.

In the FTSE 250, Diversified Gas & Oil shares rose 3.7%. The energy producer and distributor said it is expanding its operations into a new region with the USD135 million acquisition of upstream assets in Louisiana and Texas.

The company is buying around 780 wells producing 16,000 barrels of oil equivalent per day from Indigo Minerals. The assets in the Cotton Valley area are Diversified's first outside the Appalachia region.

Elsewhere, Darktrace shares were trading more than 40% above its IPO price on its debut in London.

The UK tech startup, founded in 2013, provides cybersecurity services to businesses using artificial intelligence.

Sky News last week reported that Darktrace was cutting the value of its initial public offering to avoid a repeat of Deliveroo's calamitous float - a plan that appears to have worked out as Darktrace traded at 358.25p on Friday, well above its IPO price of 250p and turning its GBP1.7 billion market capitalisation on admission into a GBP2.5 billion valuation.

"Given the sharp boost in initial trading there will inevitably be some criticism that the listing was priced too low, however given what happened with Deliveroo maybe expectations were adjusted lower by a little too much," said CMC Market's Michael Hewson.

Even with a market capitalisation of just GBP1.7 billion, Darktrace would comfortably slip into the FTSE 250 in the next quarterly index review. Unconditional dealings begin on May 6.

Deliveroo shares were trading at 263.74p on Friday, still well below its IPO price of 390p.

By Lucy Heming; lucyheming@alliancenews.com

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