London close: Stocks finish weaker on renewed Covid fears
London stocks stayed below the waterline on Friday afternoon to close in the red, giving back the previous session’s gains as investors mulled over the latest reading on the UK services sector.
The FTSE 100 closed down 1.33% at 6,157.30, having risen sharply on Thursday following the release of a better-than-expected US non-farm payrolls report, while the FTSE 250 was 0.38% weaker at 17,302.03.
Sterling lost ground against both of its major trading pairs, last falling 0.01% on the dollar to $1.2467, and slipping 0.05% against the euro to €1.1088.
With US markets closed for the Independence Day holiday, volatility and volumes were set to be low for the rest of the session, as market commentators pointed to ongoing concerns about rising coronavirus cases in the United States.
“Yesterday, Dr Anthony Fauci - a US health official - warned that Covid-19 might have mutated, and it might be able to spread at a faster rate,” said CMC Markets analyst David Madden.
“Research is being conducted into this idea, but the expert in infectious diseases believes that is likely to be the case.”
Madden noted that stocks had enjoyed a “big rally” on Thursday, on the back of the optimism about a possible Covid-19 vaccine being developed by Pfizer and BioNTech, as well as the “very well-received” non-farm payrolls report stateside.
“All of the gains the FTSE 100 made yesterday have been lost today on renewed health fears.
“Trading volumes have been low as the US market is closed as it is a public holiday.”
On the macroeconomic front, investors digested the latest reading on the Chinese services sector, which showed it grew at the fastest rate in more than a decade in June.
The Caixin/Markit services purchasing managers’ index rose to 58.4 from 55.0 in May, coming in comfortably ahead of consensus expectations for a reading of 53.2.
It marked the highest reading since April 2010.
A level above 50.0 signals expansion, while a reading below indicates contraction.
On home shores, a survey released earlier showed the downturn in the UK services sector eased in June.
The IHS/Markit CIPS services purchasing managers’ index rose to 47.1 from 29.0 in May, marking its highest level in four months and coming in a touch ahead of the flash estimate of 47.0.
It was also well above the survey low of 13.4 recorded in April, but below the 50.0 mark that separates contraction from expansion.
Around 33% of those surveyed reported a decline in business activity in June, while 28% signalled an expansion.
The proportion of service providers experiencing a fall in business activity eased from 54% in May and 79% in April.
Survey respondents again pointed to "highly subdued" demand and disruptions related to the Covid-19 pandemic as factors constricting business activity in June.
However, there were also reports that an easing of lockdown measures and reopening of the UK economy had a favourable impact on business activity.
But Samuel Tombs, chief UK economist at Pantheon Macroeconomics, argued that the PMI is a "pretty meaningless" indicator right now.
"The composite PMI neither is a useful indicator of month-to-month growth in GDP nor its level at present,” he said.
“The sub-50 reading technically implies that output was lower in June in May.
“But that is improbable, given that lockdown rules were loosened further in June and a wide variety of other data sources, from energy consumption to road usage, indicate that activity recovered."
Elsewhere, the latest survey from GfK showed consumer confidence was improving a little as more businesses prepared to reopen after the coronavirus lockdown, but the mood remains fragile.
In a flash report using data collected between 18 and 26 June, GfK said its long-running consumer confidence index has risen by three points over the past two weeks to -27 from -30, with four of the index’s five measures higher.
In equity markets, fashion retailer Next was down 4.61% as Goldman Sachs downgraded its stance on the shares to ‘sell’ from ‘neutral’.
It said the company is working hard to offset a structural shift to more intense online competition, but this is likely to result in no revenue growth.
Aerospace and defence company Rolls-Royce slid 10.02%, as banks and housebuilders also faced pressure on the benchmark index.
On the upside, home emergency repairs and improvements business Homeserve gave up some earlier gains but still finished ahead 0.78%, after an upbeat note from Berenberg said the company offers investors a highly attractive business model.
"It is a growing, non-cyclical, recurring, high-margin and cash-generative business," the bank said, adding that Homeserve had shown its early resilience to the pandemic.
Commercial property owner Land Securities rose 0.52% as it said it planned to reinstate dividends after half year results in November as tenants reopened premises after the easing of coronavirus lockdowns.
Rank Group was 0.28% higher as it said it will begin reopening its Mecca bingo clubs from Saturday, but warned that underlying operating profit for the year ended 30 June is expected to be at the lower end of guidance.
Outside the FTSE 350, shares of CMC Markets surged 20.21% after the online trading platform said 2021 net operating income will exceed the upper end of current market consensus.
FTSE 100 - Risers
Whitbread (WTB) 2,387.00p 1.62%
Fresnillo (FRES) 855.60p 1.42%
Just Eat Takeaway.Com N.V. (CDI) (JET) 8,600.00p 1.32%
Homeserve (HSV) 1,287.00p 0.78%
Scottish Mortgage Inv Trust (SMT) 854.00p 0.71%
Compass Group (CPG) 1,152.50p 0.66%
Land Securities Group (LAND) 578.00p 0.52%
Smurfit Kappa Group (SKG) 2,560.00p 0.47%
London Stock Exchange Group (LSE) 8,466.00p 0.38%
M&G (MNG) 168.25p 0.36%
FTSE 100 - Fallers
Rolls-Royce Holdings (RR.) 263.20p -10.02%
Next (NXT) 4,798.00p -4.61%
Taylor Wimpey (TW.) 137.00p -4.36%
Melrose Industries (MRO) 116.20p -3.49%
Barratt Developments (BDEV) 491.10p -2.71%
Lloyds Banking Group (LLOY) 31.03p -2.59%
RSA Insurance Group (RSA) 412.60p -2.55%
Royal Bank of Scotland Group (RBS) 121.85p -2.52%
ITV (ITV) 71.92p -2.49%
Ocado Group (OCDO) 2,000.00p -2.49%
FTSE 250 - Risers
Essentra (ESNT) 314.20p 7.24%
PureTech Health (PRTC) 274.00p 4.18%
TI Fluid Systems (TIFS) 190.60p 3.59%
Spirent Communications (SPT) 251.50p 3.29%
Clarkson (CKN) 2,375.00p 3.26%
Liontrust Asset Management (LIO) 1,425.00p 3.26%
Drax Group (DRX) 270.00p 3.05%
Sanne Group (SNN) 643.00p 2.88%
Oxford Biomedica (OXB) 757.00p 2.85%
St. Modwen Properties (SMP) 344.50p 2.68%
FTSE 250 - Fallers
Cineworld Group (CINE) 60.16p -6.84%
Virgin Money UK (VMUK) 93.00p -5.83%
Aston Martin Lagonda Global Holdings (AML) 47.20p -5.11%
Just Group (JUST) 48.90p -4.49%
Marks & Spencer Group (MKS) 97.94p -4.12%
Inchcape (INCH) 464.40p -3.81%
Meggitt (MGGT) 312.00p -3.70%
Ferrexpo (FXPO) 167.80p -3.62%
Workspace Group (WKP) 627.00p -3.54%
Redrow (RDW) 427.00p -3.48%