Politics

FTSE 100 led lower by IMPs and Antofagasta after dividend cuts

  • FTSE 100 index down 39 points
  • UK output per hour fell by 0.4% year-on-year in the first quarter
  • Output per worker fell by 2.9% from a year earlier

11.00am: UK productivity suffers a relapse

Londons leading shares remain in the doldrums after it was revealed UK productivity hit the skids in the first quarter of 2020.

The FTSE 100 was down 39 points (0.6%) at 6,010.

The Office for National Statistics (ONS) first stab at estimating the impact of the coronavirus (COVID-19) on productivity in the UK indicated that labour productivity, as measured by output per hour, fell by 0.4% year-on-year in the first quarter.

Output per worker fell by 2.9%, compared with the same quarter in the previous year; the steeper fall than output per hour reflects the impact of a government policy that retains workers as employees with zero hours, but is also drivONS said.

Quarter-on-quarter, output per hour fell by 1.1%, while output per worker fell by 2.6%.

“While the coronavirus impact magnified the problems in the first quarter, the UKs productivity performance has been weak for some time and a source of concern. Indeed, the flat overall productivity performance over 2019 after an underwhelming 2018 extends the UKs overall poor productivity record since the deep 2008/9 recession,” observed Howard Archer, the chief economic advisor to the EY ITEM Club.

“The UKs productivity puzzle is a source of much debate and analysis. Part of the UKs recent poor labour productivity performance has undoubtedly been that low wage growth has increased the attractiveness of employment for companies. This helped employment to hold up well during the 2008/9 downturn and to pick up markedly as growth returned.

“Employment may have been lifted in recent times by some UK companies being keen to take on workers – or at least hold on to them – given increasing concerns over labour shortages in some sectors.

“It also is apparent that many companies have taken on labour rather than committing to costly investment, given the highly uncertain economic and political outlook. The low cost and flexibility of labour relative to capital has certainly supported employment over investment,” Archer suggested.

9.50am: Bright start quickly fades

The Footsie has turned south after a bright start, led by two companies – Imperial Brands PLC (LON:IMB) and Antofagasta PLC (LON:ANTO) – that have cut dividends.

The FTSE 100 was down 27 points (0.2%) at 6,037.

IMPS, a long-time favourite of income investors, was down 6.4% at 1,548p after it cut its dividend by a third.

“Cigarette maker Imperial Brands is one of the last high yielding FTSE 100 companies to finally cave in and slash its dividend, in its case to reduce debt pressures. Prior to the news it was trading on a prospective yield of 11.5% which seemed too good to be true. Having slashed the payment by a third, investors can now expect an 8.7% yield after adjusting for todays share price movement,” explained Russ Mould, AJ Bells investment director.

Imperial Brands was a popular stock among retail investors because the shares were cheap and the dividends were generous; however, it was less popular among income funds with only 21 funds and investment trusts having it as a top 10 holding.

“Fund managers may have been put off by the business disappointing with earnings in recent years as a result of tighter regulation hurting its efforts to sell vaping products.

“The business has also lost favour with many investors who now prefer more ethical investments. The idea of owning shares in a company whose products create significant health problems and are addictive is unthinkable for a lot of people,” he added.

Antofagasta fell 3.8% to 822.6p after it responded to an increase in new coronavirus infections in Chile, where the company has its major copper operations, by belatedly binning the final dividend in respect of fiscal 2019.

READ Antofagasta changes its mind and cuts dividend payments by a total of US$160.7mln

https://www.proactiveinvestors.co.uk/companies/news/919911/antofagasta-changes-its-mind-and-cuts-dividend-payments-by-a-total-of-us1607mln-919911.html

This might surprise a few people. Comments on the lockdown in Chile also interesting. Antofagasta PLC: REVISION TO 2019 FINAL DIVIDEND https://t.co/w8j1YiNGkK

— Neil Hume (@humenm) May 19, 2020

8.45am: Further advance for Footsie

The FTSE 100 built on Mondays 249-point gain and pushed higher in early trade on Tuesday as traders digested better than anticipated UK jobs data.

Londons blue-chip benchmark opened 29 points better at 6,077.36.

Okay, the March jobless update is something of a lagging indicator of the health of UK PLC; however, the print came in significantly better than expected. Against expectations of a rise in unemployment to 4.4%, the read-out was 3.9%.

“It must be stressed that these numbers are for March, which for the UK only saw lockdown begin on the 23rd of the month,” pointed out James Hughes of Scope Markets.

On the oil market, Brent crude and WTI both continued their ascent. Tuesday sees the expiry of the June futures contract. Remember the fun and games a month ago as the May contract lapsed and oil prices dived into negative territory?

“We think fundamental right steps have been taken to get us on sounder footing,” Helima Croft, head of global commodities strategy at RBC, told CNBC.

She said the “green shoots of recovery in place,” as Chinese and US demand are improving, and OPEC plus ended its feuding and agreed to sharply cut output.

Turning to the stock movers, it was a second day airborne for British Airways owner IAG (LON:IAG), which climbed 7.8% amid hopes the possible discovery of a coronavirus vaccine could pave the way to a recovery in international travel.

Budget rival easyJet (LON:EZJ) followed in IAGs vapour trails, rising 5.7%.

Cigarette maker Imperial Brands (LON:IMB) led the fallers with a 7.6% drop after it cut the dividend by a third to save cash during the coronavirus pandemic.

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6.45 am: Further gains expected

The FTSE 100 is predicted to continue climbing on Tuesday as traders are optimistic about a potential recovery from the coronavirus (COVID-19) pandemic.

Londons blue-chip benchmark was called 22 points higher by spread-betters, after a stonking 249-point, 4.3% gain on Monday to finish at 6,048.59.

Positivity in Europe extended to Wall Street, with the Dow Jones Industrials Average adding 912 points or 3.9% to close at 24,597.4, while the S&P 500 rose 3.2% and the Nasdaq Composite finished 2.4% higher.

Asian stock indices were all in the green on Tuesday, with the Nikkei 225 up 2%, the Hang Seng up 1.9% and the Shanghai Composite up 0.6%.

“A mixture of optimism in relation to economies being opened up again, upbeat commentary from Fed Chair Jerome Powell, and positive results in relation to progress on a potential COVID-19 vaccine [is all helping],” said market analyst David Madden at CMC Markets.

Tuesday will bring more comments from Powell as he provides further congressional testimony, having expressed his confidence that the US economy will see a solid recovery in the second half of 2020 and declared there is “no limit” to what the US central bank is willing to do in terms of lending.

UK unemployment figures will be published at 7am this morning, covering the three months to the end of March, so they will only catch Read More – Source