Written by Citywire

April, 2020

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FTSE falls as virus slowdown hopes fade and Tesco hit

The FTSE 100 has fallen as hopes of a slowdown in the spread of the coronavirus pandemic faded, insurers weighed after cancelling their dividends and Tesco (TSCO) cooled bullishness on the supermarket sector after warning on costs.

The UK blue-chip index fell 99 points, or 1.7%, to 5,604, as a global stock market rally that had been spurred by a slowing in the number of coronavirus cases and infections over the weekend was checked by US deaths rising by a record 1,800 yesterday.

Mainland China’s new coronavirus cases meanwhile doubled in 24 hours due to infected travellers returing from overseas.

European markets opened lower, with the German DAX 30 dropping 0.7% and the French CAC 40 down 1.8%. In the US, the S&P 500, which had rallied as much as 3% higher yesterday, fell sharply towards the close, finishing marginally in the red. 

Insurers were the biggest fallers on the FTSE 100, after a number of them cancelled their dividends following pressure from the Bank of England.

Aviva (AV) was the heaviest faller, down 8.7% at 243.4p after shelving its payout, while Legal & General (LGEN), which announced it was proceeding with its final dividend payout on Friday, fell 6.8% to 189.9p. RSA (RSA), which also announcd the cancellation of its dividend this morning, fell 3.3% to 390.2p.

Tesco was in the red, falling 4% to 215.2p and dragging down shares in its rivals, after warning it expected ot take a £925m hit from the costs of additional staff and operating expenditure to deal with the impact of the coronavrus pandemic. Shares in Sainsbury’s (SBRY) fell 3.8% to 198.3p on the news and Morrisons (MRW) was down 1.9% at 176.9p.

While Tesco and other supermarkets have experienced a surge in demand in recent weeks amid a nationwide lockdown to limit the spread of the virus, it has recruited more than 45,000 workers in the last two weeks and has been limiting the number of customers allowed into its shops at any one time.

‘The latest results from Tesco are a reminder that  the surge in demand (or less politiely panic buying) which the supermarkets have seen in recent weeks has significant costs as well as benefits,’ said Russ Mould, investment director at AJ Bell.

‘Growth is only really relevant if it is profitable and the 30% surge in sales in recent weeks may have been more of a headache than the boost it might superficially appear to be.’

Losses were more limited for smaller stocks on the London stock market. ‘Mid-cap’ companies on the FTSE 250 were down 0.3% while the FTSE Small Cap index was down by the same amount.

Among ‘small-cap’ stocks, companies that have been among the worst hit by the coronavirus pandemic continued to mount a recovery.

Travel group On The Beach (OTB) rose 24.5% to 249p, aviation support services provider John Menzies (MNZS) was up 21% at 116.2p and Restuarant Group (RTN) rose 17.1% to 49.6p.

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