FTSE 100 slightly down as Bank of England boosts its bond-buying by £100mOn June 18, 2020 by Thomas Belayneh
The FTSE 100 fell 0.47% to 6,224.07 as news out of the Bank of England underwhelmed investors as expectations were for the central bank to be more aggressive. Risk sentiment is hardly being helped by a second wave of infections in Beijing, which has led city authorities to reimpose strict lockdown restrictions. The new cluster of cases may have begun a month earlier than first thought according to China’s CDC.
Eight of the nine members of the Bank of England’s Monetary Policy Committee (MPC) voted to increase its purchases of UK government bonds. This will take the total stock of asset purchases to £745 billion with the central bank expecting this programme to be completed around late 2020/early 2021.
This disappointed investors in UK equities who were expecting as much as £250 billion in additional stimulus. The central bank’s relative conservatism has surprised many market participants, particularly in light of aggressive and ambitious stimulus programmes of the likes seen in the US and Japan. It’s also notably decided against purchasing more non-financial corporate bonds at its meeting on 17th June.
However, some may find comfort in the BoE affirmation that it will keep its asset purchase programme ‘under review’ and that it stands ready to take further action should economic or financial conditions deteriorate further.
The MPC unanimously voted to keep interest rates on hold at 0.1%.
Flutter entertainment (Ticker: FLTR), owner of Paddy Power, Betfair and SkyBet among others, continues to climb as sporting events, such as premier league football, resumes. Football matches played yesterday included Aston Villa vs Sheffield United and Manchester City vs Arsenal from which the Flutter entertainment should benefit as punters return to their platforms to bet on the UK’s most popular sport.
The bookmakers raised £812.6m in an equity raise and intend to use the proceeds to capitalize on market opportunities, particularly in its fast-growing US segment, where revenues grew 61% year on year in the second quarter. Revenues in its US division were £376m in 2019 (60% growth on 2018) and accounted for 17.6% of group revenues.
At the other end of the table, Taylor Wimpey (Ticker: TW), the British housebuilder, sank 5.96% to close at 142.75p. This came after news that company raised £522m in an accelerated bookbuild where 360m shares were sold at 145p in just 24 hours.
New shares were also offered to retail investors via the PrimayBid.com platform and are capped at €8 million or equivalent, which is the maximum allowed under EU law. The use of proceeds raised are in near-term land acquisitions as the company believes depressed land prices will persist over the next six to twelve months.
They are projecting outsized returns over the medium term post-2022 when it expects the impacts of the pandemic to have largely passed. Investors, however, think differently and believe the house-builder to be too optimistic. Nevertheless, opportunities do seem compelling so long as a recovery to pre-Covid output levels materialises within the next two years.
In other signs of its confidence in the economy, Taylor Wimpey also announced it would return furlough payments made to its workers to the British government.
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