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FTSE 100 swings back to the green; Rolls-Royce to sack 15% of staff

  • FTSE 100 index up 13 points
  • Rolls-Royce to lay off 15% of workforce
  • Inflation starts descent towards zero

11.15am: Rolls-Royce to sack 9,000 people as part of cost-saving plan

The Footsie swung back in the green in late morning, up 13 points to 6,015, though sterling also rose 0.1% to US$1.2268.

In the blue-chip fallers, Rolls-Royce Holdings PLC (LON:RR.) dipped 1% to 265.2p after admitting it expects to axe 9,000 jobs, which should save around £700mln annually.

The engine maker is aiming at yearly savings of at least £1.3bn and will also cut spending across other areas as it reacts to the decline in demand as coronavirus hits air travel.

However, the cash costs related to the restructuring is likely to be around £800mln over this and the coming two years.

“While job cuts had been widely trailed at Rolls-Royce, the decision to lay off more than 15% of its global workforce still carries weight and highlights the damage coronavirus is doing to the company,” noted Russ Mould, investment director at AJ Bell.

“The long-term implications of such lay-offs should not be underestimated either. If or when the aviation sector takes flight once more, Rolls might need to recruit and train a whole raft of new people, affecting the pace of its own recovery. Rolls doesnt have the luxury of looking too far ahead; for now it simply needs to keep itself in the air while it tries to navigate extreme market turbulence.”

10am: Inflation slows down in April but not bottomed yet

FTSE 100 briefly fluctuated above the 6,000 mark in mid-morning, but then headed back underwater, after the latest reading showed a slowdown in inflation.

Londons leading index shed 7 points to 5,994, while the pound dipped0.1% to US$1.2235 from earlier highs.

WATCH: Morning Report: FTSE 100 falls as Rolls-Royce confirms 9000 job cuts

UK consumer price inflation was 0.8% in April, down from 1.5% in March, mostly due to lower oil prices and analysts expect it to drop further.

Experts say it may take months for the figure to bottom as consumer spending and business activity slow due to coronavirus.

James Smith, an economist at ING Economics, forecasts inflation might touch zero over the summer.

Recovery from the crisis is expected to be gradual rather than V-shaped, mostly due to the dire jobs market, he says.

“While the governments Job Retention Scheme has been successful in slowing the speed of unemployment so far, there are growing fears that we could see a wave of redundancies later in the year depending on how the furlough scheme evolves. This would imply that wage pressures are set to remain largely muted,” Smith commented.

On the other hand, supply constraints could push some prices higher as demand begins to return and supply chains readjust to new safety measures.

New requirements could also mean a need for more workers.

“Still, the broader economic picture of consumer and business caution suggests that demand will take a long time to recover – and that implies inflation is going to stay generally muted. We dont expect the UK economy to return to its pre-virus size until 2022 at the earliest,” Smith concluded.

8.50am: Further falls for Footsie

The FTSE 100 index beat a retreat in early trade on Wednesday as optimism around a potential coronavirus vaccine has well and truly faded.

The index of UK blue-chips fell 39 points early to 5,963.43.

The markets dip into the red reflected a “tamping down” of expectations around US firm Moderna Incs inoculation, analysts said.

“A report from Boston Globe Medias STAT news cast doubt on the success of the vaccine trials, not because they necessarily were a failure, but because the company failed to provide the critical information to allow the rest of the scientific community to assess the vaccines efficacy,” said Connor Campbell of Spreadex.

On the market, much song and dance was made of Marks & Spencer PLCs (LON:MKS) trading performance, which appears not to have been as dreadful as anticipated. M&S shares on the FTSE 250 index rose 3.6%.

Reacting to the prelims, Michael Hewson of CMC Markets said: “As numbers go these could have been a lot worse, and it is clear that M&S reacted quickly to the pandemic. The decision to cancel some of its summer stock was a shrewd move, while the dropping of the dividend, while painful was also necessary.”

No surprises that the credit checking services of Experian (LON:EXPN) are in demand as the world heads into recession. It showed its confidence in the future by holding its dividend payment, prompting a 5.6% jump in the share price.

AstraZeneca (LON:AZN) received a 1.8% boost from plans mapped out by investee company Moderna to float in the US.

Proactive news headlines:

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