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ADVFN Morning London Market Report: Thursday 25 May 2023

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London open: Stocks fall amid US debt default worries, after German GDP


London stocks fell in early trade on Thursday as worries about a potential US debt default and news that Germany had fallen into recession dented sentiment.

At 0900 BST, the FTSE 100 was down 0.6% at 7,581.55.

Richard Hunter, head of markets at Interactive Investor, said: “With the debt ceiling deadline rapidly approaching and in the absence of a resolution to the current impasse, global markets are beginning to buckle.

“Whereas the previous view had been that a deal was imminent, sentiment has shifted to reflect the unthinkable possibility of a default which would send shockwaves through the global financial system.

“Treasury Secretary Yellen added to the discomfort with her view that a potential early June default had become ‘highly likely’, with the continuing lack of progress likely to loom large in investor positioning. Quite apart from the nervousness in equities, bonds are also repricing to suggest that markets should prepare for the worst unless a last-ditch reprieve can be found.”

German data added to the downbeat mood, as it showed the economy entered a technical recession in the first quarter of this year, as households tightened spending.

GDP was revised downwards to -0.3% for the first three months of the year from an initial reading of zero.

Europe’s biggest economy recorded a 0.5% contraction in the last quarter of 2022. Two consecutive quarters of negative growth mark a technical recession.

In equity markets, ex-dividends weighed, with KingfisherCoca-Cola HBCImperial BrandsWhitbeadDiversified EnergyTI Fluid Systems and Britvic all lower.

Johnson Matthey was also in the red as it reported a fall in annual profit as lower average precious metal prices and higher costs hit the bottom line.

Pets at Home lost ground even as it hailed a record full-year performance, posting a jump in underlying pre-tax profit and revenue.

On the upside, office space provider Workspace advanced despite saying that it swung to a full-year loss due to a drop in its property valuation.

Hill & Smith was a high riser as it said full-year operating profit was set to be “modestly ahead” of the top end of analyst expectations following a strong start to the year.

Food and beverage maker Tate & Lyle gained as it posted a surge in annual profits and sales, driven by higher prices on the back of soaring inflation.


Top 10 FTSE 100 Risers

Sponsored by Plus500
# Name Change Pct Change Cur Price
1 Carnival Plc +3.77% +28.00 771.20
2 Centrica Plc +2.99% +3.40 117.00
3 Admiral Group Plc +2.33% +53.00 2,332.00
4 Scottish Mortgage Investment Trust Plc +2.02% +13.00 657.80
5 Direct Line Insurance Group Plc +2.00% +3.25 166.05
6 Flutter Entertainment Plc +1.57% +245.00 15,845.00
7 Informa Plc +1.07% +7.40 701.80
8 Ferguson Plc +0.95% +110.00 11,650.00
9 Glencore Plc +0.91% +3.80 423.00
10 Hsbc Holdings Plc +0.85% +5.10 605.30


Top 10 FTSE 100 Fallers

Sponsored by Plus500
# Name Change Pct Change Cur Price
1 Coca-cola Hbc Ag -4.40% -110.00 2,390.00
2 Kingfisher Plc -4.16% -10.00 230.50
3 Dcc Plc -2.88% -140.00 4,728.00
4 Johnson Matthey Plc -2.42% -45.00 1,816.00
5 Intertek Group Plc -2.35% -102.00 4,231.00
6 Imperial Brands Plc -2.34% -42.00 1,755.00
7 Land Securities Group Plc -1.92% -12.00 612.00
8 Segro Plc -1.76% -14.00 783.60
9 Burberry Group Plc -1.76% -39.00 2,183.00
10 Bt Group Plc -1.68% -2.50 146.30


US close: Stocks lower on Fed minutes, debt ceiling unease

Wall Street closed on a low note Wednesday, as markets sank amid prolonged negotiations over the federal debt ceiling, and uncertainty sparked by the release of the Federal Reserve’s recent meeting minutes.

At the close, the Dow Jones Industrial Average was down 0.77% at 32,799.92, while the S&P 500 slid 0.73% to end the session at 4,115.24.

The Nasdaq Composite, meanwhile, saw a slightly less severe drop of 0.61% to settle at 12,484.16.

Discussions over the federal debt ceiling continued with no sign of a resolution, fostering investor unease.

Adding to the uncertainty were the minutes from the latest Federal Reserve meeting, which showed disagreement among officials over the possibility of future interest rate hikes.

In the currency markets, the dollar was last down 0.01% against sterling at 80.86p, while it fell 0.02% on the euro to 93 euro cents.

The greenback similarly slipped 0.07% against the yen, to change hands at JPY 139.37.

“US markets opened sharply lower today as the prospect of a 1 June debt ceiling deal recedes further, raising the question of when the money runs out, or when a payment might get missed,” said CMC Markets chief market analyst Michael Hewson earlier.

“Tonight’s Fed minutes have almost become a footnote against the wider concerns that US politicians are engaging in a dangerous game of chicken, when it comes to the US economy.”

Fed officials divided on interest rate outlook

On the economic front, Fed policymakers showed divisions over future interest rate adjustments in the minutes from their 2-3 May meeting, released late in the session.

The minutes disclosed that “some” officials believed further policy tightening could still be “likely” to control inflation, underscoring that interest rate reductions were unlikely in the current year.

Fed staff meanwhile forecast a mild recession in their latest outlook, pointing to a contraction in bank lending as the driver of a potential downturn set to start in the fourth quarter.

They also, however, projected a moderately-paced recovery afterwards.

“These differing views, which have been echoed in public comments by both hawks and doves on the Federal Open Market Committee (FOMC) since the May meeting, reflect the ongoing internal debate over whether to pause, skip, or hike in June,” noted Mickey Levy at Berenberg.

“Chair [Jerome] Powell endorsed the notion that risks around further rate hikes have become more balanced at a 19 May Brookings Institution panel, suggesting the Fed will maintain its data-dependent tilt.

“Lingering concerns over a sharp tightening in credit conditions, and the observation from ‘some’ participants that ‘past years’ tightening was beginning to have its intended effect’, may steer the Fed toward holding the policy rate steady in June to assess how the economy and inflation evolve, before potentially hiking again later in the third quarter.”

Retailers thrive, Boeing descends on CEO’s warning

In equities, Kohl’s Corporation surged 7.52%, as the department store operator delighted investors with unexpected quarterly profits, while it maintained its full-year outlook.

Also among retailers, American Eagle Outfitters closed 4.5% higher on the back of encouraging quarterly results as well.

On the downside, Boeing dropped 1.64% after its chief executive Dave Calhoun warned the Qatar Economic Forum that the aerospace industry could face supply chain constraints for “a very long time”.

Elsewhere, PacWest Bancorp was back in focus, slipping 2.44% by the end of trading.

That was largely due to the regional bank’s announcement of the sale of its property lending division to Roc360 for an undisclosed amount, as part of its broader refocusing strategy.


Thursday newspaper round-up: Microsoft, energy price cap, benefits

Microsoft has filed an appeal against the UK competition watchdog’s decision to block its $69bn (£56bn) acquisition of the Call of Duty creator Activision Blizzard. The US tech company confirmed that it had formally lodged an appeal against the Competition and Markets Authority (CMA) verdict against the deal last month. Its case will be argued before the Competition Appeal Tribunal (CAT). – Guardian

The founder of Monzo has quit London in favour of San Francisco as he said the US was “much more accepting” of tech companies than Britain. Tom Blomfield, who co-founded the banking app in 2015 and left the company in 2021, said Britain was “not always favourable to ambitious founders who want to do something unusual”. – Telegraph

Nearly 4 million people are being paid jobless benefits without ever having to look for work following a surge in claims of mental health and joint pain during lockdown. Around 3.7 million of the 5.2 million people currently claiming out of work benefits have been granted an exemption from finding a job, meaning that taxpayers face bankrolling their benefits indefinitely. – Telegraph

Energy bills will fall by 17 per cent to an average of £2,074 a year for a typical household from July, Ofgem has announced. Households have been paying record high prices since October — equivalent to £2,500 a year based on typical usage — under the government’s energy price guarantee. – The Times

A lawsuit against the former boss of Barclays alleging that he hid what he knew about Jeffrey Epstein while working at a US bank has been allowed to proceed by a New York judge. Jes Staley, 66, faces a claim that could run to tens of millions of dollars from JP Morgan, the US bank where he filled senior roles between 1999 and 2013, before joining Barclays in 2015. – The Times


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