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LONDON MARKET CLOSE: China slowdown worries send stocks lower

31st May 2023 16:54

(Alliance News) - Stocks in London closed in the red on Wednesday, with weaker-than-expected economic data from China and poorly received company news contributing to a subdued market mood.

The FTSE 100 index closed down 75.93points, or 1.0% at 7,446.14 on Wednesday. The FTSE 250 ended down 84.47 points, or 0.5%, at 18,722.90. The AIM All-Share closed down 3.99 points, or 0.5%, at 782.77.

The Cboe UK 100 ended down 1.0% at 743.44, the Cboe UK 250 closed down 0.5% at 16,296.37, and the Cboe Small Companies ended down 1.0% at 13,020.80.

China's manufacturing activity shrank in May for the second successive month, official figures showed on Wednesday, the latest sign that the country's economic recovery is losing steam.

The official manufacturing purchasing managers' index fell to 48.8 points this month, below the 50-point mark that separates expansion and contraction, according to the National Bureau of Statistics.

The figure followed an unexpected fall to 49.2 in April, which reversed three consecutive months of growth. It was lower than the median estimate of 49.5 in a Bloomberg survey of economists.

"The boost from the reopening of China's economy seems to have faded altogether, and this has meant that recession fears are front and centre once more," said Chris Beauchamp, chief market analyst at IG.

The pound was quoted at USD1.2381 at the London equities close on Wednesday, down from USD1.2404 at the close on Tuesday.

In London, B&M European Retail was the top-blue chip performer, finishing 8.0% higher.

The variety goods value retailer posted a pretax profit of GBP436 million in the year ended March 25. This was down 17% from GBP525 million the previous and below Barclays' forecast of GBP454 million.

More positively, however, B&M reported revenue of GBP4.98 billion for the year, up 6.6% from GBP4.67 billion the year before and in line with Barclays' estimates.

Russ Mould, investment director at AJ Bell, explained that B&M had benefited as one of a "handful" of retailers which were able to stay open and operate during Covid. Consequently, Mould said B&M's performance during this period "comes with an asterisk attached". This, he argued, is why investors will be "particularly pleased" to see its "value credentials paying off" in a "more normal" retail environment.

Prudential was one of the worst performers in the FTSE 100. The stock closed down 6.0% after it announced the resignation of Chief Financial Officer James Turner.

The Asia-focused insurer said Turner's resignation relates to a code of conduct probe in regard to "a recent recruitment situation" but did not disclose further details.

Turner will be replaced by Ben Bulmer, the current CFO for the Insurance & Asset Management division.

Ocado lost 5.2%. According to the latest set of indicative index changes from FTSE Russell, posted last Tuesday, engineering firm IMI is set to replace Ocado in the FTSE 100.

However, Susannah Streeter, head of money and markets at Hargreaves Lansdown, said that Ocado looks like it "may have escaped relegation at the last gasp" and instead said it looks like British Land will be demoted.

"The value of its property portfolio had already been sideswiped by the rapid tightening in monetary policy and the shocker of an inflation reading last week, dented the company's valuation further," Streeter said.

The final changes will be announced after the market close.

British Land finished down 0.6%, while IMI closed 1.2% lower.

In the FTSE 250, WH Smith climbed 2.8% after it said its outlook for the year ended August 31 has "modestly improved" since its last announcement in late April, following strong performances across all key markets in the past three months.

Elsewhere in London, DP Eurasia ended flat as it reported significantly higher sales in the first four months of 2023 compared to a year before, boosted by its growing business in Turkey.

On AIM, Purplebricks plunged 31% after Lecram withdrew its offer for the online estate agent.

On Friday, Purplebricks said an indicative takeover proposal by Lecram of 0.5p per share was not better than a potential offer it had received from fellow estate agency Strike.

Strike offered a total of GBP1 earlier in May, with Strike to assume most of its liabilities. The transaction would mean the firm holds a cash balance of GBP5.5 million, and would return net cash proceeds of around GBP2 million to shareholders after certain costs.

Purplebricks continues to recommend shareholders vote in favour of the potential takeover by Strike at its general meeting Friday.

In European equities on Wednesday, the CAC 40 in Paris and the DAX 40 in Frankfurt both ended down 1.5%.

The European Central Bank reported that the outlook for eurozone financial stability remains fragile.

In its six-monthly financial stability report, the ECB referred to "weak macro-financial conditions and unexpected stress in the banking sectors of some mature economies".

It highlighted the recent failures of three US regional banks and the takeover of Switzerland's Credit Suisse by competitor UBS in a deal backed by the Swiss government.

These events had "invited closer scrutiny of bank exposure to long-term fixed income securities, the stability of wholesale uninsured deposit funding and latent business model challenges," the ECB said.

They had also "prompted more general concerns about bank resilience in an environment of higher interest rates," it said. But it added that the tensions were short-lived, as eurozone bank fundamentals remained solid, and prompt regulatory intervention had contained spill-overs from other economies.

The euro stood at USD1.0657 at the European equities close on Wednesday, lower against USD1.0721 at the same time on Tuesday.

Stocks in New York were lower at the London equities close, with the Dow Jones Industrial Average down 0.8%, the S&P 500 index down 0.9%, and the Nasdaq Composite down 0.9%.

A deal to raise the US debt ceiling passed its first major test in Congress on Tuesday.

The 99-page 'Fiscal Responsibility Act', which agreed to pare back federal spending and raise the debt ceiling until 2025, passed the House rules committee by 7 votes to 6. It now needs lawmakers' support at a crucial vote Wednesday in the full House of Representatives.

The bill needs 218 votes in the House. Republican leadership will be relying on Democratic support as they brace for up to 60 of their 222 members defecting.

"The debt ceiling now seems to be mostly a procedural problem, but until it is resolved markets seem determined to remain on edge," said IG's Beauchamp.

Against the yen, the dollar was trading at JPY139.83 late Wednesday, higher compared to JPY139.74 late Tuesday.

Brent oil was quoted at USD73.07 a barrel at the London equities close on Wednesday, down from USD74.30 late Tuesday. Gold was quoted at USD1,971.75 an ounce, higher against USD1,960.99.

In Thursday's UK corporate calendar, there are full-year results from Dr Martens, Pennon and Auto Trader.

The economic calendar has EU unemployment and inflation figures at 1000 BST, before the European Central Bank releases its latest meeting minutes at midday. There is also manufacturing PMI prints from the UK and the US.

By Heather Rydings, Alliance News senior economics reporter

Comments and questions to [email protected]

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