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LONDON MARKET CLOSE: Stocks down on fears on Fed, Iran-Israel tensions

16th Apr 2024 16:56

(Alliance News) - Stock prices in London closed down on Tuesday, as investors showed concern over rising geopolitical tensions between Iran and Israel, while hopes of three US Federal Reserve interest rate cuts this year continue to fade.

The interest rate picture in the UK was also muddied by the latest batch of jobless data. The unemployment rate rose although pay growth remained sticky, giving the Bank of England food for thought.

The FTSE 100 index closed down 145.17 points, 1.8%, at 7,820.36. The FTSE 250 ended down 354.35 points, 1.8%, at 19,344.54, and the AIM All-Share closed down 12.00 points, down 1.6%, at 738.28.

The Cboe UK 100 ended down 1.9% at 780.58, the Cboe UK 250 closed down 2.0% at 16,760.24, and the Cboe Small Companies ended down 1.0% at 14,693.29.

In European equities, the CAC 40 in Paris ended down 1.4% and the DAX 40 in Frankfurt down 1.6%.

According to the Office for National Statistics, the UK jobless rate picked up to 4.2% in the three months to February from 4.0% in the three months to January. January's three-month reading was upwardly revised slightly from 3.9%.

According to market consensus cited by FXStreet, a jobless rate of 4.0% was expected for the period to February.

The ONS noted average growth in regular earnings, so excluding bonuses, cooled slightly to 6.0% in the three months to February from 6.1% in the same period to January.

Including bonuses, average earnings rose 5.6%, in line with the growth seen in the three months to January, and above consensus of a 5.5% climb.

"Today's labour market report highlighted a story of two halves: a cooling jobs market dampened by slower growth and falling demand and with pay growth still stubbornly strong," said Deutsche Banak analyst Sanjay Raja.

ING's James Smith noted wage growth is "temporarily stuck in the 6% area, and that's another reason to think the Bank of England will wait until August to cut rates for the first time, despite signs of a cooling jobs market."

He described the data as a "mixed bag", but a "surprise surge in private sector pay will be what ultimately catches the eye of Bank of England policymakers".

A barrel of Brent oil fetched USD90.21 on Tuesday at the equities close in London, up from USD89.20 at the time of the London equities close on Monday.

US Treasury Secretary Janet Yellen warned in prepared remarks of further sanctions targeting Iran, following its unprecedented attack on Israel over the weekend.

The Treasury "will not hesitate to work with our allies to use our sanctions authority to continue disrupting the Iranian regime's malign and destabilising activity," according to excerpts of Yellen's speech ahead of the spring meetings of the International Monetary Fund and World Bank in Washington this week.

Months of war between Israel and the Palestinian militant group Hamas in Gaza have triggered violence in the region involving Iranian proxies and allies who say they act in support of Palestinians in the Gaza Strip.

But tensions have soared even higher with Tehran's first direct assault on Israel, in retaliation for an April 1 strike on Iran's consulate in Damascus.

The attack has prompted appeals for de-escalation by world leaders fearing wider conflict.

TreasuryOne analyst Andre Cilliers commented: "Safe-haven assets like the dollar and gold are in demand as risk sentiment turns negative on the heightened Middle East tensions and on receding bets that the Fed will cut rates any time soon. Israel has vowed to retaliate to Iran's strikes while US retail sales data continued to reflect a still robust US economy."

Against the dollar, sterling fell to USD1.2435 on Tuesday at the equities close in London, from USD1.2458 on Monday. The euro fell to USD1.0629 from USD1.0636. Against the yen, the dollar traded at JPY154.51, up from JPY154.32.

Gold rose to USD2,379.66 an ounce at the time of the London equities close on Tuesday from USD2,348.01 on Monday.

In London, there was a slew of M&A activity on Tuesday.

DS Smith agreed to a takeover from New York-listed International Paper.

The bid values DS Smith, the London-based paper and packaging company, at around GBP5.8 billion on a fully diluted basis, and its enterprise value at around GBP7.8 billion.

The deal values each DS Smith share at 415p.

The stock fell 4.0% to 393.40 pence. Mondi, also a DS Smith suitor, gave back 0.5%. Earlier this month, Mondi's 'put up or shut up' deadline was extended to the close of play on April 23.

TClarke jumped 29% to 161.31p as the engineering services company agreed to a GBP90.6 million takeover from natural gas supplier and metering provider Regent Gas.

Regent will pay 160p per TClarke share, and shareholders also stand to receive the final dividend of 4.525p.

"In addition to presenting an attractive premium for TClarke shareholders, this transaction presents tremendous opportunities for TClarke to chart its own course as part of a larger group with significant financial strength, flexibility and autonomy as TClarke continues to pursue its long-term strategies that will drive sustainable growth and innovation," TClarke Chief Executive Mark Lawrence said.

Hostmore added 5.6% as it agreed to combine with its own franchisor TGI Fridays Inc in a deal with an enterprise value of GBP177 million. The deal will see Hostmore shareholders owning a 36% stake in the combined unit, with current shareholders in TGI Fridays owning the remainder.

Casual dining chain TGI Fridays is currently owned by TriArtisan and MFP Partners. Because of the size of the stake in the combined company owned by TriArtisan and MFP, a waiver to rule 9 of the UK takeover code, which relates to mandatory offers, would need to be waived for the transaction to be completed. Completion is expected in the third quarter.

The enlarged firm would be listed on London's Main Market.

In addition, Hostmore said its first-quarter like-for-like revenue fell 7% on-year, "due principally to reduced consumer demand across the sector".

Dr Martens plunged 29% after a profit warning. The Northamptonshire, England-based boot maker said a worse case scenario would see pretax profit in the year to March 2025 of around one-third of the level in the year just gone.

It expects US wholesale revenue will fall by double-digits in financial 2025. The decline in wholesale has a significant impact on profitability, it explained, with a base assumption being in the region of a GBP20 million pretax profit impact year-on-year, assuming no meaningful in-season re-orders.

Dr Martens also expects a GBP35 million headwind from inflation where it is seeing single-digit inflation in its cost base but leaving selling prices unchanged.

The company also expects to continue to require the additional inventory storage facilities, and therefore the majority of the GBP15 million of extra costs incurred in financial 2024 are expected to repeat in 2025.

Chief Executive Kenny Wilson said, "The FY25 outlook is challenging, and the whole organisation is focused on our action plan to reignite boots demand, particularly in the US, our largest market. The nature of US wholesale is that when customers gain confidence in the market we will see a significant improvement in our business performance, but we are not assuming that this occurs in FY25.

"We have built an operating cost base in anticipation of a larger business, however with revenues weaker we are currently seeing significant deleverage through to earnings."

Dr Martens said Wilson will step down and that this "will be his final year" at the helm.

Wilson will be succeeded by Ije Nwokorie, currently chief brand officer.

Stocks in New York were largely above zero at the London equities close, with the DJIA up 0.3%, the S&P 500 index marginally up and the Nasdaq Composite flat.

In Wednesday's UK corporate calendar, miners Antofagasta and Rio Tinto, alongside bookmaker Entain, all post trading statements.

The economic calendar has consumer and producer price inflation reads out for the UK at 0700 BST and a eurozone CPI release at 1000 BST.

By Greg Rosenvinge, Alliance News senior reporter

Comments and questions to [email protected]

Copyright 2024 Alliance News Ltd. All Rights Reserved.

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