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LONDON MARKET CLOSE: Stocks fall as Middle East tensions heat up

18th Oct 2023 16:54

(Alliance News) - London's FTSE 100 slumped on Wednesday, with UK inflation worries after more robust than expected data hurting investor sentiment and tensions in the Middle East ratcheting up after a strike at a hospital in Gaza.

The FTSE 100 index closed down 87.21 points, 1.1%, at 7,588.00. The FTSE 250 slumped 286.00 points, 1.6%, at 17,403.46, and the AIM All-Share ended down 5.78 points, 0.8%, at 684.80.

The Cboe UK 100 fell 1.3% at 757.43, the Cboe UK 250 lost 1.8% at 15,064.92, though the Cboe Small Companies rose 1.4% to 12,997.32.

In European equities, the CAC 40 in Paris dropped 0.9% and the DAX 40 in Frankfurt lost 1.0%.

Rising, however, were oil prices with all eyes on developments in the Middle East. Tensions intensified after a strike at a hospital in Gaza on Tuesday, which US President Joe Biden on Wednesday put down to an "errant rocket fired by a terrorist group in Gaza".

Brent oil was trading at USD91.10 a barrel late Wednesday afternoon, rising from USD89.41 on Tuesday.

SPI Asset Management analyst Stephen Innes commented: "Certainly, a broadening of the conflict in the Middle East has the potential to introduce additional supply risks to an already tight oil market. The region is a crucial oil-producing area, and any disruptions can impact global oil supplies. These geopolitical tensions can lead to concerns about the stability of oil production and shipping routes, which in turn can contribute to increased oil price."

Biden said he has seen "data" from the US Defense Department backing his assertion that Palestinian militants, not Israel, were to blame for a devastating strike on a Gaza hospital.

Arab countries have almost universally blamed Israel for the hospital strike, either directly or through state media – including Egypt, Jordan and the United Arab Emirates, which are among the region's few countries which have diplomatic relations with Israel.

Iran's President Ebrahim Raisi accused the US of being an accomplice in Israeli "crimes" after a rocket struck a hospital complex in Gaza, killing hundreds of people.

Biden's wartime trip to Israel and Jordan faltered before it got off the ground, after the Amman leg was cancelled following a strike on a Gaza hospital that killed hundreds of people.

His regional balancing act came undone on the eve of his visit with news of the hospital explosion – for which Hamas blamed Israeli strikes, while Israel said it was caused by a rocket misfired by militants in Gaza.

SPI's Innes added: "The challenge for Israel is that the broader Muslim world doesn't differentiate between the actual culprits, and even if concrete evidence were to emerge that an errant missile fired by Islamic Jihad was responsible, many in the Middle East would dismiss it as fabricated. Hezbollah has labelled it a 'massacre' and called for a 'day of rage,' which poses a dilemma for the Biden administration. Lebanon is closing schools in response, and the potential for escalations between Hezbollah and the IDF is a looming concern. Axios reported discussions within the White House about the potential use of military force if Hezbollah intensifies its engagements with Israel.

"Generally, events with direct US involvement tend to have a larger impact on gold, in part as investors seek gold as a hedge of last resort."

Gold was quoted at USD1,941.78 an ounce at the time of the London equities close on Wednesday, higher than USD1,924.08 on Tuesday.

Sterling was quoted at USD1.2151 late Wednesday afternoon, down from USD1.2191 at the London equities close on Tuesday. The euro fell to USD1.0533, from USD1.0581 at the time of the European equities close on Tuesday. Against the yen, the dollar was quoted at JPY149.86, up versus JPY149.74.

The Office for National Statistics showed UK consumer prices rose 6.7% annually in September, matching the rate seen in August. Market forecasts, as cited by FXStreet, had expected the figure to cool to 6.5% last month.

Core consumer prices, which exclude energy, food, alcohol and tobacco, rose by 6.1% annually in September. This was cooler than the 6.2% rise in August, but higher than forecasts of 6.0%.

AJ Bell analyst Danni Hewson commented: "Price volatility happens all the time but at the moment it’s raising big questions about whether the government will meet its target of halving inflation by the end of the year and, more importantly, how it might impact Bank of England policymakers ahead of their next interest rate decision."

The Bank of England's next interest rate decision is on November 2.

Shares in housebuilders were lower following the inflation data. Berkeley Group fell 2.5%, Taylor Wimpey lost 4.3% and Barratt Developments slumped 5.1%. A gloomy trading update from Barratt did not help its stock either. It warned it expects the difficult backdrop for the housing sector to continue for the coming months.

Elsewhere, Kin & Carta surged 40%. The London-based business consultancy said it has accepted a takeover offer from funds advised by UK private equity firm Apax Partners.

Kin & Carta will receive 110 pence in cash for each share, which constitutes a 41% premium to its closing price of 78p on Tuesday. The offer values the company at around GBP203 million on a fully diluted basis.

Elsewhere in the M&A space, Pendragon shares fell 8.7% after AutoNation confirmed late Tuesday it does not intend to make an offer for the Nottingham, England-based automotive retailer.

In September, Pendragon received an unsolicited proposal from AutoNation to acquire the whole company for 32p per share, cash, valuing it at GBP447 million. Also in September, Pendragon had received a revised takeover offer by Hedin Mobility Group and PAG International, or Penske, also at 32p per share. The Hedin and Penske tie-up had previously made a 28p per share tilt, which valued Pendragon around GBP391 million.

However, the duo decided to walk away without making an official bid.

Pendragon once had three bids to mull over. Two bids were for the company to be acquired in its entirety. A third, which it backed, was for the firm to sell its entire UK motor and leasing business.

While it once looked like a possible three-horse race, there is now a clear path to the finish line for Lithia Motors.

Pendragon agreed sell its entire UK motor business and leasing business to Lithia back in September. Following the completion of the disposal, Pendragon will operate as a stand-alone Pinewood business, making it a pure-play software as a service business. Pinewood is a dealer management system.

Equities in New York were lower. The Dow Jones Industrial Average was down 0.5%, the S&P 500 lost 0.7% and the Nasdaq Composite gave back 0.9%.

Morgan Stanley was down 7.7%. It reported a third-quarter profit decline as it grappled with a "mixed" market environment.

Revenue in the third-quarter of 2023, rose 2.2% on-year to USD13.27 billion from USD12.99 billion, the New York City-based firm said.

Net income declined 8.5% on-year to USD2.44 billion from USD2.66 billion. Basic earnings per share fell to USD1.39 from USD1.49. Diluted EPS fell to USD1.38 from USD1.47.

Revenue at the Institutional Securities arm, which provides services such as investment banking, sales and trading, fell 2.5% on-year to USD5.67 billion from USD5.82 billion.

Investment banking revenue alone declined 27% and fixed Income revenue was 11% lower. Still within Institutional Securities, equity net revenue was 2% higher on-year.

Still to come on the US earnings calendar on Wednesday are numbers from electric vehicle maker Tesla and streaming service Netflix.

Thursday's economic calendar has the latest US jobless claims data at 1330 BST.

The local corporate calendar has trading statements from home furnishings retailer Dunelm, stock exchange operator London Stock Exchange Group and investment manager Schroders.

By Eric Cunha, Alliance News news editor

Comments and questions to [email protected]

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