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LONDON MARKET CLOSE: US debt ceiling deadlock hurts stocks again

23rd May 2023 16:52

(Alliance News) - European equities had little reason to push higher on Tuesday, with the US debt ceiling impasse continuing to hurt sentiment, while the Bank of England was in focus in the UK, ahead of a key inflation reading on Wednesday.

The FTSE 100 index closed down 8.04 points, 0.1%, at 7,762.95. Gains for oil majors and international earners, amid a muted pound, shielded London's blue-chip index from a sharper decline.

The FTSE 250 lost 65.03 points, 0.3%, at 19,208.31, and the AIM All-Share ended down just 0.17 of a point at 808.04.

The Cboe UK 100 ended down 0.1% at 775.63 and the Cboe UK 250 lost 0.2% at 16,759.62. The Cboe Small Companies closed 0.1% lower at 13,573.48.

In European equities on Tuesday, the CAC 40 in Paris closed down 1.3%, and the DAX 40 in Frankfurt lost 0.4%.

Stocks in New York were lower at the time of the European close. The Dow Jones Industrial Average was marginally weaker, the S&P 500 index was down 0.2%, while the Nasdaq Composite was 0.1% lower.

The pound was quoted at USD1.2420 late Tuesday afternoon in London, down slightly compared to USD1.2424 at the equities close on Monday. The euro stood at USD1.0774, down against USD1.0802. Against the yen, the dollar was trading at JPY138.65, up against JPY138.52.

Growth in the US private sector hit a 13-month high in May, data from S&P Global showed on Tuesday, but the divergence between the manufacturing and service sector continued to widen.

The headline S&P Global flash US purchasing managers' index composite output index registered 54.5 in May, up from 53.4 in April and well above an expected fall to 50 anticipated by markets, according to FXStreet.

Rising further above the 50.00 no change mark, May's print showed the highest level of private sector growth since April 2022. The growth was primarily led by service providers, however.

The flash US services business activity index stood at 55.1 in May, up from 53.6 in April. It was the fastest growth in activity in just over a year, with firms linking the upturn to greater demand from new and existing clients.

In contrast, the flash US manufacturing PMI posted 48.5 in May, down from 50.2 in April. Dropping below the no-change mark, it shows a renewed deterioration in the manufacturing sector.

The robust services data may strengthen the case for the Federal Reserve to decide against a pause next month.

Two more US central bankers doused hopes of a pause on Monday. St Louis Fed President James Bullard said he supports two more hikes, while Minneapolis Fed chief Neel Kashkari said a pause should not send out a signal that tightening is over, Bloomberg reported.

"With Fed speakers sounding more hawkish, investors continued to dial up their expectations for the fed funds rate over the months ahead," analysts at Deutsche Bank commented.

Minutes from the Fed's most recent meeting, when it raised rates by 25 basis points to 5.00%-5.25%, are released at 1900 BST on Wednesday.

Central bankers in the UK were also in focus, as they faced criticism during a date with the Treasury Committee.

The Bank of England admitted it made errors in its forecasting of UK inflation, and said it has some "very big" lessons to learn over how it decides monetary policy.

BoE Chief Economist Huw Pill said: "We recognise our forecasts on inflation have been too low. We are trying to understand why we have made those errors, interpret those errors in terms of the behaviour, and make an assessment in terms of how it will continue."

The bank earlier this month revised its inflation expectations after saying food price inflation had been more stubborn than expected.

It previously thought the UK's consumer price index inflation could fall as low as 1% by the middle of next year, but it is now predicted to reach about 3.4%.

Bank Governor Andrew Bailey responded to criticism that the bank had lost the confidence of the public over its economic modelling and interest rate decisions.

He said: "I think there are some very big lessons in how we operate monetary policy in the face of very big shocks. Because the shocks that we have faced have been unprecedented. I think there are big lessons about how we operate policy in that world – in a world of very big uncertainty."

The latest batch of UK inflation data, for the month of April, is reported on Wednesday at 0700 BST.

The annual inflation rate is expected to slow to 8.2%, from 10.1% in March, according to FXStreet cited consensus.

The UK is forecast to avoid a recession this year, but high interest rates will likely be needed for some time yet to tackle inflation, according to the International Monetary Fund.

The IMF, in a new assessment of the UK economy, upgraded growth to 0.4% this year after initially forecasting last month that UK output was expected to contract by 0.3%.

Elsewhere on Wednesday's economic diary, there is a UK house price index reading at 0930 BST, before Irish labour market data at 1100 BST.

In London, RS Group shares fell 7.2%, the worst FTSE 100 performer, after it cautioned on a slow start to its new financial year.

The industrial and electronics products distributor said revenue for the year ended March 31 grew by 17% to GBP2.98 billion from GBP2.55 billion a year prior. Pretax profit totalled GBP383.0 million, up 24% from GBP308.8 million.

RS Group said trading for the first seven weeks of financial 2024 have been hurt by slowing industrial growth, however.

Cranswick added 5.9% as it posted a rise in profit and revenue following strong gourmet and pork product sales.

For the year that ended March 25, the Yorkshire-based meat producer reported a pretax profit of GBP139.5 million, a 7.4% rise from GBP129.9 million the previous year.

Revenue was up by 16% to GBP2.32 billion from GBP2.01 billion the year prior.

Topps Tiles shares rose 4.7%, as the retailer said it has "increasing confidence" in its outlook.

The tile seller said revenue in the half-year ended April 1 rose 9.3% to GBP130.3 million from GBP119.2 million. Its pretax profit, however, fell 70% to GBP1.7 million from GBP5.6 million a year ago.

The company said this was due to "adverse exchange rate movements" and the expected impact of inflation year-on-year which had significantly increased energy costs and other one offs.

Avon Protection slid 10%. The personal protection equipment warned of "softer demand" for respiratory mask systems and reported weaker-than-expected first-half revenue.

In the half-year ended April 1, revenue fell 4.7% to USD116.2 million from USD121.9 million a year prior. Its pretax loss narrowed year-on-year to USD5.3 million, however, from USD13.6 million.

Looking to the second half, Avon Protection said it has a "more cautious view" for its Respiratory division. This is due to "softer demand for mask systems" in the first-half. Respiratory revenue for the full-year is now expected to be lower than previously thought.

Brent oil was quoted at USD77.00 a barrel late Tuesday afternoon in London, up from USD75.94 late Monday.

Shell shares got a boost from the rising oil price. The stock climbed 1.0% despite chaotic scenes at its annual general meeting on Tuesday.

A shareholder rebellion secured a fifth of votes at the shareholder meeting, where climate change protesters tried to storm the stage.

Suit-clad members of the security team in London linked hands to shield Chair Andrew Mackenzie and Chief Executive Wael Sawan as a handful of protesters attempted to run onto the stage.

Campaign group Fossil Free London later claimed responsibility for the rush, while several other groups also sang songs and chanted slogans against the producer of oil and gas.

The chaotic scenes at the Excel conference centre in London came as shareholders were asked to vote on Shell's environmental report.

Most did, but an alternative plan which was proposed by activist investors at Follow This secured 20% of the votes, Shell revealed.

Also boosted by a rising crude price, BP shares ended 1.4% higher.

Gold was priced at USD1,965.99 an ounce at the time of the London equities close, down against USD1,972.21.

Wednesday's UK corporate diary has a trading statement from insurer Aviva, gym chain operator Gym Group and construction firm Kier Group.

Retailer Marks & Spencer and electricity utility SSE report annual results.

By Eric Cunha, Alliance News news editor

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