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LONDON MARKET MIDDAY: Europe slips in pre-central bank jitters

9th Jun 2023 12:17

(Alliance News) - Stock prices in Europe wobbled on Friday, with investors nervously awaiting next week's US inflation report and central bank decisions there and in the EU and Japan, while eyes turn to the New York open after a bullish run for the S&P 500 index continued on Thursday.

"UK investors will certainly be looking to the US and wondering why the FTSE 100 once again is lagging the S&P 500. The UK blue chip index enjoyed a burst in January, it fell back in February, recovered in March and April, and is now back to where it began the year," AJ Bell analyst Russ Mould commented.

A downbeat trading update from Croda International sent chemicals company shares lower on Friday. Harbour Energy and Ithaca Energy got a boost, after the UK government said its windfall tax measures may soon be scrapped.

The FTSE 100 index was down 28.30 points, or 0.4%, at 7,571.44 midday Friday. The FTSE 250 index lost 88.25 points, 0.5%, to 19,019.30, and the AIM All-Share declined 2.78 points, or 0.4%, at 790.12.

The Cboe UK 100 was down 0.4% at 755.31, the Cboe UK 250 was down 0.7% at 16,577.66, and the Cboe Small Companies was down 0.1% at 13,851.18.

In European equities, the CAC 40 in Paris was down 0.4%, while the DAX 40 in Frankfurt was down 0.3%.

Similarly, stocks in New York were called to open lower. The Dow Jones Industrial Average was pointed down 0.2%, the S&P 500 down 0.1% and the Nasdaq Composite flat.

The S&P 500 index added 0.6% to 4,293.93 points on Thursday, taking it 20% above its October 12 closing number of 3,577.03, meeting an accepted definition of a bull market. The FTSE 100 has risen just 11% since mid-October. The S&P 500 is up 12% so far in 2023, while the FTSE 100 is up just 0.2%.

US tech shares, including Facebook-owner Meta Platforms and chipmaker Nvidia have supported the S&P 500 so far this year. The latter in particular has enjoyed an artificial intelligence-driven boost, though AJ Bell's Mould warned there is a risk of an AI "bubble that's waiting to burst", potentially hurting the S&P 500.

"Savvy investors might think it is worth cashing in gains before the market turns. However, if inflation starts to become less sticky and the Fed decides it doesn't need to keep raising interest rates, there is the possibility that markets can keep pushing higher, so why not enjoy the ride," Mould said.

In Europe, the chemicals sector struggled on Friday. London-listed Croda led peers lower, slumping 12%.

It warned on profit as it struggles with customer destocking. Croda provides chemicals for the personal care, fragrances, pharmaceutical and crop care sectors.

Sales volumes in its Consumer Care arm were down by a double-digit percentage year-on-year for the five months ended May 31.

With customer destocking set to continue in its consumer-focused division, Croda now predicts full-year pretax profit of GBP370 million to GBP400 million, down as much as 52% from GBP780.0 million in 2022.

Shares in chemicals firms in mainland Europe fell in a negative read across. BASF declined 1.9% in Frankfurt. Givaudan lost 2.5% in Zurich.

Elsewhere in Zurich, UBS added 0.1%. It signed a loss protection agreement worth roughly USD10 billion with the Swiss government, connected to the acquisition of Credit Suisse.

The agreement covers losses of up to CHF9 billion, around USD9.9 billion. UBS will bear the first CHF5 billion of losses on a designated portfolio of Credit Suisse non-core assets, however. The Swiss government will foot the next CHF9 billion.

The deal to acquire Credit Suisse could be completed as early as Monday.

Back in London, Network International added 5.7%, trading at 383.60p. It agreed to a GBP2.2 billion takeover from entities backed by private equity firm Brookfield Asset Management.

Brookfield will pay 400 pence per Network International share, a 64% premium to the 243.6p share price at the close of play on April 12, the day before the Middle East and Africa-focused payments provider first received buyout interest.

Elsewhere in the FTSE 250, North Sea oil and gas operators Harbour Energy and Ithaca Energy rose 2.2% and 1.9%. Outside the FTSE 250, EnQuest, which also has assets in Malaysia, added 1.4%.

The UK government has announced it will remove the windfall tax on oil and gas companies should the price of the commodities continue to fall.

Ministers said that they will slash the current 75% tax on North Sea oil and gas profits back to its regular 40% if prices reach certain levels.

They said they would take the move if the average price of oil fell to or below USD71.40 per barrel for two consecutive quarters, and the average price of gas fell to under 54 pence.

Brent oil was quoted at USD76.01 a barrel midday Friday, down from USD76.28 late Thursday.

The North Sea crude price is slightly up from USD75.22 from this time last week, though a larger boost following Saudi Arabia's announcement that it would cut its oil output by 1 million barrels a day during July has largely dissipated.

"Oil has been unable to hang on to its post Opec+ meeting gains. Despite the softer USD, the oil price is struggling to gain traction and the latest Chinese data have not helped the cause. The low CPI and PPI prints from China again demonstrate that the global demand outlook for oil is murky at best, which is acting as a constraint on the oil price," KCM Trade analyst Tim Waterer commented.

Annual inflation rate quickened slightly in China last month, but stayed not far above zero. The consumer price index rose 0.2% year-on-year, picking up a bit of speed from 0.1% in April, the National Bureau of Statistics said. The figure fell short of FXStreet-cited market consensus which predicted an uptick to 0.3% annual inflation.

All eyes will be on US inflation data on Tuesday, the day before the Federal Reserve's next interest rate decision.

"Market pricing has shifted massively over recent weeks, but we think the most likely outcome remains the Fed leaving policy rates unchanged on 14 June. There will be some dissent and a shock inflation reading could make it a very close decision. Either way, the Fed will leave the door open to further rate moves," analysts at ING commented.

The pound was quoted at USD1.2547 midday Friday in London, firm on USD1.2541 at the time of the London equities close on Thursday. The euro stood at USD1.0758, down from USD1.0774. Against the yen, the dollar was trading at JPY139.59, rising from JPY139.05.

Gold was priced at USD1,964.07 midday Friday, down slightly from USD1,966.33 on Thursday.

By Eric Cunha, Alliance News news editor

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