20th Oct 2022 12:22
(Alliance News) - Blue-chip European equities struggled to make headway on Thursday, with US Federal Reserve rate hike worries and UK political instability hitting the investment mood.
Westminster descended into chaos on Wednesday, heaping more pressure on embattled Prime Minister Liz Truss.
The mood over on Wall Street was no better either. Numbers from Tesla soured what had been a decent third-quarter earnings season so far.
The FTSE 100 index was down 7.08 points, 0.1%, at 6,917.91 midday Thursday. The FTSE 250 was up 26.48 points, 0.2%, at 17,274.03, and the AIM All-Share faded 3.68 points, 0.5%, at 782.29.
The Cboe UK 100 was down 0.2% at 691.17, the Cboe UK 250 was down 0.3% at 14,758.86, and the Cboe Small Companies lost 0.2% to 12,341.25.
In European equities on Thursday, the CAC 40 in Paris was flat, while the DAX 40 in Frankfurt was down 0.7%.
Truss is battling to contain the fallout from a calamitous 24 hours for her premiership, which saw a Cabinet minister resign and an open revolt in the Commons.
Tory members of Parliament are wondering how long the prime minister can go on following the chaotic events, but a Cabinet ally said "at the moment" Truss will still lead the party into the next election, due in 2024.
Transport Secretary Anne-Marie Trevelyan said the government is seeking to provide stability, and Chancellor Jeremy Hunt should be given the time to set out his financial plans at the end of October.
But a senior MP said Truss has just hours to turn the situation around following the chaos in Parliament on Wednesday.
The pound, already under pressure by a dollar boosted by Fed rate hike expectations, slid again on Thursday.
Sterling was quoted at USD1.1201 midday Thursday, lower than USD1.1242 at the London equities close on Wednesday.
"Political infighting and the uncertainty of policy continue to demand a risk premium for sterling, where GBPUSD could easily slip back to the bottom end of its wide 1.10-1.15 range. The wild card is what happens to the top job and whether the re-emergence of former Chancellor Rishi Sunak would represent a steadying of the ship or merely split the Conservative party asunder. One can understand why foreign investors will want to steer clear of sterling until the political environment becomes a lot clearer," analysts at ING commented.
The euro traded at USD0.9791 midday Thursday, up slightly from USD0.9784 at the European equities close on Wednesday, Against the yen, the dollar was quoted at JPY149.77, unchanged from the London equities close on Wednesday.
The greenback had spiked to JPY150 earlier on Thursday, for the first time since 1990. It puts the Bank of Japan under the spotlight and also raises the prospect of another intervention by the Japanese government. The dollar had traded around JPY146 when Japan intervened last month.
The dollar has enjoyed a blistering rise so far in 2022 against its fellow safe-haven currency. At the start of the year, the dollar had only fetched around JPY115. A hawkish Federal Reserve has lifted the greenback this year, and the market expects aggressive rate hikes to continue as the central bank bids to cool rampant inflation.
"Remarks from the US central bank for the interest rate outlook, especially in the near term, remained hawkish," analysts at Lloyds commented.
In London, shares in banking stocks were on the up. They had fallen on Wednesday on the threat of an additional tax on profit not being reduced as planned by the UK government. Lloyds Banking rose 2.3%, NatWest added 1.3% while FTSE 250-listed OSB climbed 3.1%.
Among the stocks dragging on the FTSE 100 was Dechra Pharmaceuticals, down 3.1%.
Dechra said it is confident of delivering on market expectations for its financial year, as it looks ahead to its all-important second half.
The veterinary products firm said trading in its first quarter ended September 30 was below the prior year, as expected. This is due to a challenging comparator with higher demand levels during Covid-19 and the phasing of price increases.
"As the market growth slows, analysts have become more bearish on Dechra and moderating near-term growth expectations while waiting to see how it normalises and how sticky companion animal healthcare expenditure may be in the midst of a cost-of-living crisis," analysts at Liberum commented.
Dunelm lost 2.0%.
For the 13 weeks to October 1, total sales for the homewares retailer came in at GBP357 million, down 8% from the previous year.
Looking ahead, it noted a "challenging" macroeconomic environment, including recent volatility in exchange rate movements. It reiterated annual guidance, however.
Naked Wines surged 28% after announced a leadership re-jib and a restructuring. Chief Executive Nick Devlin struck a penitent tone. The CEO said the online wine seller made "mistakes" in the pursuit of fast growth.
Darryl Rawlings will step down as chair with immediate effect, with David Stead to take his place. Stead has been a director of the firm since 2017 and is currently chair of the audit committee. In addition, Deirdre Runnette will become senior independent director. Naked Wines said it was in active discussions with James Crawford to assume the role of chief financial officer on a permanent basis.
Gemfields fell 11%. It said a mine in Mozambique, neighbouring operations at 75%-owned Montepuez Ruby Mining, was attacked. The Cabo Delgado region in northern Mozambique has been hit by Islamist insurgency in recent years.
Gemfields said MRM has begun evacuating operational employees and contractors, so mining has ceased.
Elsewhere in the junior AIM market, shares in Baron Oil jumped 52%.
Oil and gas production in the North Sea should be boosted in the coming years through a number of measures, the regulating body has recommended.
In a report released on Thursday, the North Sea Transition Authority has said drilling activity remained low in 2021 compared to pre-pandemic levels.
It comes after the NSTA said it would expand oil and gas licences, a move which is facing a legal challenge from climate campaigners.
The NSTA's head of technology, Carlo Procaccini, said: "Amid the energy crisis, it is vital that North Sea industry works quickly to secure additional supplies of oil and gas, produced as cleanly as possible."
Baron Oil has a 32% interest in the Inner Moray Firth asset, a prospect that it describes as "one of the few remaining undrilled UK North Sea targets".
Gold was quoted at USD1,637.66 an ounce midday Thursday in London, lower than USD1,631.50 late Wednesday. Brent oil was trading at USD93.70 a barrel, higher than USD90.83.
Stocks in the US are called largely lower. The Nasdaq Composite is called down 0.5%, and the S&P 500 down 0.2%. The Dow Jones Industrial Average is called 0.1% higher, however.
Tesla was down 5.4% in pre-market trade. In the three months to September 30, net attributable income jumped to USD3.29 billion from USD1.62 billion a year prior. Total revenue rose 56% to USD21.45 billion from USD12.76 billion, with Automotive revenue up 55% to USD18.69 billion from USD12.06 billion.
"Investors had their first big disappointment of a US third quarter earnings season which, up until now, had been a qualified success, with Tesla missing expectations on revenue and car sales," AJ Bell analyst Russ Mould commented.
"The electric vehicle manufacturer's underpowered performance reflects continuing challenges around the supply chain and rising costs. It suggests expectations were pitched too high coming into this quarterly update."
Still to come in Thursday's economic calendar, there are US initial jobless claims at 1330 BST.
By Eric Cunha; [email protected]
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