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LONDON MARKET MIDDAY: Stocks in red amid cooling UK economy

24th Oct 2023 12:00

(Alliance News) - Stock prices in London were lower at midday Tuesday, though European peers were in the green, with the banking sector weighing on the FTSE 100 after less-than-stellar results from Barclays.

Meanwhile, in the FTSE 250 index, CAB Payments plummeted on lower outlook.

The FTSE 100 index was down 7.92 points, 0.1%, at 7,366.91. The FTSE 250 was down 59.69 points, 0.4%, at 16,999.30, and the AIM All-Share was down 1.97 points, 0.3%, at 678.44.

The Cboe UK 100 was down 0.1% at 735.49 and the Cboe UK 250 was down 0.6% at 14,736.44. Meanwhile, the Cboe Small Companies was up 0.4% at 14736.44.

In European equities on Tuesday, the CAC 40 in Paris was up 0.5%, while the DAX 40 in Frankfurt was up 0.2%.

The unemployment rate for the period for June to August was estimated at 4.2%. This was a 0.2 percentage point increase compared with the period from March to May, the the Office for National Statistics said on Tuesday.

The ONS explained that the figures are an "alternative series of estimates", due to "increased uncertainty" around the Labour Force Survey estimates.

Last month, the ONS said unemployment stood at 4.3% in the three months ended July.

"Changes to the way the numbers are crunched aside, figures out this morning from the ONS show a deteriorating picture in the UK jobs market. This should, in theory, reduce the pressure on the Bank of England to push interest rates higher," said AJ Bell's Russ Mould.

"However, put simply, there are fewer people in work. The number of those in the troubling 'economically inactive' bracket has risen and, as we learnt last week, vacancy numbers have fallen again."

Also adding weight to the notion that the UK economy is cooling was the latest purchasing managers' index data.

The S&P Global/CIPS flash UK flash composite PMI rose slightly to 48.6 points in October from 48.5 in September. However, sitting below the 50.0 no change mark, the latest reading suggests the private sector remains in decline.

Looking ahead, S&P said concerns about the outlook for business and consumer spending meant that output growth expectations for the year ahead were the lowest since December 2022. It added that lower confidence also contributed to hiring freezes and falling workforce levels in October.

ING analyst James Smith commented: "We've had various bits of UK data today, but none of it is likely to move the dial for next week's Bank of England meeting where we – and the market – expect another pause."

The Bank of England will makes its next interest rate decision on November 2.

In September, the BoE maintained its bank rate at 5.25%, a more than 15-year high, in what was somewhat of a surprise move. It ended a streak of 14 successive hikes since December 2021.

The pound was quoted at USD1.2231 at midday on Tuesday in London, higher compared to USD1.2226 at the equities close on Monday. The euro stood at USD1.0635, lower against USD1.0639. Against the yen, the dollar was trading at JPY149.71, down compared to JPY149.79.

In the FTSE 100, Barclays lost 5.2%.

For the quarter that ended September 30, total income rose 5.2% on-year to GBP6.26 billion from GBP5.95 billion a year prior. However, it fell short of the GBP6.29 billion company-compiled consensus.

Barclays reported pretax profit of GBP1.89 billion for the quarter, down 4.3% on-year from GBP1.97 billion. However, it beat the company-compiled market consensus of GBP1.77 billion.

Looking ahead, Barclays backed its annual return on tangible equity forecast of "greater than 10%".

However, it trimmed UK net interest margin guidance. It now expects this to land around "3.05% to 3.10% in 2023".

"Guidance is sensitive to the level and mix of deposit balances and further changes in expectations for interest rates," it added.

On the back of the results, rival banks NatWest and Lloyds Banking were down 1.9% and 1.4%, respectively.

Bunzl shed 4.5%, meanwhile.

The distribution firm said revenue in the third-quarter ended September declined by 4.8% at constant exchange rates.

Bunzl put the revenue fall to a "continued decline in Covid-19 related product sales" and a lesser benefit from inflation. It also said there was a "wider post-pandemic related normalisation trends which drove expected volume weakness".

In the FTSE 250 index, CAB Payments shares plunged 73%. It was by far the worst performer on the index.

The cross-border payments and foreign exchange firm now expects annual revenue to be "at least" 20% ahead of the GBP109.4 million achieved in 2022. This is about 17% below its previous guidance, however. It expects the "majority of any revenue impact" will hit its bottom line, but will be seeking opportunities to lessen the impact on its bottom line.

"In recent weeks, the company has seen a number of changes to the market conditions in some of its key currency corridors, on top of the ongoing uncertainties surrounding the naira, which are impacting both volumes and margins; most notably, the Central African franc and West African franc . At the present time, these market conditions are compressing margins and reducing trading volume," CAB explained.

"These challenges are recent but is unclear when and to what extent conditions in these markets may improve," it warned.

Softcat shares dropped 14%.

The IT infrastructure and services provider reported a pretax profit of GBP141.9 million for the year ended July 31, up 4.2% from GBP136.1 million the year prior.

Revenue dropped 8.6% to GBP985.3 million from GBP1.08 billion. The decline was primarily driven by its Hardware segment, which saw revenue drop 24% year-on-year to GBP610.6 million.

Among the best-performing mid-caps, Plus500 added 6.8%.

The London-based financial technology company said it performed well during the third quarter, despite lower volatility and trading volumes.

It added that its annual results should meet analyst expectations.

Chief Executive Officer David Zruia said: "I am pleased to announce that Plus500 continued to perform well during the third quarter of 2023, driven by our focus on higher-value customer acquisition, geographic expansion and product innovation, despite lower volatility and trading volumes across the global financial markets."

Elsewhere in London, ScS shares soared 60% to 271.08 pence.

The sofa seller agreed to GBP99.4 million takeover offer from Italian peer Poltronesofa. ScS shareholders will receive 270p in cash, plus a 10p final dividend, for 280p in total.

"This cash offer, which the ScS board unanimously recommends, comes at an attractive valuation," commented ScS Non-Executive Chair Alan Smith.

Among London's small-caps, shares in DFS rose 7.2% in the wake of the takeover offer.

Stocks in New York were called higher. The Dow Jones Industrial Average was called up 0.3%, the S&P 500 index up 0.5%, and the Nasdaq Composite up 0.6%.

Brent oil was quoted at USD89.09 a barrel at midday in London on Tuesday, down from USD91.05 late Monday. Gold was quoted at USD1,964.72 an ounce, down against USD1,977.60.

Still to come on Tuesday's economic calendar is the US flash manufacturing and services PMI, which is out at 1445 BST.

By Sophie Rose, Alliance News reporter

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