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LONDON MARKET MIDDAY: Stocks subdued; US debt ceiling concern weighs

16th May 2023 12:14

(Alliance News) - Stock prices in London were directionless at midday on Tuesday as markets digested the latest UK unemployment data and nervously eyed incoming US debt ceiling crunch talks.

The FTSE 100 index was up 5.94 points, or 0.1%, at 7,783.64. The FTSE 250 was up just 4.46 points at 19,263.42, while the AIM All-Share was 0.57 of a point, or 0.1%, at 814.28.

The Cboe UK 100 was up 0.1% at 778.13, the Cboe UK 250 down 0.1% at 16,818.13, and the Cboe Small Companies was up 0.1% at 13,605.09.

UK unemployment ticked up in the three months to March, figures from the Office for National Statistics showed.

The UK jobless rate unexpectedly edged up to 3.9% for the three months to March. Market consensus, as cited by FXStreet, had expected it to remain unchanged from 3.8% in the three months to February.

In the three months to March, annual growth in average total pay, including bonuses, slowed to 5.8% from 5.9% in the previous three-month period.

It still topped market consensus estimates of 5.1%, however.

James Smith, developed markets economist at ING, said that momentum in UK wage growth appears to have eased since 2022. Smith added that this, together with signs that the "heat" is coming out of the jobs market, means that there is nothing in the latest report that "screams" a need for the Bank of England to keeping hiking rates.

"Today's report was the first big data test ahead of the June meeting, and there's nothing here that screams a need for further hikes. Our base case is a pause next month, though by its own admission, the Bank of England is data-dependent now," he said.

The pound was quoted at USD1.2534 at midday on Tuesday in London, higher compared to USD1.2515 at the close on Monday.

In London, Vodafone was the worst blue-chip performer at midday, down 5.8%, as it reported its annual performance slowed in line with its expectations.

In the financial year ended on March 31, the telecommunications company said revenue was virtually flat year-on-year, up just 0.3% to EUR45.71 billion from EUR45.58 billion the year before. This is compared with a maximum expected revenue of EUR45.86 billion.

Pretax profit jumped to EUR12.82 billion from EUR4.10 billion, largely due to a gain on the disposal of Vantage Towers.

The firm also announced it would cut 11,000 jobs in the next three years as part of its "action plan" to focus on "customers, simplicity and growth".

DCC was one of the FTSE 100's top performers, climbing 1.1%.

The sales, marketing, and support services company reported revenue of GBP22.21 billion for year ended March 31, up 25% from GBP17.73 billion the year before.

This is higher than the expected revenue of GBP21.24 billion. The company said the increase in revenue was driven by higher energy commodity prices that prevailed during the year.

Pretax profit rose 6.4% to GBP431.6 million from GBP405.7 million.

Chief Executive Officer Donal Murphy said: "DCC delivered strong growth in a volatile macro environment, demonstrating the resilience of our diverse business and the commitment of our teams throughout the group."

In the FTSE 250, Genus dropped 3.6% after it said expects its Chinese division to swing to a loss in the second half of the year, amid uncertainty over when porcine markets will recover.

The animal genetics company said it saw strong trading in its porcine business in the first four months of the second half of the year ending June 30, apart from in China where market conditions were "very challenging".

Genus explained the Chinese porcine market has been weak since December last year, as a result of widespread African Swine Fever.

Consequently, Genus expects a small loss in its Chinese business in the second half of the year, swinging from a profit of GBP8.8 million a year ago.

Elsewhere in London, On the Beach plunged 14% after the beach holiday retailer's interim results fall short of market expectations, despite improving from the previous year.

On the Beach reported that, in the six months ended March 31, group revenue rose 38% year-on-year to GBP73.2 million from GBP52.9 million, as its pretax loss narrowed to GBP6.0 million from GBP7.0 million.

The profit figure "disappoints" according to Davy Research, who said the firm has focused on growth rather than profitability.

On AIM, Rurelec surged 40% after it announced an agreement to sell its Argentinian interests to Verafont, Basic Energy and Esteban Reynal for up to USD5 million.

The South America-focused power producer said the sale includes its interest in an income-producing 138 megawatt combined cycle powerplant known as Central Termica Patagonia, located in the coastal city of Comodoro Rivadavia, Argentina.

In European equities on Tuesday, the CAC 40 in Paris was flat, while the DAX 40 in Frankfurt was 0.1% higher.

Fresh data revealed some positive signs for the eurozone area's economy, with GDP growth and employment ticking up.

According to Eurostat, seasonally adjusted gross domestic product increased by 0.1% in the eurozone during the first quarter of 2023 from the last quarter of 2022.

In the fourth quarter of 2022, GDP had been stable compared to the third quarter. In the third quarter, it had been up 0.4% from the second.

The number of employed persons increased by 0.6% in both the eurozone and the EU in the first quarter of 2023, compared with the previous quarter.

In the fourth quarter of 2022, employment had increased by 0.3% in both the eurozone and the EU.

The euro stood at USD1.0893 midday Tuesday, higher against USD1.0871 at the equities close on Monday.

Stocks in New York were called largely lower as investor look ahead to key US debt ceiling talks.

The Dow Jones Industrial Average was called down 0.3%, the S&P 500 index down 0.1%, and the Nasdaq Composite was seen flat.

US President Joe Biden will reconvene crunch debt talks with senior Republican leaders including House Speaker Kevin McCarthy in another attempt to avert a costly US default.

The talks have a lot of ground to cover, with the two parties still sharply divided on the terms under which they will agree to lift the government's borrowing cap to pay for existing spending commitments.

On Monday, US Treasury Secretary Janet Yellen said that new data reinforced her previous warning of a possible US debt default on June 1 if Congress fails to raise the ceiling on borrowing.

The dollar struggled as the debt ceiling remained unresolved. Against the yen, the dollar was trading at JPY135.77, lower compared to JPY136.07.

Brent oil was quoted at USD75.21 a barrel at midday in London on Tuesday, down slightly from USD75.26 late Monday. Gold was quoted at USD2,007.88 an ounce, lower against USD2,015.35.

Still to come in Tuesday's economic calendar, US industrial production data will be released at 1415 BST.

By Heather Rydings, Alliance News senior economics reporter

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