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LONDON MARKET MIDDAY: US debt deadlock, robust UK inflation hit stocks

24th May 2023 12:14

(Alliance News) - Stock prices in London were lower at midday on Wednesday, as the deadline to come to a US debt ceiling agreement creeps closer, leaving investors fearing for the worst.

The tetchy mood in markets hurt the pound, which failed to get a boost from a still red-hot, though tamer, UK inflation reading.

The FTSE 100 index tumbled 139.06 points, 1.8%, at 7,623.89 at midday. The FTSE 250 was down 267.39 points, 1.4%, at 18,940.92, and the AIM All-Share was down 6.76 points, 0.8%, at 801.28.

The Cboe UK 100 was down 1.8% at 761.81, the Cboe UK 250 was down 1.4% at 16,519.96, and the Cboe Small Companies was flat at 13,578.65.

In European equities on Wednesday, the CAC 40 in Paris slumped 1.8%, while the DAX 40 in Frankfurt dropped 1.7%.

Over in the US, stocks are called to open lower amid the debt ceiling crisis. Both the Dow Jones Industrial Average and S&P 500 are called down 0.4%, and the Nasdaq Composite down 0.3%.

"With the 'early June' debt limit deadline fast approaching, investors are now forced to hedge beyond the at-risk dates. Indeed, traders are starting to get concerned that things could go wrong," SPI Asset Management analyst Stephen Innes commented.

International Monetary Fund chief Kristalina Georgieva said Wednesday that protracted domestic wrangling over the US debt ceiling was "unnecessary" for the world economy, but should be settled.

The White House said some progress was made in the latest round of talks with Republican negotiators to avert a catastrophic US debt default before a June 1 deadline.

"We are seeing movement", White House Press Secretary Karine Jean-Pierre told reporters Tuesday afternoon, adding: "Both sides have to understand that they're not going to get everything that they want."

However, Republican Representative Ralph Norman warned that House Speaker Kevin McCarthy had said the two sides were "not anywhere near close" to an agreement.

The pound was quoted at USD1.2369 at midday on Wednesday in London, lower compared to USD1.2420 at the equities close on Tuesday. The euro stood at USD1.0752, down against USD1.0774. Against the yen, the dollar was trading at JPY138.51, flat compared to JPY138.52.

UK Chancellor Jeremy Hunt appeared to rule out tax cuts in the near future as he stressed the need to tackle inflation.

His comments came as the latest figures from the Office for National Statistics showed the UK's annual inflation rate ebbed to 8.7% in April from 10.1% in March.

The easing in inflation has been welcomed, but concerns remain about rising food prices.

"The out-turn for CPI inflation in April is...well ahead of the Bank of England's forecast for 8.4%," noted analysts at broker Davy.

"It also follows the news that private sector regular pay growth was still 7% in March. The Monetary Policy Committee will have to conclude that evidence of persistent inflationary pressure, which it had warned would justify further rate hikes, is materialising."

UK house prices increased at a slower rate than previously in March, according to figures from the Office for National Statistics.

The ONS said that the average UK house price increased by 4.1% in the 12 months to March 2023. Growth faded from the 5.8% annual increase recorded for February.

The reading was weaker than FXStreet-cited market consensus of a 7.6% climb.

The average UK house price was GBP285,000 in March 2023, which is GBP11,000 higher than 12 months ago, but GBP8,000 below the recent peak in November 2022.

Shares in London-listed housebuilders were on the back foot. Taylor Wimpey was down 5.0%, Persimmon lost 5.1%, and Barratt Developments fell 4.7%.

Intertek was up 3.6% after it affirmed its annual outlook.

The London-based quality assurance service provider reported revenue of GBP1.06 billion in the first four months of 2023, up 11% from GBP951.3 million a year earlier. At constant currency, revenue was 7.6% higher.

Intertek said the re-opening of the Chinese economy in January boosted manufacturing and trading activities, and "was welcomed by all of our clients".

Its China business delivered flat revenue growth between January and February, but this improved between March and April to double-digit like-for-like growth. Intertek said its China business delivered like-for-like revenue growth of 7.5% at constant currency over the full four-month period.

Intertek confirmed its full-year outlook, saying it expects mid-single digit like-for-like revenue growth at constant currency.

In the FTSE 250, Marks & Spencer jumped 11%.

In the year to April 1, the London-based clothing, homewares and food retailer said revenue rose 9.6% to GBP11.93 billion from GBP10.89 billion.

The growth was "driven by a more confident approach to buying and a focus on the modern mainstream customer, which is starting to drive better style perceptions", M&S said.

Pretax profit jumped 21% to GBP475.7 million from GBP391.7 million.

The retailer declared no dividends, but said it plans to resume payouts at its interim results. It had suspended dividends at the start of the pandemic, in order to protect its balance sheet.

"It feels like the longest turnaround in corporate history, but there are finally signs that Marks & Spencer has struck the right formula. Rather than the usual story of strong food sales making up for weakness in clothing, both parts of the business are now doing well," said Russ Mould, investment director at AJ Bell.

LondonMetric shares fell 5.3%, whilst CT Property Trust surged 25%.

Property company LondonMetric has agreed to buy CT Property in an all-share deal worth GBP198.6 million. LondonMetric will issue 0.455 of a LondonMetric share for each CTPT share, giving CTPT shareholders a 9.7% stake in LondonMetric.

LondonMetric also reported net rental income in the financial year that ended March 31 rose to GBP144.1 million from GBP130.0 million a year earlier. It swung to a loss per share of 51.8p from earnings per share of 78.8p. The company declared a dividend of 9.50p, up from 9.25p.

Chief Executive Andrew Jones said: "The last year has seen a weaker economic backdrop, elevated inflation and a significantly higher interest rate environment. Not surprisingly, this has led to a recalibration of real estate values and conditions that have undoubtedly impacted our approach to leverage and interest rate exposure."

Brent oil was quoted at USD77.76 a barrel at midday in London on Wednesday, up from USD77.00 late Tuesday. Gold was quoted at USD1,975.44 an ounce, up against USD1,965.99.

Still to come on Wednesday, the US Federal Open Market Committee meeting minutes will released at 1900 BST.

By Sophie Rose, Alliance News reporter

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