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LONDON MARKET OPEN: Stocks drift up amid unease over US debt talks

16th May 2023 09:06

(Alliance News) - Stock prices in London edged into the green at Tuesday's open, but investors failed to muster much enthusiasm following weak Chinese economic data and fears of a US debt default.

The FTSE 100 index opened up 14.54 points, 0.2%, at 7,792.24. The FTSE 250 was 22.34 points, 0.1%, at 19,281.09, and the AIM All-Share was up 1.24 points, 0.2%, at 816.09.

The Cboe UK 100 was up 0.2% at 779.03, the Cboe UK 250 was up 0.2% at 16,853.50, and the Cboe Small Companies was flat at 13,626.93.

"China's pandemic snap back is losing elasticity, adding to worries about growth unravelling across the global economy. Concerns are also rising that not enough progress is being made to avoid a US default, which would send shockwaves through financial markets," said Susannah Streeter at Hargreaves Lansdown.

US President Joe Biden will reconvene crunch debt talks on Tuesday 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.

In the US on Monday, stock market sentiment was boosted by signs of progress in the debt negotiations over the weekend.

The Dow Jones Industrial Average closed up 0.1%, the S&P 500 index up 0.3% and the Nasdaq Composite up 0.7%.

In China, economic data came in weaker than expected, and share prices slipped. The Shanghai Composite closed down 0.6%, and the Hang Seng index in Hong Kong was down 0.4%.

The National Bureau of Statistics said industrial production grew 5.6% annually in April, faster than 3.9% in March. However, this was short of market consensus of 11% growth, as cited by FXStreet.

"The figures were already skewed due to the sharp shrinking in output this time last year due to rolling lockdowns. Textiles was a particular weak spot, contracting by 3% over the year to April," HL's Streeter noted.

"This appears to be another data indicator in a growing pile showing that cheaper Chinese garments don't have so much allure for consumers overseas squeezed by the cost-of-living crisis."

Retail sales also came in slightly below estimates, growing 18% annually in April, compared to the market consensus of 21%. The growth was stronger than the 11% annual rise seen the month before, however.

Tuesday's data adds to the weaker picture of China's economic recovery painted by reports last week, with lower-than-expected consumer inflation and slowing export growth.

"With the Chinese economy beginning to sag, the expectation is that more monetary stimulus in the form of tweaks to interest rate policy will be injected," Streeter continued.

Gold was quoted at USD2,006.94 an ounce early Tuesday, down from USD2,015.35 on Monday. Brent oil was trading at USD75.25 a barrel, unchanged from USD75.26.

In Tokyo, the Nikkei 225 stock index closed up 0.7%. The S&P/ASX 200 in Sydney closed down 0.5%.

In European equities, the CAC 40 index in Paris was down 0.2%, while the DAX 40 in Frankfurt was up 0.1%.

In the UK, unemployment unexpectedly ticked up in the three months to March, figures from the Office for National Statistics showed, while wage inflation proved stubborn.

The UK jobless rate 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. Excluding bonuses, average earnings rose 6.7%, faster than the 6.6% growth last month but below market consensus of 6.8%.

The Bank of England is likely to welcome the data, having been looking to see signs of loosening in the UK's tight labour market.

The pound was weaker in early exchanges in London.

Sterling was quoted at USD1.2489 early Tuesday, down from USD1.2515 at the London equities close on Monday.

The euro traded at USD1.0880, up from USD1.0871. Against the yen, the dollar was quoted at JPY135.81, down versus JPY136.07.

Vodafone was the worst performer, down 3.3%.

The Berkshire-based company said its annual performance slowed in line with its expectations. In the financial year to March 31, the telecoms provider said revenue was virtually flat year-on-year, up just 0.3% to EUR45.71 billion from EUR45.58 billion. Pretax profit jumped to EUR12.82 billion from EUR4.10 billion, largely due to a gain on the disposal of Vantage Towers in Germany.

The performance was "not good enough", according to Vodafone CEO Margherita Della Valle. "To consistently deliver, Vodafone must change," she said.

Vodafone announced an "action plan" to focus on "customers, simplicity and growth". The simplicity element of the plan will involve cutting 11,000 jobs in the next three years.

In financial 2024, Vodafone guides for adjusted earnings before interest, tax, depreciation and amortisation after leases to be broadly flat at around EUR13.3 billion, with adjusted free cash flow to be around EUR3.3 billion, down from GBP4.2 billion.

Imperial Brands shed 0.5%.

The cigarette maker's revenue edged up 0.3% to GBP15.41 billion from GBP15.36 billion a year before, as pretax profit rose to GBP1.44 billion from GBP1.26 billion. The performance came despite "temporarily increased volume declines" against a strong comparator, the firm said. "As expected, this reflects a return to pre-Covid buying patterns as well as our decision to exit Russia last year," said Stefan Bomhard.

Imperial backed its previous guidance for adjusted operating profit growth in its full year. It declared an interim dividend of 43.18p per share, up 1.5% from 42.54p a year before.

Rolls-Royce was the top performer, up 3.2% to 149.80p, as Jefferies raised the stock's price target to 210p from 170p.

In the FTSE 250, Asos jumped 6.2%, as fellow online fast-fashion retailer boohoo gained 13% on AIM after posting its annual results

boohoo said revenue fell 11% year-on-year to GBP1.77 billion from GBP1.98 billion, in the financial year to February 28. It swung to a pretax loss of GBP90.7 million from a profit of GBP7.8 million.

According to Shore Capital, the results beat consensus market expectations, and it raised the stock to 'buy' from 'hold'.

"Interestingly, the group reported a surprising net cash position of GBP6 million at the end of the period, contrary to the consensus expectation of net debt amounting to GBP60 million," Shore noted.

In financial 2023, boohoo expects revenue to be flat or to fall by as much as 5% from the prior year. The decline will be steeper in the first half, as the company increases its emphasis on making profitable sales. However, revenue growth is expected in the second half.

Shares in animal genetics firm Genus fell 10%, as it lowered annual profit guidance.

The company warned of challenging conditions in the Chinese porcine market, due to the high supply of slaughter pigs after widespread African Swine Fever.

"At these prices, producers are unprofitable, and many are not replacing and rebuilding their sow herds at the current time," Genus explained.

Consequently, its performance in China was weaker, and it now expects its Pig Improvement Co operations in China to be loss-making in the second half, compared to GBP8.8 million profit in the first half.

Still to come on Tuesday's economic calendar, there is a eurozone gross domestic product reading at 1000 BST.

By Elizabeth Winter, Alliance News senior markets reporter

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