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LONDON MARKET OPEN: Stocks fall; oil prices stoke inflation fears

5th Sep 2023 08:51

(Alliance News) - Stock prices in London opened lower on Tuesday, with the FTSE 100 index weighed down by retailers and stocks with Chinese exposure.

The FTSE 100 index opened down 58.72 points, 0.8%, at 7,394.04. The FTSE 250 was down 116.29 points, 0.6%, at 18,407.85, and the AIM All-Share was down 0.92 of a point, 0.1%, at 739.67.

The Cboe UK 100 was down 0.8% at 735.98, the Cboe UK 250 was down 0.7% at 16,057.59, and the Cboe Small Companies was up 0.1% at 13,442.56.

In European equities on Tuesday, the CAC 40 in Paris was down 1.0%, while the DAX 40 in Frankfurt was down 0.6%.

US markets were closed for Labour Day on Monday.

In London, Ashtead Group shares dropped 5.4% despite the firm reporting a strong start to its financial year, as it cut its guidance for UK rental revenue growth.

In the first quarter ended July 31, the industrial equipment rental company said revenue rose 19% year-on-year to USD2.70 billion from USD2.26 billion, as pretax profit climbed 11% to USD585 million from USD527 million. "Our business has clear momentum with robust end markets in North America, which are supported in the US by the increasing number of mega projects and recent legislative acts," said Chief Executive Brendan Horgan.

Despite "softening" conditions in UK markets, Ashtead expects its overall performance to be in line with its expectations. However, it cut its rental revenue guidance in the UK to a range of 6% to 9% from 10% to 13% previously.

Despite a positive retail sales print, retailers in the FTSE 100 were struggling in early trade.

UK retail sales bounced back last month following a poor performance in July, according to the latest British Retail Consortium and KPMG sales monitor.

Total UK retail sales increased 4.1% on an annual basis in August, picking up sharply from the 1.8% rise recorded in July.

Helen Dickinson, chief executive of the BRC, cautioned that sales growth may fall in the coming months, even if volume growth does not, as the rate of price rises falls amid easing inflation.

"Furthermore, high interest rates and high winter energy bills will put pressure on many households to spend cautiously. Retailers are combatting this through a clear focus on great value for consumers, expanding budget ranges, and finding ways to cut costs where possible," Dickinson said.

B&M dropped 4.5% as JPMorgan cut the stock to 'underweight' from 'overweight', while Tesco dropped 2.4% as the US bank cut the stock to 'neutral' from 'overweight'.

Meanwhile, Sainsbury's fell 2.2%, JD Sports shed 1.7% and Ocado fell 1.6%.

Rising energy prices are also weighing on sentiment towards consumer-facing companies. Higher energy costs are stoking fears of renewed inflationary pressures within the global economy, which will further squeeze household budgets and potentially lead to higher peaks for interest rates.

Brent oil was trading at USD88.59 a barrel early Tuesday, lower than USD89.01 late Monday. However, it has risen by more than 5% over the past week.

"The recent upward trajectory in oil prices has laid the groundwork for potentially elevated [consumer price index] figures for August. These impending increases in oil prices present a fresh challenge for central banks as they continue their diligent efforts to bring inflation levels back in line with their desired targets," said SPI Asset Management's Stephen Innes.

The dollar was stronger in early exchanges in Europe.

Sterling was quoted at USD1.2577 early Tuesday, lower than USD1.2620 at the London equities close on Monday. The euro traded at USD1.0762, lower than USD1.0791. Against the yen, the dollar was quoted at JPY146.98, up versus JPY146.46.

In Asia on Tuesday, investors were digesting the latest services purchasing managers indices. The Nikkei 225 index in Tokyo closed up 0.3%. Japan's service sector growth accelerated to a three-month high, with the au Jibun Bank services PMI rising to 54.3 points in August from 53.8 in July.

In China, the Caixin PMI revealed a slowdown in service sector growth, falling to 51.8 in August from 54.1 in July. The survey said this was partly due to weaker foreign demand for Chinese services, with new export business seeing the first fall since December.

Meanwhile, struggling Chinese developer Country Garden has made multi-million-dollar interest payments on two outstanding loans, reports said Tuesday, narrowly avoiding what would have been its first default.

The firm in August said it was unable to make the payments, worth USD22.5 million, and was given a 30-day grace period. That grace period was due to end either Tuesday or Wednesday, but the company paid the interest, Bloomberg News reported citing sources.

The Shanghai Composite fell 0.7%, while the Hang Seng index in Hong Kong was down 2.0% in late dealings.

The less positive outlook for China was weighing on London listings with exposure to the country. Asia-focused insurer Prudential fell 1.5%, luxury fashion firm Burberry dropped 1.5%, and Anglo American shed 1.4%.

The S&P/ASX 200 in Sydney closed up 0.1%, after the country's central bank kept interest rates unchanged, as was widely expected.

Gold was quoted at USD1,937.12 an ounce early Tuesday, down from USD1,938.92 late Monday.

The morning's economic calendar has services PMIs from the UK, Germany, and the EU.

By Elizabeth Winter, Alliance News senior markets reporter

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