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LONDON MARKET OPEN: Stocks slump after Fitch cuts US credit rating

2nd Aug 2023 08:49

(Alliance News) - Stock prices in London opened lower on Wednesday, following the same pattern as Asian markets which were sharply in the red.

The mood was low across the globe thanks to Fitch's credit downgrade for the world's largest economy.

The FTSE 100 index opened down 62.05 points, 0.8%, at 7,604.22. The FTSE 250 was down 124.34 points, 0.7%, at 18,941.32, and the AIM All-Share was down 1.65 points, 0.2%, at 762.98.

The Cboe UK 100 was down 0.8% at 758.24, the Cboe UK 250 was down 0.6% at 16,611.11, and the Cboe Small Companies was down 0.2% at 13,843.19.

In Asia on Wednesday, the Nikkei 225 index in Tokyo closed down 2.3%. In China, the Shanghai Composite closed down 0.9%, while the Hang Seng index in Hong Kong was down 2.3% in late dealings. The S&P/ASX 200 in Sydney closed down 1.3%

Fitch downgraded the US' top-notch credit rating by a step on Tuesday, citing a growing federal debt burden and an "erosion of governance" that has manifested in the recent debt limit standoffs.

The decision to downgrade the US from AAA to AA+ sparked a fiery rebuttal from the White House, with press secretary Karine Jean-Pierre saying the move "defies reality". Treasury Secretary Janet Yellen said in a separate statement that she "strongly" disagreed with Fitch as well, calling the change "arbitrary and based on outdated data".

It is the first such downgrade by a major ratings company in more than a decade. A debt ceiling impasse in 2011 saw S&P lower Washington's AAA rating, drawing bipartisan outrage.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said: "Fitch highlighted concerns over worsening fiscal conditions over the coming three years, but also brought questions of governance into the spotlight. The last-minute saves performed by Washington aren't the kind of actions held in high esteem by rating agencies, but the lack of movement in US Treasury Bonds and the dollar index suggests the market has already largely quantified and assessed the damage done from recent fall outs. "

The dollar was weaker in early exchanges in Europe.

The pound was quoted at USD1.2773 early on Wednesday in London, higher compared to USD1.2742 at the equities close on Tuesday. The euro stood at USD1.0990, up against USD1.0961. Against the yen, the dollar was trading at JPY142.72, lower compared to JPY143.41.

Wall Street ended mixed on Tuesday. The Dow Jones Industrial Average closed up 0.2% whilst the S&P 500 ended down 0.3%, and the Nasdaq Composite fell 0.4%.

In the FTSE 100, ConvaTec was up 4.1%.

ConvaTec reported that revenue inched up 1.1% to USD1.06 billion in the first half of 2023, from USD1.04 billion. Pretax profit surged to USD76.0 million from USD46.1 million.

It declared a dividend of 1.769 US cents, up 3.0% versus 1.717 cents a year ago.

On the back of this, ConvaTec now expects revenue growth for the full year to be between 6.0% to 7.5%, up from 5.0% to 6.5% previously.

BAE Systems jumped 4.8%, after it also raised its annual guidance.

The defence, aerospace and security company reported a pretax profit of GBP1.20 billion in the six months ended June 30, up 54% from GBP779 million the year prior. Revenue from continuing operations totalled GBP11.0 billion in the half, up 13% from GBP9.74 billion the previous year.

Looking forward, BAE Systems said the strong set of half-year results gave it the confidence to increase its annual guidance for sales and underlying earnings before interest and tax.

The company now expects sales growth of between 5% and 7% in 2023, up from previous growth guidance of 3% to 5%, and underlying Ebit growth between 6% and 8%, up from previous guidance of 4% to 6%.

BAE Systems declared an interim dividend of 11.5 pence. This represents an increase of 11% against the previous year.

The company also declared it has approved a further share buyback programme of up to GBP1.5 billion. This is expected to roll-on after the completion of BAE Systems' current buyback programme and is expected to complete within three years.

In the FTSE 250, Ibstock rose 6.6%.

The Leicestershire, England-based maker of clay and concrete building products reported that revenue in the six months ended June 30 fell by 14% to GBP223 million from GBP259 million a year ago. Pretax profit fell by 42% to GBP30 million from GBP51 million.

Despite being lower year-on-year, Ibstock said first half year with performance marginally ahead of the board's expectations. It also upped its interim dividend to 3.p from 3.3p a year ago, which it said reflects confidence going ahead.

Low-budget airlines Ryanair and Wizz Air reported July numbers. On the back of this, Ryanair was down 0.3%, whilst Wizz Air shed 1.9%.

Dublin-based Ryanair said that it carried 18.7 million customers in July, up 11% year-on-year from 16.8 million. The load factor, however, was unchanged at 96%.

On a rolling 12-month basis, Ryanair carried 175.3 million customers, up 23% from 142.0 million a year ago. The load factor improved to 94% from 87%.

It noted that it operated over 102,000 flights in July, however over 800 flights were cancelled due to third-party strikes.

Wizz Air said it carried 6.0 million passengers in July, representing a 27% increase compared to July 2022, at a load factor of 95% up from 90% a year ago.

On a rolling 12 months basis, Budapest-based Wizz Air carried 55.4 million passengers, up 45% from 38.1 million, at a load factor of 90%, up from 83%.

In European equities on Wednesday, the CAC 40 in Paris was down 1.0%, while the DAX 40 in Frankfurt was down 1.3%.

In Frankfurt, medical technology group Siemens Healthineers lost 6.3%.

Revenue in the three months to the end of June rose by 0.3% year-on-year to EUR5.20 billion from EUR5.19 billion, the company said. On a comparable basis, which excludes exchange rate and portfolio effects, the increase was 3.6%.

Adjusted earnings before interest and taxes fell by 3.3% to EUR740 million from EUR765 million and were below analysts' expectations. This was mainly due to the continuing decline in business with rapid antigen tests for the detection of Covid-19 as well as lower expenses for performance-based income components in the previous year.

Brent oil was quoted at USD85.46 a barrel early in London on Wednesday, up from USD84.79 late Tuesday. Gold was quoted at USD1,949.32 an ounce, higher against USD1,942.88.

Wednesday's economic calendar has the US ADP jobs report at 1315 BST.

By Sophie Rose, Alliance News reporter

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