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LONDON MARKET OPEN: US bank stock sell-off weighs on global equities

10th Mar 2023 09:00

(Alliance News) - Stock prices in London fell sharply at Friday's open, as a positive UK GDP print was overshadowed by concerns for the health of the global financial sector.

The FTSE 100 index opened down 128.54 points, 1.6%, at 7,751.44. The FTSE 250 was down 359.28 points, 1.8%, at 19,333.62 and the AIM All-Share was down 9.28 points, 1.1%, at 840.39.

The Cboe UK 100 was down 1.7% at 775.80, the Cboe UK 250 was down 1.8% at 16,972.24, and the Cboe Small Companies fell 0.6% at 13,703.72.

The UK economy grew slightly faster than expected at the beginning of 2023, according to the Office for National Statistics.

Gross domestic product grew by 0.3% in January, according to an ONS estimate, having shrunk by 0.5% in December. FXStreet-cited market consensus had expected a 0.1% rise in GDP. The growth was led by the services sector, offsetting declines in construction and production output.

"For now, it looks like the UK is on track to avoid a recession...When combined with the government's unexpected budget surplus in January, the data is well timed for the Treasury and could give Chancellor Jeremy Hunt some wiggle room when he delivers the budget on Wednesday [next week]," said interactive investor's Victoria Scholar.

However, the news was not enough to lift investor sentiment on Friday. The market mood had soured overnight following a sell-off in US banking stocks.

The four largest US banks saw their stock prices lose a cumulative USD52 billion on Thursday, as the financial sector digested trouble at SVB Financial, a major Silicon Valley-focused lender.

Shares of SVB Financial plummeted 60% on Thursday and continued to fall in after-hours trading, following an announcement the prior evening that it had lost USD1.8 billion in sales of securities to raise funds.

That massive drop rippled through the financial sector, with biggest US bank JPMorgan Chase ending the day down 5.4%. Bank of America and Wells Fargo both fell 6.2%, while Citigroup lost 4.1%.

"The sharp rise in interest rates and bond yields that we have seen over the past year was always going to expose some issues in financial services. For the most part, banks are well regulated and managed these days, but clearly not all of them. SVB clearly was in the latter camp," Liberum's Gary Greenwood commented.

Wall Street ended deep in the red amid the banking stock sell-off. The Dow Jones Industrial Average closed down 1.7%, the S&P 500 1.9% and the Nasdaq Composite 2.1%.

"While there may be more examples like [SVB] to come, we don't see this as a 'Lehman's moment' for the industry, and we really don't see any of the big UK banks getting themselves into this kind of trouble," Liberum's Greenwood continued.

Nevertheless, London's banking stocks suffered from negative read-across.

Barclays was down 6.1%, Lloyds down 4.5%, Standard Chartered down 4.2% and HSBC down 4.4%. Asset manager Schroders fell 3.8% as Credit Suisse cut the stock to 'neutral' from 'outperform'.

In European equities, the CAC 40 in Paris and the DAX 40 in Frankfurt fell 1.7%, with banking stocks such as Societe Generale down by 5.5%, and Deutsche Bank down 7.2%,

Trading in Asia on Friday was similarly negative, as the S&P/ASX 200 in Sydney closed down 2.1%.

In China, the Shanghai Composite fell 1.4%, while the Hang Seng index in Hong Kong lost 3.0%.

Xi Jinping was handed a third term as Chinese president on Friday, capping a rise that has seen him become the country's most powerful leader in generations. The appointment by China's rubber-stamp parliament comes after Xi locked in another five years as head of the Chinese Communist Party in October.

The Nikkei 225 index in Tokyo closed down 1.7%, after the Bank of Japan left its ultra-easy monetary policy unchanged in Governor Haruhiko Kuroda's last policy-setting meeting.

The central bank left its longstanding negative interest rate in place and made no further adjustments to the band in which rates for 10-year government bonds fluctuate. Economics professor Kazuo Ueda will become the bank's next governor in April.

Against the yen, the dollar was quoted at JPY136.42 early Friday, up versus JPY136.29 at the London equities close on Thursday. Sterling was quoted at USD1.1935, up from USD1.1926. The euro traded at USD1.0582, flat on USD1.0580.

In London's FTSE 100, Berkeley Group was down 0.6%.

The Surrey-based housebuilder said its performance of around 25% lower sales from November 1 to February 28, when compared to May 1 to September 30, was "resilient" given the market volatility since the end of September.

Berkeley added that this reflected the underlying demand for homes in London and the South East.

Berkeley reaffirmed a target of pretax profit of GBP600 million for financial 2023 ending April 30, with at least GBP1.05 billion in aggregate to follow over the next two years. Pretax profit in financial 2022 was GBP551.5 million, up 6.4% from GBP518.1 million the year prior.

In the FTSE 250, FirstGroup was up 0.4%, as it raised its expectations for its financial year, which ends March 25.

The transport provider said this was due to an improved performance driven by higher volumes of passengers in its second half. "The increase in demand has partially resulted from the GBP2 bus fare cap scheme introduced in England in January," it noted, as well as Scottish funding for free bus travel for under-22s. Driver resource pressures also eased in certain locations, following a recruitment drive and high staff retention.

FirstGroup now expects adjusted operating profit and adjusted attributable profit for financial 2023 to be ahead of its previous expectations.

Among London small-caps, Robert Walters rose 3.0%.

The recruitment group announced a year of double-digit percentage growth, with its eponymous chief executive set to depart after 38 years leading the firm.

Revenue rose 13% to GBP1.10 billion in 2022 from GBP970.7 million in 2021, while pretax profit increased 11% to GBP55.6 million from GBP50.2 million. It proposed a final dividend of 17.0 pence, up from 15.0p.

CEO Robert Walters will retire at the firm's annual general meeting in April, passing the reins to Toby Fowlston. Fowlston joined the group back in 1999, and most recently served as CEO for its global recruitment brands of Robert Walters and Walters People.

"Having worked closely with Toby over the last few years in particular, I am confident that the group is in safe hands and will continue to go from strength-to-strength in the years to come," Walters said.

On AIM, Aferian fell 36%.

The business-to-business video streaming company said challenges from its Amino division are likely to mean its annual revenue and adjusted earnings before interest, tax, depreciation and amortisation are "substantially below" previous expectations.

Amino connects Pay TV to streaming service. Aferian said Amino some customers have delayed their orders of new streaming devices, to run down their existing inventory.

"This trend has continued longer than we expected and device sales in the first half have been materially lower than anticipated," Aferian explained.

Gold was quoted at USD1,833.22 an ounce early Friday, up from USD1,827.92 on Thursday. Brent oil fetched USD80.85 a barrel, down from USD83.15.

By Elizabeth Winter, Alliance News senior markets reporter

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