European stocks gain as central bank seen ending its rate-hiking cycle / Image Source: Adobe

Stock prices in Europe ended lower on Tuesday, with fears of a French political impasse keeping optimism at bay, while a lack of an obvious dovish tilt to remarks by Federal Reserve Chair Jerome Powell meant there was no bullish impetus added to late dealings.

The central banker said he would like to see ‘more’ favourable data before the federal funds rate target range is cut. Whether that comes in the form of this week’s US inflation reading remains to be seen.

The FTSE 100 index closed down 53.68 points, 0.7%, at 8,139.81. The FTSE 250 fell 153.30 points, 0.7%, at 20,645.02, and the AIM All-Share fell 3.22 points, 0.4%, at 771.94.

The Cboe UK 100 ended down 0.7% at 810.80, the Cboe UK 250 fell 0.1% to 17,915.40, and the Cboe Small Companies closed down 0.3% at 17,063.84.

In European equities on Tuesday, the CAC 40 in Paris plunged 1.6%, while the DAX 40 in Frankfurt slumped 1.2%.

‘While the weekend saw the French likely avoid a far-right government, the country faces weeks of deadlock as Macron attempts to find a compromise with the left-wing alliance without ramping up spending,’ Scope Markets analyst Joshua Mahony commented.

In New York, the Dow Jones Industrial Average was down 0.2% at the time of the European close. The S&P 500 was up 0.1%, while the Nasdaq Composite traded 0.2% higher.

The US Federal Reserve is making ‘modest’ progress in its inflation fight, the head of the US central bank told lawmakers Tuesday, on the first of two days of testimony in Congress.

Speaking to lawmakers in Washington, Fed Chair Jerome Powell said most recent readings ‘have shown some modest further progress’ since the first quarter of the year.

‘More good data would strengthen our confidence that inflation is moving sustainably toward 2%,’ he added during his appearance in front of the Senate Banking Committee to discuss the Fed’s semi-annual monetary policy report.

The pound was quoted at $1.2781 late Tuesday afternoon in London, lower compared to $1.2829 at the equities close on Monday. The euro stood at $1.0810, down against $1.0833. Against the yen, the dollar was trading at JP¥161.46, higher compared to JP¥160.71.

Capital Economics analyst Stephen Brown commented: ‘Fed Chair Jerome Powell’s opening statement for his congressional testimony today offers few clues about the potential timing of interest rate cuts, with the key line that the Fed is still looking for ’more good data’ to strengthen its confidence that inflation will return to target. That said, the neutral tone of the opening statement seems at odds with the softer tone of the recent activity data, so our sense is that a September interest rate cut remains very much in play.’

BP shares fell 4.3% as its second-quarter outlook disappointed. BP said it expects second-quarter results to be hit by ‘post tax asset impairments and one-off contract provisions of between $1 billion and $2 billion’.

This includes the impact of the scaling back of refining operations at the Gelsenkirchen refinery in Germany from 2025, due to high costs and declining demand for fuels.

In the customers segment, compared to the prior quarter, BP forecast stronger fuels margins and convenience store performance, and seasonally higher volumes.

But in the products unit, significantly lower realized refining margins, are expected to have an adverse impact in the range of $500 million to $700 million.

Also on the decline again was Burberry, giving back another 4.5%, meaning that the stock has now suffered a month-to-date fall. The luxury retailer has endured losing months every month this year, slumping around 40% since the start of 2024. By market capitalisation, it is now the smallest FTSE 100 stock.

Water utilities rose, shaking off woes at Thames Water. Severn Trent added 2.5% and United Utilities rose 1.1%.

Thames Water has warned that it will run out of money by the end of next May, as the heavily indebted company intensifies efforts to secure fresh funding.

Britain’s biggest water firm, which is creaking under a debt pile of more than £15 billion, said on Tuesday that it had £1.8 billion of cash reserves at the end of June, a fall from £2.4 billion three months previously.

Thames Water’s financial update will be followed on Thursday by a draft verdict from Ofwat on water companies’ five-year spending plans and bill increases to 2030.

PageGroup lost 4.4%, after it warned that full-year operating profit would be below previous guidance, reflecting soft trading in the second quarter.

The Weybridge, Surrey-based international recruiter now expects full year 2024 operating profit to be in the region of £60 million. In April, PageGroup lowered its forecast to £90 million from £101 million previously.

Chief Executive Nicholas Kirk said: ‘We continued to see challenging market conditions throughout the group in [the second quarter] and we experienced a softening in activity levels through the quarter, particularly in terms of new jobs registered and number of interviews.’

Peer Hays dropped 6.0%.

Elsewhere in London, Rosebank Industries said it expects to start trading on the AIM market on Thursday, with plans for industrial turnarounds in the mould of Melrose Industries.

Rosebank said it successfully raised £50 million from placing 20.0 million new shares at 250 pence each. The amount raised will be Rosebank’s market capitalisation when it starts trading on Thursday.

Rosebank aims to buy industrial businesses with an indicative enterprise value of up to around $3 billion and whose performance may be improved.

The company was co-founded by Simon Peckham, who was a co-founder of Melrose and left the role of chief executive officer there earlier this year after the FTSE 100 listing spun off Dowlais Group to become a purely aerospace-focused company based around the former GKN businesses. He had been CEO of Melrose since 2012.

Brent oil was quoted at $84.76 a barrel in London on Tuesday, down from $86.16 late Monday. Gold was quoted at $2,353.59 an ounce, lower against $2,370.69.

In Wednesday’s economic calendar, Fed Chair Jerome Powell will be in focus again. He testifies at 1500 BST. Just before that, Bank of England Chief Economist Huw Pill speaks at 1430 BST.

In the local corporate calendar, housebuilder Barratt Developments reported a trading statement.

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Issue Date: 09 Jul 2024