London stocks close firmly in red as investors fear Fed meeting minutes to add to economic gloom, 5 Jul 2023 16:59

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London stocks close firmly in red as investors fear Fed meeting minutes to add to economic gloom

05 July 2023, 16:59

Investors fear Fed minutes will add to economic gloom / Source: Adobe

Stocks in London closed sharply lower on Wednesday, ahead of the release of the US Federal Reserve’s latest meeting minutes, and in light of worries about the Chinese economy.

The FTSE 100 index closed down 77.62 points, or 1.0% at 7,442.10 on Wednesday. The FTSE 250 ended down 140.46 points, or 0.8%, at 18,393.33. The AIM All-Share closed down 3.26 points, or 0.4%, at 753.18.

The Cboe UK 100 ended down 1.0% at 742.40, the Cboe UK 250 closed down 0.9% at 16,099.94, and the Cboe Small Companies ended down 1.0% at 12,987.73.

Survey data on Wednesday showed that business activity in China cooled to a five-month low in June, bringing back concerns that the post-pandemic recovery in the world’s second-largest economy may be stalling.

The Caixin services purchasing managers’ index eased to 53.9 points in June from 57.1 in May. Falling closer to the 50-point no-change mark, it shows growth slowed in the sector. The composite PMI, which weighs services and manufacturing, fell to 52.5 from 55.6.

‘Expectations for China’s economic reopening were arguably too high at the start of the year, with many people expecting the country to effectively flick a switch and everything to run at full power instantly. While there was a strong first quarter, it’s now clear this is going to be more of a slow-burner recovery than wads of money suddenly sloshing around,’ said Russ Mould, investment director at AJ Bell.

The imminent release of the Fed’s latest meeting minutes at 1900 BST also helped solidify a negative market mood on Wednesday.

The minutes will be looked at closely by investors who will be hoping to find clues on the likelihood of a rate hike at the Fed’s next meeting at the end of July.

Francesco Pesole at ING said the minutes will help shed some light on the ‘compromise between keeping rates on hold but strongly signalling more hikes ahead.’

‘From a market perspective, it will be key to gauge where most of the committee sees core inflation dynamics going and the scope for further tightening. Markets will also be sensitive to any details about members’ positions on rate cuts.’

Stocks in New York were lower at the London equities close, ahead of the release, with the Dow Jones Industrial Average down 0.2%, the S&P 500 index down 0.1%, and the Nasdaq Composite down 0.2%.

The pound was quoted at $1.2718 at the London equities close on Wednesday, down from $1.2728 at the close on Tuesday. The euro stood at $1.0876, lower against $1.0900. Against the yen, the dollar was trading at JP¥144.53, up from JP¥144.46 late Tuesday.

ING’s Pesole argued that Thursday’s ISM services PMI data and ADP employment figures will be a ‘bigger risk event’ for the dollar than the FOMC minutes.

In London, Pearson finished 2.1% higher, ending the day as the top blue-chip performer after UBS raised the education publisher to ’buy’.

UBS said it upgraded its rating to ’buy’ because it thinks Pearson’s Assessment & Qualifications segment will outperform consensus expectations. The Swiss bank added it was also ‘not convinced’ that generative AI poses a risk to the firm.

JD Sports lost 1.5% despite the sportswear retailer saying it has taken a number of steps to strengthen its competition compliance programme, after it avoided a fine from the UK Competition & Markets Authority.

This was in response to the CMA’s investigation into suspected breaches of competition law by the firm and Leicester City Football Club.

On Wednesday, the CMA said it provisionally found both parties to have colluded to restrict competition in the sales of Leicester City-branded clothing, including replica kits, in the UK.

Leicester will be fined up to £880,000 after admitting to the anti-competitive arrangement with JD Sports. JD Sports said it signed a leniency agreement with the CMA on Friday last week, which granted JD full immunity from any fines.

In the FTSE 250, Keller Group jumped 11%, making it the index’s best-performing stock at the close on Wednesday.

The geotechnical engineering firm said it expects its full-year underlying operating profit to be ‘materially ahead’ of market expectations.

‘Trading in the first half has remained strong and we anticipate a record performance in the period,’ it said.

Redde Northgate was the FTSE 250’s worst performer on Wednesday, closing down 6.4%.

The commercial vehicle hire firm said that vehicle supply was ‘improving’ but still remained below the high levels of customer demand.

Nonetheless, the company reported pretax profit of £178.7 million in the year ended April 30, up 35% from £132.7 million the year prior. Revenue increased by 20% to £1.49 billion from £1.24 billion.

Elsewhere in London, SIG plunged 12% after it predicted its annual operating profit to be at the lower end of market expectations, as it looked to ‘weak and uncertain demand conditions’ for the rest of the year.

Market expectations for full-year underlying operating profit are between £65.3 million and £84.0 million. In financial 2022, SIG reported underlying operating profit of £80.2 million.

On AIM, Quiz dropped 8.6% after it laid out a dreary outlook for the year ahead, despite positive results for the financial year ended March 31.

Quiz said its pretax profit in the year ended March 31 jumped to £2.3 million from £800,000. Revenue was up 17% to £91.7 million from £78.4 million.

The company set out a somewhat drab outlook for the year ahead, however.

‘Consistent with many other fashion and clothing retailers, year-on-year growth has moderated this calendar year as inflationary pressures continue to impact consumer confidence. As a result of these external headwinds as well as the strong prior year comparatives which benefited from increased demand as social restrictions ceased, like-for-like revenues in recent months have been lower than the previous year,’ Quiz said.

In European equities on Wednesday, the CAC 40 in Paris ended down 0.9%, while the DAX 40 in Frankfurt ended down 0.7%.

Brent oil was quoted at $76.54 a barrel at the London equities close on Wednesday, up from $76.13 late Tuesday. Gold was quoted at $1,924.40 an ounce, lower against $1,927.60 at the close on Tuesday.

In Thursday’s UK corporate calendar, there are full-year results from Currys, Jet2 and PayPoint. Robert Walters, Ferrexpo and Workspace will also publish trading statements.

The economic calendar has a UK construction purchasing managers’ index print at 0930 BST and EU retail trade data at 1000 BST. The US weekly jobless claims report will be published at 1330 BST.

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