Blue-chip equities in Europe were lower early Tuesday afternoon, with comments from central bankers, who have so far fallen short of declaring victory against inflation, hurting the mood.
‘Markets are going through a one step forward, one step back motion at present, struggling to sustain a proper breakout despite investors increasingly taking the view that central banks are done with raising interest rates in the current cycle,’ AJ Bell analyst Russ Mould commented.
Among individual shares, Rolls-Royce surged on well-received financial targets, though luxury retail suffered after a somewhat downbeat assessment from analysts at HSBC.
The FTSE 100 index traded down 28.79 points, 0.4%, at 7,431.91. The FTSE 250 fell 121.19 points, 0.7%, at 18,317.36, and the AIM All-Share fell 2.39 points, 0.3%, at 712.56.
The Cboe UK 100 was down 0.5% at 741.39, the Cboe UK 250 was down 0.8% at 15,854.62, though the Cboe Small Companies climbed 0.3% to 13,471.85.
In European equities on Tuesday, the CAC 40 in Paris was down 0.6%, while the DAX 40 in Frankfurt was down 0.2%.
‘The problem is that representatives of major central banks don’t want to draw a definitive line in the sand. We keep getting little comments that suggest their work to tame inflation is not finished. The latest example came from ECB President Christine Lagarde who yesterday said that the fight to contain price growth is not yet done. Every time we get such comments, investors lose confidence and equities take a small step back,’ AJ Bell’s Mould said.
Lagarde on Monday confirmed her familiar stance on monetary policy, and the ECB Governing Council expects that key interest rates will have to be kept at the current level for a sufficiently long period of time in order to restore price stability.
On Tuesday, Bundesbank President Joachim Nagel said that now is not the time to entertain the possibility of interest rate cuts in the eurozone, even though inflation has eased.
The pound was quoted at $1.2624 early Tuesday afternoon, rising from $1.2604 at the London equities close on Monday. The euro traded at $1.0951, higher than $1.0931. Against the yen, the dollar was quoted at JP¥148.50, down versus JP¥148.97.
Still to come on Tuesday, there is a US consumer confidence reading at 1500 GMT.
Stocks in New York are called to open lower ahead of the data. The Dow Jones Industrial Average is set to open fractionally lower, while the S&P 500 and Nasdaq Composite are both called down 0.1%.
‘Investors may be harbouring concerns that the most significant impact of the Fed’s assertive tightening is yet to unfold. Viewing the weakening US data, investors perceive the gradual emergence of recessionary indicators on the horizon. Consequently, they are pivoting to recessionary hedges, transitioning from long positions in the US dollar to gold as a safer investment,’ SPI Asset Management analyst Stephen Innes commented.
Gold was quoted at $2,015.48 an ounce midday Tuesday, rising from $2,000.74 at the time of the London equities close on Monday. Gold’s rip-roaring climb saw it top the $2,018 an ounce mark on Tuesday, for the first time since May.
Where the precious metal goes next could be dictated by Wednesday and Thursday’s US data. There is a US gross domestic product reading on Wednesday, before the latest core personal consumption expenditures data on Thursday. Core PCE is the Fed’s preferred inflationary gauge.
In London, Pearson and Burberry were the worst large-cap performers, down 4.4% and 2.9%.
Exane BNP cut education products publisher Pearson to ’neutral’ from ’outperform’.
Burberry fell as analysts at HSBC set out a less than bullish outlook for the luxury retail sector. The sector will say ‘goodbye to stellar growth’ and progress will normalise next year.
HSBC analysts added: ‘8% organic sales growth – which is what we factor in for 2024 - is nothing to be ashamed of, but slowing momentum rarely is supportive for stocks in this sector.’
Kering and LVMH were among the worst blue-chip performers in Paris, down 3.0% and 2.8%.
Back in London, Rolls-Royce shot up 6.6%, the best FTSE 100 performer.
The jet engine maker is eyeing an operating profit between £2.5 billion to £2.8 billion during a ‘2027 timeframe’. It also sizes up an operating margin between 13% and 15% and is aiming for free cash flow of £2.8 billion to £3.1 billion.
The London-based firm labelled the targets as a ‘step change’ in its financial performance.
‘We expect a progressive, but not necessarily linear, improvement year-on-year, and if we can accelerate the achievement of our ambitions we will,’ Rolls-Royce said.
The firm is also planning a divestment programme targeting £1.0 to £1.5 billion in proceeds over five years. It is looking to exit Rolls-Royce Electric in the short run or reduce its position to a minority stake in the electric aircraft arm, while pursuing a full exit down the line.
easyJet was the best FTSE 250-listed performer, rising 3.4%.
The budget airline reinstated dividends as promised, alongside reporting a swing to annual profit, at 4.5 pence per share.
In the year to September 30, easyJet said revenue jumped to £8.17 billion from £5.77 billion a year before. It swung to a total pretax profit of £432 million from a loss of £208 million. It noted a ‘record’ performance in the summer, which it attributed to its recent initiatives, which helped to offset the hit from higher fuel costs and external operating challenges.
Digital 9 slumped 12%. The firm late on Monday said it was launching a strategic review after announcing the sale of its stake in the Verne Group for up to $575 million.
The disposal of the data group to funds managed by Ardian France comprises $440 million in cash, split between $415 million payable on closure of the deal and deferred consideration of $25 million.
This will be topped up by a potential earn-out payment of up to $135 million which is payable subject to Verne achieving run-rate earnings before interest, tax, depreciation and amortisation targets for the financial year ending December 2026.
The company said it had started a strategic review to develop a set of actions with a view to maximising shareholder value going forward.
It has come under pressure from activist shareholders to do so, but said to do this before the conclusion of the Verne sale could have undermined the process.
As part of the review, the board will review the management arrangements of the company’s investment manager, Triple Point Investment Management.
Shares in AIM-listed healthcare services provider Totally slumped 24% as it swung to a loss in the first half as revenue dropped amid a ‘crisis’ in the UK National Health Service.
It swung to a pretax loss of £1.9 million in the first half ended September 30, from a profit of £1.0 million the year prior. Revenue fell 21% to £55.8 million during the period, from £70.3 million a year ago, Totally said.
The firm blamed the ‘crisis’ faced by the UK NHS for the lower revenue, given the loss of its North West London contracts.
Chair Bob Holt said: ‘As the contracts came to the end of their contracted period, and despite previous assertions that we would retain the contracts, the [integrated care board] allowed the contracts to end. We were unable to terminate all costs immediately at that point but have since undertaken a significant cost review to remove costs related to those contracts as well as other costs which are not critical to the day to day running of the business.’
Brent oil was trading at $80.61 a barrel midday Tuesday London time, higher than $79.98 at the time of the European equities close on Monday.
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