Nervousness over the passage of a bill to prevent the US government from defaulting on its debt, combined with weak economic data from China, pushed share prices lower in London early Wednesday.
The FTSE 100 index was down 35.65 points, 0.5%, at 7,486.42. The FTSE 250 was down 80.93 points, 0.4%, at 18,726.44, and the AIM All-Share was down 3.06 points, 0.4%, at 783.70.
The Cboe UK 100 was down 0.6% at 746.78, the Cboe UK 250 was down 0.5% at 16,296.31, and the Cboe Small Companies was down 0.4% at 13,545.38.
New York ended mixed on Tuesday, like London having reopened after a three-day weekend. The Dow Jones Industrial Average closed down 0.2%, the S&P 500 flat, and the Nasdaq Composite up 0.3%.
A deal to raise the US debt ceiling passed its first major test in Congress on Tuesday, surviving a crucial procedural vote amid a conservative backlash that resurrected the threat of the country’s first-ever default.
US political leaders scrambled to push through legislation to suspend the national debt limit and avert economic catastrophe as a growing conservative backlash threatened to sink the deal at its first major hurdle.
Congress has until Monday next week to green-light an agreement between Republicans and Democrats to allow more borrowing and ensure the country doesn’t miss loan repayments and default for the first time in history.
The 99-page ’Fiscal Responsibility Act’ - hammered out between Republican House Speaker Kevin McCarthy and Democratic President Joe Biden over the weekend - pares back federal spending and raises the debt ceiling until 2025.
It needs lawmakers’ support at a crucial vote Wednesday in the House of Representatives, and cleared a preliminary hurdle Tuesday, as the Rules Committee prepared it for a floor debate.
‘While the committee hurdle was a key procedural passage to be cleared and both parties claim they have the numbers to get the deal approved by Congress, the very tiny margin may be keeping markets a bit jittery for a few more days,’ said ING Economics.
Oil prices weakened on Wednesday as traders remained nervous due to the unresolved US debt ceiling crisis and contradictory messages from key Opec+ members ahead of a crucial meeting.
The 13 members of Opec and 10 other oil-producing countries, known as Opec+, will meet on Sunday to decide on production policy.
Brent oil was quoted at $73.62 a barrel early in London on Wednesday, down from $74.30 late Tuesday.
Oil stocks Shell and BP were down 0.8% and 0.6%, respectively. Harbour Energy was down 2.7%.
In Asia on Wednesday, the Nikkei 225 index in Tokyo closed down 1.4%. In China, the Shanghai Composite closed down 0.6%, while the Hang Seng index in Hong Kong was down 2.4%. The S&P/ASX 200 in Sydney closed down 1.6%.
China’s manufacturing activity shrank in May for the second successive month, official figures showed, the latest sign that the country’s economic recovery is losing steam.
The official manufacturing purchasing managers’ index fell to 48.8 this month, below the 50-point mark that separates expansion and contraction, according to the National Bureau of Statistics.
The figure followed an unexpected fall to 49.2 in April, which reversed three consecutive months of growth. It was lower than the median estimate of 49.5 in a Bloomberg survey of economists.
The drop ‘indicates the economic recovery faces challenges’, said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
In the FTSE 100, Prudential lost 3.3%, after its chief financial officer left under a cloud.
Prudential promoted Ben Bulmer as its new CFO. Hong Kong-based Bulmer, currently CFO for Insurance & Asset Management, has served in a variety of leadership positions across the finance function in Asia and London since joining Prudential in 1997.
Bulmer succeeds James Turner, who has resigned ‘in light of an investigation into a code of conduct issue relating to a recent recruitment situation’. Turner will remain available to the company for four months to support the transition.
‘The group sets itself high standards and Mr Turner fell short on this occasion,’ Prudential said.
B&M European Value Retail jumped 6.0%, pushing it to the top of the FTSE 100 index.
B&M said revenue in the 52 weeks that ended March 25 rose to £4.98 billion from £4.67 billion a year earlier. However, pretax profit fell to £436 million from £525 million.
B&M recommended a final dividend of 9.6p per share, down from 11.5p. This brings the company’s full-year dividend to 14.6p, down from 16.5p.
Looking ahead, B&M said it expects to grow sales and profits in financial 2024, despite economic uncertainty.
‘The outlook remains optimistic: management highlighting the accelerating UK store opening pipeline and continued multi-year growth opportunities in France and Heron (UK). New guidance for FY24 Ebitda to be ahead of FY23, means consensus (£579 million) could nudge up,’ commented Liberum.
Added Orwa Mohamad, an analyst at research house Third Bridge: ‘B&M has been a major beneficiary of consumers trading down thanks to its expansion in the food and grocery sector. However, our experts say that if B&M is to retain these customers in the future they will need to do more than simply offering cheap and cheerful grocery options.’
Engineering firm IMI is set to replace Ocado in the FTSE 100 in Wednesday’s quarterly review, according to the indicative index changes from FTSE Russell released last week.
There will also be a handful of departures on the FTSE 250, according to indicative changes.
Upstream energy company Capricorn Energy, Africa and South America-focused exploration firm Tullow Oil, and oil and gas industry services provider Hunting are primed to be cut.
The index changes will be announced after the market close on Wednesday, based on closing prices on Tuesday.
Early Wednesday, Ocado was down 1.8%, whilst its anticipated replacement IMI shed 0.9%. Capricorn Energy, Tullow Oil and Hunting were down 1.3%, 3.1%, and 2.0%, respectively.
On AIM, Savannah Resources was up 27%.
Savannah said the Portuguese environmental regulator has issued a positive declaration of environmental impact for its wholly owned Lithium project in northern Portugal.
With this ‘key positive decision’, the project can now progress to the next stage of the environmental licencing process, Savannah Resources added.
In European equities on Wednesday, the CAC 40 in Paris was down 1.0%, while the DAX 40 in Frankfurt was down 0.8%.
The pound was quoted at $1.2367 early on Wednesday in London, down compared to $1.2404 at the equities close on Tuesday. The euro stood at $1.0677, down against $1.0721. Against the yen, the dollar was trading at JP¥139.65, down slightly compared to JP¥139.74.
Gold was quoted at $1,957.03 an ounce, down against $1,960.99.
The economic calendar has US retail sales data at 1355 BST.
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