The dollar was on the rise and equities were under pressure globally on Wednesday, as the possibility of the US defaulting on its federal government debt loomed as an increasing possibility.
‘The first ever default on US debt is unthinkable and the likeliest outcome is an eleventh-hour deal, but, as the beginning-of-June deadline for raising the debt ceiling signalled by US secretary of the Treasury Janet Yellen draws closer, nervousness is likely to build,’ said Russ Mould, investment director at AJ Bell.
The FTSE 100 index was down 3.34 points at 7,747.74 midday Wednesday in London. The FTSE 250 was down 95.24 points, or 0.5%, at 19,177.78, and the AIM All-Share was down 2.71 points, or 0.3%, at 809.33.
The Cboe UK 100 was flat at 774.79, the Cboe UK 250 was down 0.6% at 16,739.92, and the Cboe Small Companies was down 0.1% at 13,546.76.
US House Speaker Kevin McCarthy said Tuesday much work remained in negotiations to raise the federal borrowing limit and avert a potentially catastrophic credit default, with the deadline for agreement just days away.
‘We’ve got a lot of work to do in a short amount of time,’ the top Republican told reporters after talks at the White House with congressional leaders and President Joe Biden.
On Monday, US Treasury Secretary Janet Yellen had said that new data reinforced her previous warning of a possible US debt default on June 1 if Congress fails to raise the ceiling on borrowing.
Amid the resulting risk-off market atmosphere - and despite the risk emanating from the US - the dollar was higher.
The pound was quoted at $1.2442 at midday on Wednesday in London, lower compared to $1.2486 at the close on Tuesday. The euro stood at $1.0827, lower against $1.0862.
Against the yen, the dollar was trading at JP¥136.97, higher compared to JP¥136.53.
‘The standoff between Democrats and Republicans is likely to continue and, if unresolved, could have serious consequences for the US and global economy. Against this background, demand for the greenback is on the rise, as increasingly anxious investors seek refuge in the safe-haven dollar,’ Ricardo Evangelista, senior analyst at ActivTrades, said.
Stocks in New York were called to open mixed on Wednesday after finishing in the red on Tuesday amid less-than-stellar retail sales data and disappointing earnings from retailer Home Depot.
The Dow Jones Industrial Average was called to open down 0.8% on Wednesday, but the S&P 500 index was called up 0.2% and the Nasdaq Composite up 0.1%.
In London, JD Sports Fashion was the worst blue-chip performer at midday, down 6.5%.
In the financial year that ended January 28, the sportswear retailer said revenue rose by 18% to £10.13 billion from £8.56 billion the year before. This beat the revenue forecast by Shore Capital Markets of £9.67 billion.
However, pretax profit fell by 33% to £440.9 million from £654.7 million. The lower profit was due to higher adjusting items, JD Sports explained.
AJ Bell’s Russ Mould said JD Sports was demonstrating the ‘strength of its brand’ and its ‘successful capture’ of the under-25 demographic as it enjoyed resilient sales.
However, Mould warned that JD Sports needs to be ‘wary’ of any shifts in consumer preferences. ‘Fashion is by its nature cyclical and a move away from the athleisure trend would be unhelpful to JD,’ Mould said.
British Land shares dropped 5.1% as the commercial property developer said it swung to an annual loss as its portfolio valuation collapsed.
The owner of the Broadgate, Canada Water and Paddington Central developments in London reported a pretax loss for year ended March 31 of £1.03 billion, swinging from a profit of £963 million the year prior.
The firm saw £798 million in negative valuation movements, compared to a gain of £475 million the year prior, causing its swing to a loss. It also recorded a £467 million loss from joint ventures, compared to £247 million gain a year prior.
Chief Executive Simon Carter explained that higher interest rates ‘inevitably’ had an impact on property market yields and, as a result, the value of the company’s portfolio declined by 12.3%.
‘Whilst we remain mindful of ongoing macroeconomic challenges, the upward yield pressure appears to be easing and there are early signs of yield compression for retail parks,’ the CEO added.
In the FTSE 250, Watches of Switzerland fell 6.1%.
The watch retailer warned of an anticipated ‘modest’ sales decline in the first quarter of its new financial year, after reporting 25% revenue growth in the financial year that ended April 30. Watches of Switzerland said it expects sales to normalise in the second quarter.
Savills was 5.3% lower at midday.
The property agent said its performance in the year so far has been hurt by capital transaction volumes falling to their lowest in a decade, and warned it would be ‘impossible’ to accurately predict when a recovery would occur.
‘The strength of our less transactional businesses has helped underpin the group’s performance overall. The anticipated market corrections in 2023 are happening largely as anticipated. As greater certainty over the future pattern of global interest rates is emerging, we expect progressive recovery through the third and fourth quarters of the year and into 2024,’ said Chief Executive Mark Ridley.
Elsewhere in London, Purplebricks plunged 42% after it announced it would be selling itself to a rival for just £1.
The online real estate agent has recommended to its shareholders a proposed sale of its trading business and assets to Strike for a token £1, with Strike to assume most of its liabilities.
The transaction would mean the firm holds a cash balance of £5.5 million and would return net cash proceeds of around £2 million to shareholders after some costs.
‘I am disappointed with the financial value outcome, both as a 5% shareholder myself and for shareholders who have supported the company under my and the board’s stewardship. However, there was no other proposal or offer which provided a better return for shareholders, with the same certainty of funding and speed of delivery necessary to provide the stability the company needs,’ said Chair Paul Pindar.
In European equities on Wednesday, the CAC 40 index in Paris was down 0.2%, while the DAX 40 in Frankfurt was up 0.3%.
A final reading from Eurostat confirmed that annual inflation in the eurozone accelerated slightly in April from March.
The consumer price index rose by 7.0% in April from a year before, picking up pace from a 6.9% annual rise in March. The final reading was unchanged from preliminary data released earlier this month.
Brent oil was quoted at $75.26 a barrel at midday in London on Wednesday, up from $74.84 late Tuesday. Gold was quoted at $1,988.24 an ounce, lower against $2,001.14.
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