Guarded optimism that politicians will find a way to avoid a catastrophic debt default by the US government helped to lift share prices in Europe early Friday, while luxury stocks were on the rise after a positive update by Geneva-based Richemont.
Among individual stocks in London, insurer Beazley rose after reporting a strong start to the year. E-commerce company THG tumbled as its takeover talks with Apollo Global Management ended.
The FTSE 100 index opened 25.19 points higher, 0.3%, at 7,755.77. The blue-chip index is down 0.3% so far this week. The FTSE 250 inched up 10.39 points, or 0.1%, at 19,276.69, and the AIM All-Share was edged 0.81 of a point higher, or 0.1%, at 816.04.
The Cboe UK 100 was up 0.4% at 775.39, the Cboe UK 250 was up marginally at 16,849.89, but the Cboe Small Companies was up 0.1% at 13,616.79.
European indices were higher early Friday, with the CAC 40 in Paris up 0.8% and the DAX 40 in Frankfurt up 0.2%.
The pound fetched $1.2533 early Friday, up from $1.2514 late Thursday. The euro climbed to $1.0928 from $1.0917, while against the yen, the dollar rose to JP¥134.88 from JP¥134.33.
UK gross domestic product grew 0.1% in the first quarter of 2023, despite a poor showing for the economy in March.
The Office for National Statistics said the UK economy grew 0.1% in the first three months of 2023, compared to the final quarter of last year. Growth was in line with FXStreet-cited market consensus. GDP also had grown 0.1% in the fourth quarter of 2022 from the third.
However, UK GDP shrank by 0.3% monthly in March alone. It had been expected to remain flat, like it had in February. In January, UK GDP expanded by 0.5%, upwardly revised from 0.4% growth.
‘The data is hard to read right now, amplified by the extra bank holiday in May. In general, falling gas prices and a resilient jobs market suggests the near-term recession risk has eased,’ analysts at ING commented.
The reading came a day after the Bank of England wiped away its recession forecast for the UK. The central bank now expects gross domestic product to flat-line over the first two quarters of the year, having previously predicted a decline.
Elsewhere among central banks, the direction of US interest rates remained in focus, especially in light of readings this week showing inflationary pressure is ebbing.
Data on Thursday had showed yearly producer price growth slowed to 2.3% in April from 2.7% in March. Numbers on Wednesday showed the consumer price inflation rate eased to 4.9% last month, from 5.0% in March.
Crunch talks between US President Joe Biden and senior Republicans have been postponed until early next week to allow staff to continue working, meanwhile, the White House said in a statement on Thursday.
A source familiar with the meetings said this was a positive development and that talks between the two sides were progressing, making Friday not the right moment for the leaders to meet, AFP reported.
The International Monetary Fund on Thursday warned of global ‘repercussions’ if the US defaulted on its debt.
Shares in New York closed mostly lower on Thursday, with worries for regional banks continuing. The Dow Jones Industrial Average ended down 0.7% and the S&P 500 down 0.2%, though the Nasdaq Composite rose 0.2%.
PacWest Bancorp once again suffered selling pressure. The stock tumbled 23% in New York on Thursday. PacWest said it lost 9.5% of its deposits last week. It reported customers had ‘fears of the safety of their deposits’.
Stocks in Asia were mixed on Friday. The Nikkei 225 in Tokyo closed up 0.9%, while the S&P/ASX 200 in Sydney ended up 0.1%. The Shanghai Composite closed down 1.2%, while the Hang Seng in Hong Kong was 0.5% lower in late trade.
In London, insurer Beazley rose 3.8%. It said gross written premiums were 12% higher at $1.37 billion in the first quarter of 2023 from $1.23 billion a year earlier.
Net written premiums increased by 24% to $1.07 billion from $859 million.
‘The first quarter saw us deliver good headline growth in line with our expectations, underpinned by growth in property, where we are taking advantage of the excellent and continuing market conditions,’ Chief Executive Officer Adrian Cox said.
Beazley still expects to achieve a combined ratio in the ‘high 80s’ this year.
For 2022, its combined ratio came in at 89%, better than the 93% achieved in 2021. A ratio below 100% indicates an insurer is making underwriting profit, so the lower, the better.
Elsewhere in London, THG tumbled 10%. It said takeover talks with Apollo Global Management have terminated.
The e-commerce firm said it became clear ‘there is no longer any merit in continuing to engage with Apollo’. In April THG said it received buyout interest from the US private equity firm.
THG at the time noted that it is ‘a highly preliminary and non-binding indicative proposal’, but did not disclose the terms of the proposal.
‘The board remains fully confident in THG’s strategic direction and long-term prospects as an independent company,’ Chair Charles Allen said.
THG shares are down 40% over the past year and, at 68 pence on Friday, are well below their 2020 listing price of 500p.
‘Apollo and THG terminate discussions with the board concluding that the valuation was too low and the structure of the offer inadequate,’ commented Liberum. ‘Focus returns to what guidance was pre the bid. The group should be free cash flow neutral in FY 2023, and significantly free cash flow positive in FY 2024, driven by the focus on high-margin categories and relatively low maintenance capital expenditure.’
The investment bank has a ’buy’ rating and 220p target on THG shares.
Over in Zurich, shares in Cartier-owner Richemont added 4.9%. It reported record annual sales as luxury consumers proved to be resilient, defying geopolitical volatility, economic uncertainty and soaring inflation.
For the financial year that ended March 31, pretax profit for the Geneva-based luxury goods firm surged 62% to €4.75 billion from €2.94 billion a prior year.
Revenue soared to an all-time high of €19.95 billion, up 19% from €16.74 billion.
In Paris, luxury goods firm Kering, Hermes and LVMH added 2.3%, 1.5% and 1.2% in a positive read across. London-listed Burberry rose 0.9% ahead of its own annual results on Thursday next week.
A barrel of Brent fell by a dollar to $74.53 a barrel early Friday from $75.61 at the time of the London equities close on Thursday. Gold traded at $2,011.59 an ounce, down from $2,019.26.
Friday’s economic diary in the US has the Michigan consumer sentiment reading at 1500 BST.
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