Mysterious leaks in pipelines bringing gas to Europe from Russia provided a new source of concern for investors on Wednesday, adding to a growing ‘chorus of deserved criticism of UK fiscal policy’ and sending the London stock market lower.
The FTSE 100 index was down 140.60 points, or 2.0%, at 6,843.99 early Wednesday. The mid-cap FTSE 250 index was down 340.41 points, or 2.0%, at 16,963.70. The AIM All-Share index was down 9.56 points, or 1.2%, at 811.79.
The Cboe UK 100 index was down 2.1% at 683.07. The Cboe 250 also was down 2.1%, at 14,522.98, and the Cboe Small Companies was down 0.1% at 12,744.12.
The CAC 40 stock index in Paris slumped 1.5% early Wednesday, while the DAX 40 in Frankfurt was down 1.6%.
The pound fell to $1.0672 early Wednesday from $1.0756 at the London equities close on Tuesday.
UK Chancellor Kwasi Kwarteng will step up efforts to reassure the City about his economic plans. The chancellor will meet investment banks on Wednesday, following days of turmoil after currency traders were spooked by policy plans announced on Friday.
Daiwa Capital Markets noted that Moody's also joined the ‘chorus of deserved criticism of UK fiscal policy’.
Daiwa commented: ‘In our view, unless the government follows the IMF’s advice and announces a U-turn of its income tax cut plans on 23 November, the UK sovereign looks set on an accelerated path to credit-rating downgrades.’
Investor sentiment was damaged further after leaks in Baltic Sea gas pipelines between Russia and Europe were found.
EU chief Ursula Von der Leyen said ‘sabotage’ caused the leaks. She threatened the ‘strongest possible response’ to any deliberate disruption of European energy infrastructure.
The Nord Stream 1 and 2 pipelines have been at the centre of political tensions in recent months as Russia cut gas supplies to Europe in suspected retaliation against Western sanctions following its invasion of Ukraine.
The euro fell on Wednesday morning in response to the Nord Stream news. The single currency faded to $0.9555 early Wednesday from $0.9596 at the London equities close on Tuesday.
‘Bad thing is, damaging the infrastructure clearly pushes the tensions between the West and Russia to a no-return point, and dashes hopes of seeing an improvement anytime soon, both on the geopolitical and on the energy front,’ Swissquote analyst Ipek Ozkardeskaya commented.
Western powers have also been critical of annexation votes in Ukraine organised by Russia.
Kremlin-installed authorities in four Ukrainian regions under Russian control claimed victory in these polls. Ukraine and its allies have denounced the so-called referendums as a sham, saying the West would never recognise the results of the ballots.
The dollar weakened against the yen early Wednesday, fading to JP¥144.69 from JP¥144.79 at the time of the London equities close on Tuesday.
This was despite news that a Plaza Accord-style currency pact to temper the greenback's recent rally is unlikely.
Bloomberg reported a White House economist said an accord similar to the 1985 agreement, which saw the US, UK, France, Japan and what was then known as West Germany collude to keep a lid on the dollar's strength, is not expected to occur now.
Stocks in the Asia Pacific region were weaker on Wednesday. The Nikkei 225 in Tokyo closed down 1.5%, while the S&P/ASX 200 in Sydney ended down 0.5%. In China, the Shanghai Composite closed 1.6% lower, while the Hang Seng in Hong Kong was down an even more significant 3.4% shortly before the close of play.
A consumer confidence reading from Germany also did little to lift spirits.
‘After a brief respite in the previous month, consumer sentiment is continuing its downward spiral in September. Both economic expectations and the propensity to buy recorded moderate declines, while income expectations plummeted to a new record low,’ Gfk said.
The latest GfK German consumer confidence tracker is to fall to negative 42.5 points for October from negative 36.8 in September.
Still to come on Wednesday's economic calendar is a US goods trade balance reading at 1330 BST.
In London, boohoo shares tumbled 8.9% as the fast-fashion retailer lowered margin guidance. Peer Asos was down 6.6% in a negative read-across.
boohoo swung to a first-half loss, with earnings hurt by weak consumer confidence and a staggering number of clothing returns. Return rates were ‘up significantly year-on-year’, boohoo said.
In the six months to August 31, revenue fell 10% year-on-year to £882.4 million from £975.9 million. Revenue was up 56% from pre-virus levels, however. boohoo swung to a £15.2 million pretax loss from a £24.6 million profit a year earlier.
Margins weakened markedly. Its adjusted earnings before interest, tax, depreciation and amortisation margin fell to 4.0% from 8.7%.
boohoo now expects an annual adjusted Ebitda margin between 3% and 5%, trimmed from its previous 4% to 7% guidance range.
Fellow AIM listing Glantus slumped 62%.
The Dublin-based data platform, which provides accounts payable services warned on ‘additional operational expenses’ in the second half of 2022, as well as disruption stemming from a relocation to Costa Rica.
The move will affect revenue timing in the second half of the year. Glantus also expects to incur extra costs from its restructuring.
Revenue for the year will be below market expectations, it cautioned.
For the first half of 2022, revenue rose 54% to €6.6 million from €4.3 million a year earlier, though its pretax loss stretched to €1.6 million from €1.5 million.
Among blue-chip stocks, Barclays fell 3.6% in early dealings. The bank was named among a number of companies that have agreed to pay a total of $1.8 billion in fines over failures to keep electronic records such as text messages between employees on personal mobile phones, US authorities said.
Barclays, Bank of America, Deutsche Bank and Goldman Sachs were among the firms that agreed to fines over ‘long-standing failures’ to maintain and preserve electronic communications that must be available to regulators in the course of oversight, the Securities & Exchange Commission said in a statement.
Deutsche Bank was trading 3.4% lower in Frankfurt. BofA and Goldman fell 1.5% and 1.1% in New York overnight.
Gold fell to $1,616.98 an ounce early Wednesday from $1,633.10 at the London equities close on Tuesday. A barrel of Brent oil fell to $84.44, from $86.44.
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