Blue-chip benchmarks in Paris and Frankfurt dropped as automotive shares suffered after poor Tesla results, while wider markets were also subdued as central banks look likely to continue pressing on the monetary policy tightening brake.
Sticking with the automotive theme, Melrose spin-off Dowlais Group fell on its first day of trading in London.
The dollar also slumped after the release of US jobless claims data in the early afternoon, further stoking fears of a recession.
The FTSE 100 index rose just 3.84 points to 7,902.61. The FTSE 250 dropped 64.98 points, 0.3%, at 19,135.87. The AIM All-Share index closed essentially flat, inching up just 0.01 of a point to 829.23.
The Cboe UK 100 index ended down slightly at 790.19, the Cboe UK 250 fell 0.2% to 16,767.88, and the Cboe Small Companies lost 0.1% at 13,211.08.
In mainland Europe, the CAC 40 stock index in Paris closed down 0.1%, while the DAX 40 in Frankfurt lost 0.6%. Both benchmarks were hurt by share price falls for automotive firms.
Sterling was quoted at $1.2449 late Thursday, up from $1.2424 at the London equities close on Wednesday. The euro traded at $1.0971, up from $1.0958. Against the yen, the dollar was quoted at JP¥134.04, down against JP¥134.69.
Another less-than-stellar US initial jobless claims reading put pressure on the dollar.
Rising to 245,000 from an upwardly revised 240,000, the Department of Labor’s latest jobless claims reading suggests the once red-hot US jobs markets is now coming off the boil. The latest figure topped FXStreet-cited consensus of 240,000.
‘Initial claims stayed on their upward trajectory, indicating labour market tightness is easing modestly, but lay-offs are far from broad-based and have not caused a spike in the unemployed. We expect a swifter rise in claims will wait until the second half of the year when the economy enters a recession, though the labour market downturn will be less severe by historic standards,’ analysts at Oxford Economics commented.
The Federal Reserve is still expected to lift rates by 25 basis points next month, which would take the federal funds rate range to 5.00% to 5.25%, from 4.75% to 5.00%.
The European Central Bank was also in focus on Thursday, following the release of minutes from its latest meeting.
The minutes suggested there is still more monetary policy tightening on the way, despite some policymakers fretting about last month’s banking sector turmoil.
In March, the ECB lifted rates by 50 basis points. It took the interest rate on the main refinancing operations, the interest rate on the marginal lending facility, and the deposit facility to 3.50%, 3.75% and 3.00%, respectively.
The minutes, released on Thursday, showed a ‘very large majority’ backed last month’s half-point rate hike. However, some policymakers showed signs of concern in the face of banking sector chaos.
On Wednesday, ECB Chief Economist Philip Lane said that ‘it will be appropriate to raise rates further’ if the ‘baseline scenario’ underlying the ECB’s most recent forecasts in March holds.
Thursday’s minutes appeared to echo Lane’s thinking.
‘Monetary policy still had some way to go to bring inflation down, including in the case that the baseline of the March ECB staff projections materialised. The point was made that, in light of the risk of persistent inflation dynamics, the ECB’s monetary policy had to be persistent as well,’ according to the minutes.
Capital Economics analyst Andrew Kenningham believes there are more rate hikes from the ECB on the way.
‘It was only the banking sector turbulence that deterred policymakers from signalling further rate hikes to come. As those banking problems have now subsided, we think the bank will raise rates by a further 100 basis points over the coming months to a peak of 4.0%,’ Kenningham explained.
Stocks in New York were lower at the time of the European close. The Dow Jones Industrial Average was down 0.3%, the S&P 500 and Nasdaq Composite traded 0.5% lower.
Tesla shares were down 8.5%. The electric vehicle maker posted total revenue in the quarter of $23.33 billion, up 24% from $18.76 billion a year prior. But operating income decreased to $2.66 billion in the quarter from $3.60 billion a year ago.
‘Market share or margins, that seems to be the conundrum facing electric vehicle powerhouse Tesla. Right now, it looks like the company’s competitive position is being prioritised over protecting profitability and only time will tell if that is the right move,’ AJ Bell Russ Mould commented.
Tesla worries weighed on shares of European peers and overshadowed results from Renault. The Paris-listed firm fell 8.0%.
It said it made a ‘solid start’ to 2023 as it posted robust increases in revenue and vehicles sales and boasted that its order book stands at a record level.
Renault confirmed its outlook for 2023. It expects an operating margin larger or equal to 6% and automotive operational free cash flow larger or equal to €2 billion.
Also in the automotive sector, Melrose Industries sealed the demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses.
Together they will form Dowlais Group, a new London listing. Dowlais shares closed around 117 pence, sliding roughly 20% from an opening price of 146p. It would imply a market capitalisation of about £1.6 billion.
Prior to the Dowlais demerger, Melrose undertook a three for one consolidation of its own shares. Its stock closed at 402.47p on Thursday, compared to 163.13p on Wednesday, which was prior to the consolidation.
Melrose bought engineering firm GKN in 2018 in a hostile takeover. Back in September of last year, Melrose said it plans to retain the Aerospace part of the GKN business and spin-off the rest as a separate London listing.
Elsewhere among London-listed large caps, consumer healthcare firm Haleon added 2.8%. It reported organic revenue grew 9.9% annually in its first quarter. Most of this growth stemmed from prices hikes. Haleon now expects annual revenue at the upper end of guidance of 4% to 6% growth.
GB Group surged 9.5%. It said it will report yearly results in line with guidance, as the digital location and identity services provider ‘displayed resilience’ in the face of tough economic conditions.
The Chester, England-based firm expects to post revenue of £278.8 million for the year ended March 31, up 15% from £242.5 million the year prior.
‘The difficult global macroeconomic environment has impacted performance in certain parts of the group, particularly our GBG Americas Identity business. Despite this, the wider group has displayed resilience, including double-digit growth in both Location and Fraud,’ Chief Executive Chris Clark said.
Brent oil was trading at $81.29 a barrel late Thursday afternoon in London, falling from $83.68 late on Wednesday. Gold traded back above the $2,000 mark. It was quoted at $2,002.90 an ounce, up from $1,993.72.
Friday’s economic calendar has a slew of flash purchasing managers’ index readings, including the eurozone at 0900 BST, the UK at 0930 BST and the US at 1445 BST.
The local corporate calendar has a trading statement from miner BHP and annual results from automotive dealer Lookers.
By Eric Cunha, Alliance News news editor
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