European shares opened mixed on Wednesday, amid investor nervousness about a looming US government debt default, but London was underperforming following some negative company updates.
The FTSE 100 index opened down 30.24 points, 0.4%, at 7,720.84. The FTSE 250 was down 110.65 points, 0.6%, at 19,162.07, and the AIM All-Share was down 2.83 points, 0.4%, at 809.21.
The Cboe UK 100 was down 0.4% at 772.37, the Cboe UK 250 down 0.5% at 16,742.24, and the Cboe Small Companies was down 0.1% at 13,644.59.
In European equities, the CAC 40 in Paris was down 0.2%, while the DAX 40 in Frankfurt was up 0.2%.
US President Joe Biden said he was ‘optimistic’ about securing a deal to avert a potentially catastrophic debt default by the federal government, after he held talks with Republican leaders.
House Speaker Kevin McCarthy, however, said much work remained in negotiations to raise the federal borrowing limit and avert a default, with the deadline for agreement just days away.
Biden will cut short a major trip to Asia this week, returning Sunday to Washington for high-stakes negotiations with Republicans to avert a potentially catastrophic debt default, according to two people familiar with his plans. The US Treasury said the default could occur as early as June 1 unless the debt ceiling is raised.
In the US on Tuesday, Wall Street ended mixed, with the Dow Jones Industrial Average down 1.0% and the S&P 500 index down 0.6%, but the Nasdaq Composite up 0.2%.
In addition to concerns about the debt ceiling, recession fears re-emerged after weaker-than-expected retail sales data.
Sales in the US for retail and food services increased only marginally in April on a monthly basis, while annual growth slowed, according to the US Census Bureau on Tuesday.
The dollar was stronger in early exchanges in Europe.
Sterling was quoted at $1.2455 early Wednesday, lower than $1.2486 at the London equities close on Tuesday. The euro traded at $1.0858, marginally down from $1.0862. Against the yen, the dollar was quoted at JP¥136.81, up versus JP¥136.53.
Gold was quoted at $1,988.67 an ounce early Wednesday, down sharply from $2,001.14 on Tuesday.
Brent oil was trading at $74.54 a barrel, little changed from $74.84
In Tokyo on Wednesday, the Nikkei 225 index closed up 0.8% at 30,093.59, having earlier reached a new 33-year high at 30,115.32.
Japan’s economy grew faster than expected in the first quarter, official data showed, helped by a recovery in inbound tourism after pandemic border restrictions were lifted.
The 0.4% rise in gross domestic product beat market expectations of 0.2%, after hopes of a rebound fell flat in the final quarter of last year.
‘The easing of Covid restrictions, along with government fiscal support, appears to have boosted consumption and investment. We anticipate some yield curve control policy adjustment at the upcoming June meeting, as we believe the macroeconomic conditions now support sustainable inflation above 2%,’ ING senior economist Min Joo Kang said.
Elsewhere in Asia, sentiment was less upbeat. In China, the Shanghai Composite was down 0.2%, while the Hang Seng index in Hong Kong was down 1.1%. The S&P/ASX 200 in Sydney closed down 0.5%.
In the FTSE 100, London Stock Exchange Group fell 4.2% to 8,118.00 pence.
Blackstone, Thomson Reuters, Canada Pension Plan Investment Board and other investors sold 33.0 million shares in LSEG at 8,050 pence each via a placing by Barclays and other investment banks to institutional investors, and a separate retail offer. The sale of existing LSEG shares was worth £2.7 billion in total. It was upsized from the 28.0 million shares announced late Tuesday.
Blackstone and Thomson Reuters had sold 28.0 million LSEG shares back in March and now have only 5.1 million remaining.
British Land fell 3.9%. It swung to a loss in the financial year that ended March 31, as the value of its portfolio saw a double-digit fall.
The commercial property developer and investor swung to a pretax loss of £1.03 billion from £963 million profit, as total revenue was little changed at £418 million from £412 million. The firm recorded £798 million in negative valuation movements, compared to a gain of £475 million the year prior.
‘Higher interest rates have inevitably had an impact on property market yields and, as a result, the value of our 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,’ said CEO Simon Carter.
Agreed Max Georgiou, an analyst at research house Third Bridge: ‘Today’s high interest rate environment means that British Land, with its focus on the retail sector, is experiencing some difficulties. Our experts say that retail asset valuations, particularly shopping centers, are going to remain challenging for some time, with limited potential for rental growth.’
JD Sports Fashion fell 2.5%, as it reported a stronger year of sales, though profit declined.
In the financial year ended January 28, the athleisure retailer said revenue rose 18% to £10.13 billion from £8.56 billion, though pretax profit fell by 33% to £440.9 million from £654.7 million.
The lower profit was due to a higher adjusted items, ‘principally [related] to a non-cash movement in the present value of future put and call options held with minority shareholders in certain subsidiary businesses and losses incurred in divesting our non-core branded fashion businesses’, the firm explained.
Since the year-end, JD said organic constant currency sales growth has been over 15%. It expects to meet current average market consensus expectations for adjusted pretax profit of £1.03 billion in financial 2024, which would be up from £991.4 million achieved in financial 2023.
JD raised its final dividend to 0.67p, bringing the annual total to 0.80p, up from 0.35p a year before.
In the FTSE 250, Watches of Switzerland dropped 10%.
The retailer reported 25% revenue growth in the financial year that ended April 30 but warned it expects a ‘modest’ sales decline in the first quarter. Watches of Switzerland expects sales to normalise in the second quarter, however. The ‘more challenging’ trading environment seen in its second half is likely to persist into the first half overall, though, it said.
On AIM, Egdon Resources surged 83%.
The oil and gas explorer and producer has agreed to an all-cash takeover offer from Petrichor Partners at 4.5p per share. This values the company at around £26.6 million. The offer price is a 96% premium to Tuesday’s closing price of 2.3p. Egdon’s board intend to unanimously recommend the offer to shareholders at an upcoming general meeting.
Petrichor is a wholly-owned subsidiary of Heyco Energy Group. The ultimate parent company of Heyco Energy and Petrichor is Explorers Petroleum Corp, which is controlled by George Yates.
‘Heyco Group believes the timing is right to acquire Egdon and take it private, as Heyco Group believes that the public market continues to undervalue its assets, including the impressive Wressle development,’ the release said.
Petrichor said it has received irrevocable undertakings to accept the offer from Habour Energy and Union Jack Oil, fellow London-listed oil and gas companies.
Union Jack was up 4.1%, as Harbour fell 0.3%.
Still to come on Wednesday’s economic calendar, there’s a eurozone inflation reading at 1000 BST.
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