Stocks in Europe returned some of the prior day’s gains on Friday, as sentiment took a knock from gloomy updates from FedEx and Mercedes.
The FTSE 100 index was down 40.78 points, 0.5%, at 8,287.94, above early lows. The FTSE 250 slid 199.96 points, 0.9%, at 20,962.75, and the AIM All-Share eased 1.27 points, 0.2%, at 746.81.
The Cboe UK 100 fell 0.5% to 829.89, the Cboe UK 250 dipped 1.0% to 18,479.33, but the Cboe Small Companies was up 0.1% at 16,755.37.
In European equities on Friday, the CAC 40 in Paris fell 0.7%, while the DAX 40 in Frankfurt declined 0.8%, falling back from Thursday’s record high.
Weighing on the DAX 40, shares in Mercedes fell 6.9% after a profit warning after the European market close on Thursday.
Mercedes cut its year-end guidance noting a ‘further deterioration of the macroeconomic environment, mainly in China’.
The Stuttgart, Germany-based carmaker now expects group adjusted return on sales between 7.5% and 8.5%, down from a previously projected 10% to 11% range.
Analysts at Stifel said: ‘The cut in guidance does not come as a major surprise to us. However, we believe this is incrementally negative due to the magnitude of the warning and because sentiment towards Mercedes has been more positive.’
The warning followed a similarly downbeat assessment of market conditions by BMW last week.
‘However, the fact that Mercedes’s profit warning is bigger than BMW’s and that it’s not related to a big recall will leave the market puzzled about underlying profitability and capital allocation going into 2025,’ analysts at UBS said.
‘BMW’s warning on the underlying business was [around] 200bps in auto Ebit margin for [the second half] but it’s 350bps for Mercedes. We expect to see meaningful 2025 consensus downgrades on the back of this, potentially in the 20% range on group Ebit & EPS level.’
Stocks in New York are called to open mixed. The Dow Jones Industrial Average is called up 0.1%, the S&P 500 0.2% lower and the Nasdaq Composite is seen falling 0.4%.
Shares in FedEx are 13% lower in pre-market trading in New York after a profit warning Thursday.
AJ Bell’s Russ Mould noted FedEx is often seen as a ‘good indicator of the health of the wider economy thanks to the breadth of its exposure across areas like transportation, logistics and e-commerce.’
Thus, the ‘big warning overnight might have wider resonance’.
Mould explained FedEx slashed its guidance after missing first-quarter forecasts by a notable degree.
But it should be a better day for shareholders in Nike, up 6.5%, after it announced a change at the top after disappointing recent trading figures.
The dollar remained on the back foot against European currencies although it perked up against the yen. The pound traded at $1.3285 at Friday lunchtime, up from $1.3268 at the time of the London equities close on Thursday.
The euro climbed to $1.1159 from $1.1145 at the European equities close on Thursday. Against the yen, the dollar was trading at JP¥144.23, climbing from JP¥142.94.
The Bank of Japan left interest rates unchanged on Friday, after a decision to hike them in July pushed the yen sharply higher and fuelled turmoil across world markets.
Two days after the US Federal Reserve slashed rates for the first time since the start of the pandemic, the BoJ’s stasis came as data showed inflation in the world’s fourth-largest economy picked up as expected in August.
Japanese central bank officials said borrowing costs would be left at 0.25%, a policy decision widely predicted after the fallout from the previous hike.
Back in London, and figures showed a pick up in retail sales but a downturn in consumer confidence.
According to the Office for National Statistics, UK retail sales volumes rose 1.0% in August from July, beating the FXStreet cited consensus of 0.4%. They had risen 0.7% in July from June. That reading was upwardly revised from 0.5%.
But GfK’s Consumer Confidence Index fell seven points in September to minus 20, with significant drops in predictions for personal finances and the general economy over the coming year.
Expectations for the general economy over the next 12 months fell by 12 points to minus 27, while the forecast for personal finances is down nine points to minus three.
The major purchase index, an indicator of confidence in buying big ticket items, is down 10 points on last month to minus 23, five points higher than a year ago.
GfK said: ‘These three measures are key forward-looking indicators so despite stable inflation and the prospect of further cuts in the base interest rate, this is not encouraging news for the UK’s new government.’
Simon French at Panmure Liberum said the fall comes as the government’s ‘negative messaging hits sentiment’.
‘Our hope is the narrative will change the other side of the Budget and the damage will be limited. The worry is the government will get stuck with its messaging - with a negative economic blowback.’
The downbeat consumer confidence numbers put pressure on retailers, despite the more upbeat retail sales. B&M European Retail fell 2.1%, Next eased 1.8% and JD Sports slipped 1.6%.
Elsewhere on London’s FTSE 100, luxury goods retailer Burberry fell 4.2% continuing a dismal run for the firm which is exiting the blue-chip index.
Jefferies downgraded the stock to ’underperform’ from ’hold’ and slashed its price target to 490 pence from 800p. The broker cut price targets across the sector but kept buy ratings on Richemont and Hermes.
Gucci owner Kering also suffered, down 3.4%. Here, Jefferies reduced the share price target to €230 from €300 and kept a ’hold’ rating.
On the FTSE 250, Volution Group jumped 11%. The air quality solutions firm said it struck a deal to acquire commercial and residential ventilation services provider Fantech for up to £144 million.
Australasia business Fantech is being acquired from UK-based Elta Group.
‘Fantech, which includes the Fantech, Ideal Air, NCS Acoustics, Air Design, Major Air, Systemaire and Burra Steel brands, is a leading provider of both commercial and residential ventilation in Australia and commercial ventilation solutions in New Zealand,’ Volution said. ‘The acquisition will enhance Volution’s market position in the Australasian region through Fantech’s highly recognised and market leading brands extending the group’s reach into new end market applications with particular emphasis on the commercial sector.’
Online greetings card retailer Moonpig rose 1.6%, and Card Factory climbed 4.4% after positive comments from UBS.
The Swiss bank upgraded Card Factory to ’buy’ from ’neutral’ and hiked its share price target to 180p from 116p before.
‘Often overlooked as an old-school retailer, demand for Card Factory’s products is low growth but remarkably resilient, with consistent outperformance driven by store roll-out and category expansion,’ UBS said.
The broker started coverage of Moonpig with a ’buy’ rating and share price target of 350p, noting a ‘dominant and secure share position within a double-digit growth market’.
Elsewhere, the price of gold hit a new all-time high as the dollar weakened on bets of further US interest rate cuts. The price of the yellow metal rose to $2,606.33 an ounce early Friday afternoon, from $2,585.15 at the time of the London equities close Thursday.
Brent oil was quoted at $74.50 a barrel, easing from $75.05.
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