London share prices started trading on Friday marginally lower, with the FTSE 100 bouncing between between green and red, as markets gear up for major central bank decisions next week.
Weak US jobs data on Thursday are thought to have increased the chances of pause in monetary policy tightening by the Federal Reserve this month, while weak inflation in China is expected to prompt some form of stimulus by the People’s Bank of China.
The FTSE 100 index was down 4.57 points, or 0.1%, at 7,595.17. So far this week, the blue-chip index has lost 0.2%.
The FTSE 250 was down 55.95 points, 0.3%, at 19,051.60, and the AIM All-Share down 2.66 points, or 0.3%, at 790.24.
The Cboe UK 100 was down 0.1% at 757.18, the Cboe UK 250 was down 0.3% at 16,632.70, and the Cboe Small Companies was down 0.2% at 13,840.33.
In European equities, the CAC 40 in Paris was down 0.3%, while the DAX 40 in Frankfurt was down 0.2%.
The pound was quoted at $1.2550 early Friday, up from $1.2541 at the time of the London equities close on Thursday. The euro stood at $1.0773, flat from $1.0774. Against the yen, the dollar was trading at JP¥139.47, rising from JP¥139.05.
Stocks in New York ended higher on Thursday, bolstered by a weaker-than-expected US jobless claims reading, which took some pressure off the Federal Reserve to raise interest rates next week.
The Dow Jones Industrial Average closed up 0.5%, the S&P 500 up 0.6%, and the Nasdaq Composite up a more significant 1.0%.
New claims for unemployment insurance in the US rose in the most recent week, the Department of Labor reported.
Initial claims for unemployment support in the week ended June 3 totalled 261,000, an increase of 28,000 from the previous week’s revised level. The previous week’s level was revised up by 1,000 to 233,000 from 232,000.
The data took some pressure off the Fed to raise interest rates on Wednesday next week. The federal funds rate currently stands at 5.00% to 5.25%.
At a press conference following the Federal Open Market Committee’s last meeting in May, Chair Jerome Powell suggested the Fed will pause this time round. Hawkish commentary from US central bankers, and more recently, surprise rate hikes by the Bank of Canada and Reserve Bank of Australia put a bit more uncertainty over the Fed’s decision.
‘The FOMC will likely pause at its June meeting next week to let the banking sector, debt ceiling debate, and TGA refunding dust settle before it considers another rate hike ultimately,’ said Stephen Innes at SPI Asset Management.
‘The Fed leadership has signalled that it sees pausing as the prudent course because uncertainty about the lagged effects of the rate hikes it has already delivered and the impact of tighter bank credit increases the risk of accidentally overtightening.’
In China, annual inflation rate quickened slightly last month, but stayed not far above zero. The consumer price index rose 0.2% year-on-year, picking up a bit of speed from 0.1% in April, the National Bureau of Statistics said. The figure fell short of FXStreet-cited consensus which predicted an uptick to 0.3% annual inflation.
Beijing has kept interest rates low compared to other major economies, but the near-zero inflation in China highlights challenges faced by policymakers there as they try to stimulate the economy.
The country’s annual producer price index – which measures prices paid by wholesalers – dropped a bigger-than-expected 4.6% in May on a year before, after a 3.6% annual decline in April, the biggest year-on-year fall in producer prices since 2016.
PPI has recorded annual decline for eight consecutive months because of sluggish domestic demand and lower commodity costs.
‘That tame inflation environment potentially leaves the way open for further policy measures to stimulate economic growth,’ analysts at Lloyds Bank commented.
Mining firms were among the best performers in London’s FTSE 100 index early Friday. Rio Tinto added 0.6% and Glencore 0.5%. China is a major buyer of mine output.
Equity markets in Asia-Pacific had a positive day. Sydney’s S&P/ASX 200 rose 0.3%. The Shanghai Composite added 0.6%. The Hang Seng in Hong Kong was also up 0.6% in late trade.
The Nikkei 225 in Tokyo led the charge, closing up 2.0%, and taking its year-to-date gain to 24%. By contrast, the S&P 500 in New York has risen 12% so far this year, while the FTSE 100 in London has added just 1.9%.
Helping to push the Nikkei higher on Friday, Uniqlo-owner Fast Retailing rose 4.6%, video game company Nintendo climbed 1.9%, and carmaker Toyota added 1.4%.
‘From high youth unemployment to deflationary pressures, the People‘s Bank of China has plenty of issues to address if it wants to try and get economic activity kickstarted,’ commented Tim Waterer, chief market analyst at KCM Trade.
‘The muted market reaction today to the soft Chinese numbers indicate two things – one that expectations are already lowered regarding Chinese economic indicators, and two, that hopes for PBOC stimulus are limiting moves to the downside in risk-assets.’
In London, Croda slumped 11% after warning on annual profit, as the chemicals company grapples with customer destocking. Croda provides chemicals for the personal care, fragrances, pharmaceutical and crop care sectors.
Sales volumes in its Consumer Care arm were down by a double-digit percentage year-on-year for the five months ended May 31.
‘Price increases implemented in 2022 and favourable foreign exchange rates so far in 2023 have helped to offset this impact, with revenues broadly flat versus the first five months of 2022. However, principally due to the lower sales volumes, operating profit margin has remained at a similar level to the second half of 2022,’ the company said.
Croda said it achieved pretax profit of £143 million in the first five months of 2023, helped by ‘minimal net finance costs’.
With customer destocking set to continue in its consumer-focused division, Croda now predicts full-year pretax profit of £370 million to £400 million, down as much as 52% from £780.0 million in 2022.
Shares in chemicals firms in mainland Europe fell in a negative read across. Givaudan lost 2.7% in Zurich. Pharmaceutical and chemicals firm Bayer fell 1.6% in Frankfurt.
Back in London, Network International shares added 6.0% to 384.60 pence. It agreed to a £2.2 billion takeover from entities backed by private equity firm Brookfield Asset Management.
Brookfield will pay 400 pence per Network International share, a 64% premium to Network International’s 243.6p share price at the close of play on April 12, the day before the Middle East and Africa-focused payments provider first received buyout interest.
Back then, it was a private equity consortium featuring CVC Capital Partners and tech-focused investor Francisco Partners Funds that showed an interest. This then led to a 387p per share takeover proposal.
Network International Chair Ron Kalifa said: ‘The board has carefully considered the Brookfield offer in the context of the long term growth prospects and opportunities available to the business, balanced against the current challenges and uncertainty in the global macroeconomic environment and the expected timeframe that would be required to generate a similar level of value creation for Network shareholders. The Brookfield offer represents an opportunity for Network shareholders to crystallise, in cash, the value of their investments at a significant premium.’
Amigo shares rose almost four-fold, trading at 1.22p after closing at 0.32p on Thursday. Amigo said it has granted exclusivity to shareholders and financier Michael Fleming, to ‘explore finding and completing a debt investment’ in the firm.
Hopes of a financial reprieve for the credit provider lifted the stock, though Amigo tempered expectations.
‘Shareholders should note that there remain significant impediments to any new capital being made available to the business. In addition, establishing a new business and potentially creating value for shareholders in the longer term, has significant execution risks and will require regulatory approval. The board recognises the very low likelihood of a successful conclusion to any discussions arising because of this agreement,’ Amigo said.
Amigo began winding down in March. It failed to receive sufficient investment interest to an equity capital requirement of £45 million.
Brent oil was quoted at $75.64 a barrel early Friday, down from $76.28 late Thursday. Gold was priced at $1,964.40, down from $1,966.33.
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