Stock prices in Europe struggled to find their feet on Thursday, underperforming the Nvidia-boosted New York-listed tech sector, as US debt ceiling worries continue to hang over equities.
There was some welcome respite for the UK consumer, meanwhile, as the energy watchdog announced bills are to come down.
The FTSE 100 index was down 9.75 points, 0.1%, at 7,617.35. The FTSE 250 was down 20.40 points, 0.1%, at 18,910.76, and the AIM All-Share was down 1.23 points, 0.2%, at 795.24.
The Cboe UK 100 was flat at 761.03, the Cboe UK 250 was down 0.1% at 16,464.57, and the Cboe Small Companies was up 0.2% at 13,569.32.
US President Joe Biden offered to freeze government spending at current levels during crunch debt talks with Republicans. This would reduce the deficit by $1 trillion, US Treasury Secretary Janet Yellen said.
Speaker of the House Kevin McCarthy said he is sending Republican negotiators to the White House to ‘try to finish out the negotiations’ on the debt ceiling but warned there were a ‘number of places’ where the two sides were ‘still far apart’ ahead of the crucial June 1 deadline.
UBS Asset Management said that it thinks ‘a last minute deal is likely, but volatility is poised to rise in the near term, as markets are likely to price in some risk of a disruptive outcome between now and then’.
Ratings agency Fitch put the US on notice that its perfect credit rating could be jeopardized if politicians fail to overcome their impasse. Fitch placed the country’s AAA-ranked credit on ‘rating watch negative’ – a move it said ‘reflects increased political partisanship that is hindering reaching a resolution to raise or suspend the debt limit’.
Bannockburn Global Forex analyst Marc Chandler commented: ‘Concerned about the political wrangling over servicing US debt prompted Fitch to put the US on negative credit watch. Besides chin-wagging and finger pointing, it has had little perceptible impact.’
Germany fell into recession, according to numbers from Destatis. Germany’s gross domestic product contracted by 0.3% in the first quarter from the fourth quarter of 2022. In the fourth quarter, GDP had contracted by 0.5% from the third.
In late April, the statistics agency had predicted the economy had remained flat during the first quarter of this year. The negative reading instead means Europe’s largest economy has fallen into a technical recession - defined as two consecutive quarters of negative GDP growth.
In European equities on Thursday, the CAC 40 in Paris was down 0.1%, while the DAX 40 in Frankfurt was flat.
There was some relief for the UK consumer, meanwhile. Regulator Ofgem is lowering its energy price cap from the current £3,280 per year to £2,074 for the average household in England, Wales and Scotland, effective from July 1. Ofgem said the £1,206 reduction to the cap reflected recent falls in wholesale energy prices.
The lower cap will replace the UK government’s energy price guarantee, which currently limits the typical household energy bill to around £2,500. It means the average household will see their annual bill drop by £426.
‘A reduction in the Ofgem price cap offered a modicum of relief to UK households, but bills remain some way above the level they were at before the energy crisis and consumers face increasing pressure on their budgets elsewhere from surging food and borrowing costs,’ said AJ Bell investment director Russ Mould.
Travel and leisure stocks struggled for direction, despite the prospect of consumers having deeper coffers. Domino’s Pizza Group was up 0.7%, easyJet rose 0.1%, but peer Wizz Air lost 2.0%.
The pound was quoted at $1.2368 at midday on Thursday in London, virtually unchanged compared to $1.2367 at the equities close on Wednesday. The euro stood at $1.0728, down against $1.0762. Against the yen, the dollar was trading at JP¥139.52, up compared to JP¥139.12.
At the bottom of the FTSE 100 index at midday was Coca-Cola HBC, down 4.3%.
The soft drink bottling partner of Coca-Cola Co said that since its last investor day in 2019, it has ‘refocused resources to strengthen core growth capabilities’.
It said at the event in Rome that it has updated its medium-term financial targets.
Coca-Cola HBC said it is now targeting average annual organic revenue growth of 6% to 7%, up from a previous target of 5% to 6%.
It aims for an average annual organic earnings before interest and tax margin expansion of 20 to 40 basis points. The company also remains committed to a progressive dividend, with a pay-out ratio of 40% to 50% of earnings per share.
The stock came under pressure, however, as it has gone ex-dividend. It means new buyers will not qualify for the latest payout.
In the FTSE 250 index, Workspace was up 5.2%, despite sinking to annual loss.
The London-based flexible workspace provider said it swung to a pretax loss of £37.5 million in the financial year that ended March 31 from a profit of £124.0 million the year before. This was attributed to a reduction in property valuation of 3.5% in the second half of the year.
Workspace said its property was valued at £2.74 billion on March 31, up from £2.40 billion a year before; however, the company said the valuation was down 3.2% on an underlying basis when excluding capital expenditure and disposals and including McKay at acquisition cost.
Workspace said revenue was up 31% to £174.2 million in financial 2023 from £132.9 million in financial 2022, as net rental income multiplied to £116.6 million from £86.7 million the year before.
Workspace recommended a final dividend of 17.4 pence per share, up 20% from 14.5p a year before, bringing the total dividend for financial 2023 to 25.8p from 21.5p.
Looking ahead, Workspace said rental income for the new financial year will be underpinned by the 7.1% growth in like-for-like rent seen in financial 2023.
Stocks in New York were called largely higher, boosted by tech shares. The Dow Jones Industrial Average was called down 0.2%, whilst the S&P 500 index is called up 0.7%, and the Nasdaq Composite up 2.0%.
Brent oil was quoted at $77.21 a barrel at midday in London on Thursday, down from $78.07 late Wednesday. Gold was quoted at $1,962.33 an ounce, down against $1,969.75.
Nvidia shares jumped 27% in pre-market trade in New York on Thursday. Santa Clara, California-based Nvidia reported a 13% fall in revenue in the three months to April 30 to $7.19 billion, from $8.29 billion a year ago, although this was 19% higher than the previous quarter’s $6.05 billion.
Net income jumped 26% to $2.04 billion from $1.62 billion a year prior and 44% from $1.4 billion in the fourth quarter.
Still to come on Thursday’s economic calendar is a US gross domestic product reading at 1330 BST.
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