Reawakened concern about the stability of US regional banks sent Wall Street lower and gave Europe a poor start on Wednesday.
The worries caused by First Republic Bank offset more positive earnings updates from US technology firms Microsoft and Alphabet.
The FTSE 100 index opened down 14.35 points, or 0.2%, at 7,876.78 on Wednesday. The FTSE 250 was down 50.89 points, or 0.3%, at 19,164.50, and the AIM All-Share was down 2.77 points, or 0.3%, at 821.49.
The Cboe UK 100 was down 0.2% at 787.88, the Cboe UK 250 was down 0.3% at 16,768.98, and the Cboe Small Companies was down 0.2% at 13,751.30.
In the US on Tuesday, Wall Street ended sharply lower. The Dow Jones Industrial Average closed down 1.0%, the S&P 500 down 1.6% and the Nasdaq Composite down 2.0%.
Worries around the banking sector came to the fore once more on Tuesday as shares in First Republic Bank collapsed by 49% after it revealed customers pulled out more than $100 billion of deposits last month.
The California-based lender said withdrawals had stabilised this month, but added that deposits continued to fall slightly.
The news brought back nervousness about the sector, having calmed recently following the chaos caused by the collapse of Silicon Valley Bank.
Francesco Pesole at ING said a risk-off mood has prevailed across markets ‘despite the overall contagion effect having been significantly more contained than in previous instances in March’.
The concern around the US banking sector offset better news from the US technology sector on Tuesday, as both Alphabet and Microsoft reported earnings after the New York close.
Microsoft reported increased revenue and earnings in its financial third quarter, boosted by solid growth in its cloud division, sending its shares 7.8% higher at the start of the New York pre-market on Wednesday.
Alphabet said its first-quarter profit was down, despite rising revenue, as total costs and expenses widened.
In the three months that ended March 31, the Google parent company said net income fell to $15.05 billion from $16.44 billion a year earlier. Revenue rose to $69.79 billion from $68.01 billion.
Alphabet shares A shares were up 1.4% in the New York pre-market on Wednesday.
The dollar softened slightly amid the sour sentiment about US banks. Sterling was quoted at $1.2457 early Wednesday in London, higher compared to $1.2404 at the equities close on Tuesday.
The euro stood at $1.1024, higher against $1.0983. Against the yen, the dollar was trading at JP¥133.54, lower compared to JP¥133.98.
In London, Persimmon was the top blue-chip performer in early morning trade. The stock was up 3.6%.
The housebuilder said its trading over recent weeks has offered some signs of ‘encouragement’ with visitor numbers up, cancellation levels normalising and sales rates continuing its steady improvement.
‘If sales rates continue at the levels seen year-to-date, we would expect full year 2023 volumes to be toward the top end of the previously indicated range of 8,000 to 9,000 completions,’ Persimmon said.
Net private sales per outlet were 0.62 in the first quarter of 2023, compared with 0.30 in the final quarter of 2022. As a result of the improved sales rates, Persimmon said its forward sales position has increased to £1.7 billion at the end of the first quarter, compared with £1.0 billion at the end of 2022.
Fellow housebuilders Taylor Wimpey and Barratt Developments climbed 1.7% and 1.3%, respectively, in a positive read-across.
Davy Research wasn’t overly impressed by the Persimmon update.
‘A modest improvement in sales rates will be welcome from Persimmon, but in general any rebound in demand has been underwhelming through the spring selling season. We do not expect to change forecasts on the back of today’s statement,’ said analyst Colin Sheridan.
Smith & Nephew rose 1.0%.
The medical equipment manufacturer kept its full-year guidance unchanged as it reported revenue growth across all three of its franchises in the first quarter of 2023.
Revenue in the quarter totalled $1.36 billion, up 6.9% from $1.31 billion the previous year thanks to a continued strong performance from Sports Medicine & ENT and from Advanced Wound Management.
In the FTSE 250, Drax climbed 4.1%.
The electricity generator said it delivered a ‘strong’ system support and generation performance in the first three months of 2023, as it announced a £150 million share buyback programme.
Drax also said it expects 2023 adjusted earnings before interest, tax, depreciation and amortisation to be in-line with analyst consensus estimates, which it placed at £1.16 billion in a range of £1.1 billion to £1.2 billion.
Elementis fell 0.3%.
The specialty chemicals company said overall trading in the first quarter of 2023 has been ‘resilient’ against subdued market demand conditions.
It reported that revenue was flat on an underlying basis in the quarter as benefits from prior year pricing actions and improved mix broadly offset weaker volumes.
Elsewhere in London, Trifast jumped 13%.
The industrial fastenings and component manufacturer said, as a result of higher annual revenue and its pricing actions, its adjusted pretax profit for the year ended March 31 is now expected to be marginally ahead of its previous guidance.
Trifast’s previous guidance for adjusted pretax profit was £9.0 million.
In regard to its new financial year, Trifast said: ‘We are only a few weeks into the new financial year and whilst the destocking experienced from an Asian customer in the latter part of FY23 has abated, we remain mindful that the short-term macroeconomic outlook remains challenging. However, we have entered the new year with a backdrop of new contract wins and a healthy pipeline. These, together with the benefits from our operational improvement programmes, support the board’s continued expectation in delivering a marked improvement in performance in FY24.’
In European equities on Wednesday, the CAC 40 in Paris and the DAX 40 in Frankfurt were both down 0.4%.
In Tokyo, the Nikkei 225 index closed down 0.7%. In China, the Shanghai Composite closed flat, while the Hang Seng index in Hong Kong closed up 0.7%. The S&P/ASX 200 in Sydney closed down 0.1%.
Brent oil was quoted at $81.00 a barrel at early in London on Wednesday, up from $80.52 late Tuesday. Gold was quoted at $1,998.41 an ounce, higher against $1,987.63.
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