London’s FTSE 100 ended higher but peers in Frankfurt and Paris struggled for traction, as European equities underwhelmed at the start of the week amid little progress in US debt ceiling talks.
‘It’s rather bonkers that US politicians seem to be playing a game of chicken with the US economy. Not reaching an agreement on raising the debt ceiling is unthinkable, but right now neither the Republicans nor the Democrats seem ready to swerve. Investors can’t help but feel nervous. The last time these talks got down to the wire, markets plummeted and the country’s borrowing costs shot up,’ AJ Bell analyst Danni Hewson commented.
‘Even if the deadlock is broken in time to prevent the US defaulting on its debt, the uncertainty is destabilising, particularly when the economy is already looking a little vulnerable.’
The FTSE 100 index closed up 14.12 points, 0.2%, at 7,770.99. The FTSE 250 lost 15.76 points, 0.1%, at 19,273.34, and the AIM All-Share was down 0.76 of a point, 0.1%, at 808.21.
The Cboe UK 100 ended flat at 776.75 and the Cboe UK 250 lost 0.2% at 16,786.26. The Cboe Small Companies closed 0.1% higher at 13,581.29.
In European equities on Monday, the CAC 40 in Paris closed down 0.2%, and the DAX 40 in Frankfurt lost 0.3%.
Anxiety grew in Washington Monday as President Joe Biden prepared to meet again with Republican House Speaker Kevin McCarthy for negotiations on raising the US debt ceiling, 10 days before a key deadline to avoid a disastrous default.
After a weekend of near deadlock, Biden arrived back in Washington late Sunday, cutting short a trip to Asia to resume talks ahead of the US Treasury’s June 1 cut-off date for Congress to authorise more borrowing.
Biden and McCarthy spoke as the president flew back to the US from the G7 summit in Japan on Air Force One.
The two sides seemed far from a final compromise, as Biden said Republicans’ latest demands for spending cuts as a condition for raising the US government borrowing authority were ‘frankly unacceptable.’
Ebury analyst Matthew Ryan commented: ‘An unthinkable US debt default remains possible in early-June. We see this as highly unlikely to come to pass, though the uncertainty is likely to keep low-risk assets well bid this week.’
The pound was quoted at $1.2424 late Monday in London, down compared to $1.2463 at the equities close on Friday. The euro stood at $1.0802, lower against $1.0812. Against the yen, the dollar was trading at JP¥138.52, up compared to JP¥137.64.
Eyes this week will be on a UK inflation reading due on Wednesday. The data will put the Bank of England under the spotlight, with its ‘credibility’ at stake if the annual inflation rate does not slow as expected. According to FXStreet cited consensus, the yearly inflation rate is expected to have ebbed to 8.2% in April, from 10.1% in March.
XTB.com analyst Joshua Raymond commented: ‘This inflation reading carries huge risk for the reputation of the Bank of England. The UK’s central bank has long predicted inflation should slow from 11.1% to around 4% by the year end. Make no mistake, if data out on Wednesday shows that the UK inflation rate remains above 9%, the credibility of the Bank of England will face a significant threat and the market will quickly question if they have acted aggressively enough or not.’
Earlier this month, the BoE lifted bank rate by 25 basis points to 4.50%.
Stocks in New York were mixed at the time of the European close. The Dow Jones Industrial Average was down 0.2%, the S&P 500 index was up 0.2%, while the Nasdaq Composite was 0.5% higher.
Among New York listings, JPMorgan Chase shares initially opened lower, but were down 0.2% at the time of the European equities close.
JPMorgan lifted its net interest income guidance at its investor day, the Financial Times reported. It reported JPMorgan lifted its 2023 target for net interest income, excluding its trading division, to about $84 billion from $81 billion previously.
However, JPMorgan said ‘sources of uncertainty remain’ in the guidance and that its ‘medium-term’ outlook was for NII in the mid-$70 billion range, in part because of an eventual need to pay higher interest rates to savers.
At the start of May, JPMorgan said it has taken over First Republic Bank, after California regulators seized the troubled bank.
Among London-listed banks, Standard Chartered rose 3.0%. Bank of America lifted the stock to ’buy’ from ’neutral’.
StanChart helped support the FTSE 100 on Monday, so did share price rises for JD Sports, Burberry and BT, stocks which were battered last week after poorly-received yearly results.
On Monday, JD Sports added 2.3%, Burberry rose 1.5% and BT climbed 2.0%.
Workday partner Kainos surged 6.1%. The Belfast-based digital services provider said pretax profit for the year ended March 31 rose 18% to £54.3 million from £46.0 million. Revenue surged 24% to £374.8 million from £302.6 million.
‘We have recorded our 13th consecutive year of growth across a wide range of key metrics. Our very strong business performance reflects robust underlying market demand, high levels of customer engagement and the ongoing commitment of our colleagues,’ Kainos said.
At the other end of the mid-cap index, Dechra shed 13%. The veterinary pharmaceutical company said underlying operating profit for the financial year ended June 30 was likely to fall short of its £186 million guidance.
Back in February, the Cheshire, England-based company had said profit was expected to be at the lower end of analyst expectations, which it cited at the time as a range of between £186 million and £199 million.
The trading environment from January to April was tougher than the firm had predicted when it provided that guidance, Dechra said. It also said it has been hurt by de-stocking in the US.
Elsewhere in London, Wincanton added 4.6%. The Wiltshire, England-based logistics firm said pretax profit for the year ended March 31 dropped by 30% to £38.2 million from £54.8 million the year prior.
Profit was hurt by impairment costs, though when those are stripped out, Underlying pretax rose by 5.9% to £62.1 million from £58.1 million the year prior. Wincanton’s revenue rose by 2.8% to £1.46 billion from £1.42 billion the year prior.
‘This is a strong achievement against a challenging economic environment and in particular compares to the prior year that saw strong volumes across our grocery and consumer sector,’ the company said.
Brent oil was quoted at $75.94 a barrel at the time of the London equities close on Monday, up from $75.74 late Friday. Gold was quoted at $1,972.21 an ounce, down fractionally against $1,972.99.
Tuesday’s economic calendar has a slew of flash purchasing managers’ index readings, including the eurozone at 0900 BST, the UK at 0930 BST and the US at 1445 BST.
The UK corporate diary has annual results from industrial and electronics products distributor RS Group, and half-year numbers from Upper Crust owner SSP Group and tile seller Topps Tiles.
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