Share prices were suffering globally on Thursday, as a previously unthinkable debt default by the US drew closer, while Europe’s largest economy fell into recession.
In London, the FTSE 100 index opened down 43.41 points, or 0.6%, at 7,583.69. The FTSE 250 was down 76.00 points, 0.4%, at 18,855.16, and the AIM All-Share was down 1.82 points, 0.2%, at 794.65.
The Cboe UK 100 was down 0.4% at 757.96, the Cboe UK 250 was down 0.5% at 16,399.58, and the Cboe Small Companies was down 0.1% at 13,534.31.
Stocks in New York ended lower on Wednesday, with the Dow Jones Industrial Average down 0.8%, the S&P 500 down 0.7%, and the Nasdaq Composite down 0.6%.
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.
The savings proposed by Biden narrow the difference between Republican and Democratic spending plans as the two sides seek an agreement to raise US borrowing limits and avert a potentially catastrophic debt default.
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.
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’.
In Europe, Destatis said 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.
‘The persistence of high price increases continued to be a burden on the German economy at the start of the year. This was particularly reflected in household final consumption expenditure, which was down 1.2% in the first quarter of 2023 after adjustment for price, seasonal and calendar variations,’ Destatis explained.
Franziska Palmas, senior Europe economist at Capital Economics: ‘We expect further economic weakness in both Germany and the euro-zone as a whole in the coming quarters...Higher interest rates will continue to weigh on both consumption and investment, and exports may also suffer amid economic weakness in other developed markets.’
In the UK, 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.
In European equities on Thursday, the CAC 40 index in Paris was down 0.6%, while the DAX 40 in Frankfurt was down 0.4%.
The pound was quoted at $1.2350 early on Thursday in London, down from $1.2367 at the equities close on Wednesday. The euro stood at $1.0723, down from $1.0762. Against the yen, the dollar was trading at JP¥139.36, up from JP¥139.12.
In the FTSE 100, Coca-Cola HBC lost 4.1%.
Coca-Cola HBC upped its medium-term revenue growth target. It now expects annual organic revenue growth of 6% to 7%, up from a previous target of 5% to 6%.
It also reaffirmed its ‘progressive’ dividend representing a pay-out ratio of between 40% to 50% of comparable earnings per share per year.
Chief Executive Zoran Bogdanovic said: ‘Despite the recent challenges of Covid, strong commodity inflation and the conflict in Ukraine, we continue to make significant investments in the business to transform our capabilities and seize growth opportunities. This is particularly true in respect of the application of digital tools and data, together with the strong brands we sell and our geographic reach.’
Johnson Matthey shed 3.1%. It said annual results were in line with expectations, despite being below the prior year.
In the financial year that ended March 31, the London-based speciality chemicals and sustainable technology firm said revenue fell 6.8% to £14.93 billion from £16.03 billion the year before. This missed company-compiled analyst consensus of £15.74 billion. The decline was driven by lower average platinum group metal prices.
Pretax profit from continuing operations jumped 76% to £344 million from £195 million but fell short of the consensus estimate of £380.3 million.
Johnson Matthey declared an interim dividend of 22.0p per share, bringing the annual total to 77.0p, unchanged from the previous year.
Looking ahead, it expects ‘at least’ mid-single-digit growth in operating performance at constant precious metal prices and constant currency. However, it noted that precious metal prices have been ‘volatile’.
‘We have navigated global macroeconomic challenges to report full year results in line with market expectations, with a stronger second half as we indicated back in November. We have also been delivering against our strategic milestones with important customer wins, which will drive growth,’ said CEO Liam Condon.
In the FTSE 250, Hill & Smith was up 2.9%, putting it at the top end of the index.
Hill & Smith said it has delivered a ‘record trading performance’ in the four month period to April 30. It said constant currency revenue growth is up 18%, and there has been ‘strong’ profit growth against a relatively soft 2022 comparator.
Looking ahead, the company said that it expects full-year operating profit to be modestly ahead of the top end of analyst expectations. The current company compiled analyst consensus expectation for financial 2023 is for underlying operating profit of £107.0 million with a range of £105.2 million to £110.2 million.
Hill & Smith said Alan Giddins will continue as executive chair for another 12 to 18 months. He has been in the role on an interim basis since July 2022, while the company searched for a new CEO.
‘The board has undertaken an extensive search process that has identified many strong candidates who have been excited by the group’s prospects,’ Hill & Smith said. ‘However, the board was not able to find a candidate that met its criteria at the current time.’
Shore Capital said it expects to keep its ‘hold’ recommendation on Hill & Smith shares, despite the expected beat to market consensus, as Shore had considered these to be conservative.
In Japan on Thursday, the Nikkei 225 index closed up 0.4%. In China, the Shanghai Composite was closed down 0.1%, while the Hang Seng index in Hong Kong was down 2.0%. The S&P/ASX 200 in Sydney closed down 1.1%.
Brent oil was quoted at $77.71 a barrel early in London on Thursday, down from $78.07 late Wednesday. Gold was quoted at $1,960.10 an ounce, down against $1,969.75.
Thursday’s economic calendar has a gross domestic product from the US at 1330 BST.
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