European equities retreated once more on Thursday, but it was a tale of two markets in the US as Nvidia drove the Nasdaq higher as it aimed to join the trillion dollar club.
But blue chips globally remained in the doldrums with fears of a US default rising by the day as lawmakers in Washington failed to make a breakthrough in debt ceiling talks.
The FTSE 100 index closed down 56.23 points, 0.7%, at 7,570.87. The FTSE 250 lost 90.41 points, 0.5%, at 18,840.75, and the AIM All-Share ended down 3.93 points, 0.5%, at 792.54.
The Cboe UK 100 ended 0.5% lower at 757.04, the Cboe UK 250 closed down 0.4% at 16,414.54, and the Cboe Small Companies was up 0.1% at 13,562.34.
In European equities on Thursday, the CAC 40 in Paris and DAX 40 in Frankfurt both ended down 0.3%.
The continued US debt ceiling impasse prompted a warning shot from Fitch Ratings.
Fitch placed the US’s AAA-ranked credit on ‘rating watch negative’, saying this ‘reflects increased political partisanship that is hindering reaching a resolution to raise or suspend the debt limit’ before June 1.
There is still a gulf between the Biden administration and Republican lawmakers, led by House speaker Kevin McCarthy.
Republicans in Congress have so far refused to lift the government borrowing ceiling without a commitment from Democrats to cut spending next year, and to start bringing down the country’s $31-trillion-plus debt burden.
Capital Economics analyst Paul Ashworth commented: ‘The debt ceiling stand-off will probably now drag on into early June, setting up the prospect of a near-default before a bipartisan bill is finally passed by Congress, possibly only after a more serious bout of market turmoil. The risk of a formal debt default remains low but, by prioritising debt servicing, the Treasury may be forced to delay other payments at some point during the first two weeks of June.’
The pound was quoted at $1.2330 late Thursday in London, down from $1.2367 at the equities close on Wednesday. The euro stood at $1.0723, down against $1.0762. Against the yen, the dollar was trading at JP¥139.85, up compared to JP¥139.12.
The US economy expanded at a faster pace than initially expected in the first quarter of 2023, numbers from the Bureau of Economic Analysis showed on Thursday.
According to a second estimate, quarter-on-quarter US gross domestic product growth slowed to 1.3% on an annualised basis from a 2.6% rise on the same basis in the fourth quarter of 2022. Growth of 1.1% had been reported in the first estimate, so the first-quarter reading has been upwardly revised.
UK government bond yields stretched to the highest level since October, as expectations of further Bank of England rates hikes, after a hotter-than-expected inflation reading, continue to build. The yield on the 10-year bond traded around 4.35% at the time of the London equities close.
‘Yesterday’s headlines that gilt yields had soared back towards the levels hit after the disastrous mini budget last September was unsettling for investors and for the pound,’ analysts at Rabobank commented.
‘The risk that the BoE will have to raise the bank rate to 5.0% or maybe higher has clearly increased on the back of the sticky UK April CPI inflation rate. In turn, this has stimulated a couple of prevailing debates. The first is whether the bank will have to push the UK economy into recession to restore CPI inflation to its 2% target. The second is regarding the additional burden on the UK economy from Brexit.’
Rabobank analysts added: ‘The BoE is not the only G10 central bank which may have to choose recession in order to regain its inflation fighting credibility, but the UK is already dogged by a poor line-up of fundamentals. The UK has the highest inflation rate in the G7, a soft growth outlook, a weak record on investment and productivity growth in recent years, a high budget deficit and a current account deficit (although the latter has improved). Inevitably, this has raised questions about how much of this is related to Brexit.’
Brent oil was quoted at $76.15 a barrel late Thursday afternoon in London, down from $78.07 late Wednesday. Gold was quoted at $1,945.11 an ounce, down against $1,969.75.
In London, Hill & Smith shares rose 4.8%. It said it has delivered a ‘record trading performance’ in the four-month period to April 30. It said constant currency revenue growth was 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.
Technology and finance start-up investor Chrysalis Investments surged 17% on decent results from its Starling Bank investee.
Starling’s revenue more than doubled in the year ended March 31 to £453 million from £216 million. Its pretax profit increased sixfold to £195 million from £32 million.
Headlam slumped 9.9% as the floor coverings distributor warned on volumes in the residential sector due to weak consumer confidence.
Headlam said lower residential volumes, coupled with a moderation in price increases, reduced its gross margin in the first four months of the year.
Stocks in New York were mixed. The Dow Jones Industrial Average was down 0.5%, though the S&P 500 index rose 0.5%, and the Nasdaq Composite surged 1.5%.
Nvidia shares jumped 27% in early 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.
‘The AI revolution may be making a lot of noise but results from microchip firm Nvidia hint at some substance behind the hype,’ AJ Bell analyst Russ Mould commented.
‘The company is one of the key businesses behind the infrastructure which is powering AI and its blockbuster earnings helped power the shares to a record high after the bell on Wall Street last night.’
Friday’s economic calendar has a UK retail sales reading at 0700 BST. The latest US core personal consumption expenditures reading is reported at 1330 BST. Core PCE is the Federal Reserve’s preferred inflationary reading.
Friday’s local corporate calendar has half-year results Transact investment platform owner IntegraFin.
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