Major equities diverged on Thursday, with London’s FTSE 100 being dragged lower by utilities, while carmakers and banks lifted peers in Europe and New York, respectively.
Renault boosted its European peers, while major US banks passed a Federal Reserve stress test with flying colours.
The FTSE 100 index lost 28.80 points, or 0.4%, at 7,471.69. The FTSE 250 closed down 142.08 points, or 0.8%, at 18,270.73, and the AIM All-Share ended down 5.87 points, or 0.8%, at 750.73.
The Cboe UK 100 ended down 0.4% at 745.60, the Cboe UK 250 closed down 0.8% at 15,933.57, though the Cboe Small Companies rose 0.4% at 13,707.13.
Developments at struggling Thames Water hurt shares in London-listed utilities. Severn Trent fell 2.9%, while United Utilities shed 2.5%. Pennon declined 3.2%, also hurt by the Thames Water turmoil.
‘Severn Trent, United Utilities and Pennon Group have all seen shares fall, hit with a triple whammy of investor speculation about tighter regulation, the need for greater investment, and expectations that interest rates will stay higher for longer. Often seen as bond proxies, their attractiveness rather fades when benchmarked against current bond yields,’ AJ Bell analyst Danni Hewson commented.
The UK government has doubled down on its reassurances that troubled Thames Water has ‘secure and committed’ funding, as the water sector’s £60 billion debt pile comes under greater scrutiny.
Access to water and utility bills will not be affected by the supplier’s financing woes, ministers were keen to stress.
Downing Street said water regulator Ofwat was on top of the issue, even though the government is keeping a close eye.
Thames Water named Adrian Montague as its new chair, with effect July 10, replacing Ian Marchant who earlier this year announced that he would leave. Montague was formerly chair of Aviva and 3i Group.
In European equities on Thursday, the CAC 40 in Paris ended up 0.4%, while the DAX 40 in Frankfurt closed flat.
Carmaker Renault climbed 5.0% in Paris on a guidance lift. In a positive read across, Frankfurt-listed, BMW rose 1.1% and Stellantis added 3.6%.
Renault lifted its outlook for the current year given the ‘record levels of performance’ on display so far, including solid revenue growth and successful new product launches.
The Paris-headquartered car manufacturer had in February predicted a full-year operating margin at or above 6%, with an automated operational free cash flow at or above €2 billion.
On Thursday, Renault said it now expects its 2023 operating margin to be between 7% and 8%. It also anticipates an automotive operational free cash flow ‘superior or equal to’ €2.5 billion.
Stocks in New York were higher. The Dow Jones Industrial Average was up 0.6%, the S&P 500 index up 0.3%, and the Nasdaq Composite up 0.1%.
All major banks in the US have passed the Federal Reserve’s annual stress test, designed to assess how well they would fare in a major financial crisis, the central bank said late Wednesday.
The Fed found all 23 banks tested ‘are well positioned to weather a severe recession and continue to lend to households and businesses even during a severe recession,’ according to a report it published.
Among the best-performing New York-listed banking shares, JPMorgan added 2.8%, while Goldman rose 3.5%.
The pound was quoted at $1.2611 at the time of the London equities close on Thursday, slumping from $1.2741 on Wednesday. The euro stood at $1.0886, lower against $1.0916. Against the yen, the dollar was trading at JP¥144.70, up from JP¥144.22 on Wednesday.
The dollar was boosted by stronger-than-expected US data.
Quarter-on-quarter gross domestic product in the US was 2.0% on an annualised basis in the first quarter of the year, slowing from a 2.6% rise on the same basis in the fourth quarter of 2022.
However, the previous estimate said growth in the first quarter was just 1.3%. Markets had expected this to remain true, according to FXStreet-cited consensus.
The raised estimate from the US Bureau of Economic Analysis primarily reflected upward revisions to exports and consumer spending that were partly offset by downward revisions to non-residential fixed investment and federal government spending.
Back in London, B&M slumped 6.5%, as the absence of a guidance boost may have hurt the stock.
The variety goods value retailer said strong, profitable momentum across all regions boosted its quarterly revenue. Revenue in the first quarter of financial 2024, ended June 24, grew 14% to £1.32 billion from £1.16 billion a year prior.
Serco surged 9.6%, among the best of the mid-caps, as immigration and defence demand has boosted its trading.
Hampshire-based Serco said it expects annual revenue to rise by around 6.0% to £4.8 billion from £4.53 billion in 2022. This is ahead of February’s guidance of £4.6 billion.
On an organic basis, it expects revenue to grow around 6%, after previously guiding for flat growth.
Elsewhere, there was little joy among mid-cap equities in London. Lingering economic concerns in the UK hurt Currys shares, the electronics retailer shed 2.7%. Elsewhere in the retail sector, fast fashion firm Asos fell 9.3%.
Away from the gloom, De La Rue surged 9.6%. It is seeing ‘encouraging signs of recovery’ following a significant downturn in printed currency demand over the past 18 months.
It said it swung to a pretax loss of £29.6 million in the year ended March 25 from a profit of £24.2 million the year prior. Revenue from customer contracts fell by 6.7% to £349.7 million to £375.1 million the year before.
However, it has a rosier outlook. De La Rue expects to see some recovery in the currency market. It forecasts revenue in the authentication division to exceed £100 million.
Brent oil was quoted at $73.70 a barrel late Thursday in London, down from $74.05 late Wednesday. Gold was quoted at $1,911.17 an ounce, up against $1,910.97.
Friday’s economic calendar has a UK gross domestic product reading at 0700 BST, before a eurozone inflation reading at 1000 BST.
The local corporate calendar has a trading statement from currency and asset manager Record.
Copyright 2023 Alliance News Ltd. All Rights Reserved.
