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(Alliance News) - Federal Reserve rate hike worries, poor data and US debt ceiling concerns provided the backdrop for a poor day for equities in Europe and a glum open in New York on Thursday.
Wednesday's poor US retail sales reading soured hopes of a soft landing for the world's largest economy in the face of Federal Reserve rate hikes, while corporate earnings remain in focus in New York, with numbers from Netflix ahead.
In Europe, European Central Bank chief Christine Lagarde suggested more rate hikes are on the way, while in the UK, Bank of England Governor Andrew Bailey indicated rates are likely to peak at 4.5%.
The FTSE 100 index closed slumped 83.41 points, or 1.1%, at 7,747.29. The FTSE 250 plunged 316.79 points, or 1.6%, at 19,574.11, though the AIM All-Share fell 7.01 points, or 0.8%, at 852.09.
The Cboe UK 100 closed down 1.0% at 775.32, the Cboe UK 250 closed down 1.7% to 17,099.56, and the Cboe Small Companies closed down 0.1% at 13,968.53.
In European equities on Thursday, the CAC 40 in Paris slumped 1.9% and the DAX 40 in Frankfurt dropped 1.7%.
"European markets have taken their cues from last night's weak US finish opening and traded sharply lower as the early year optimism starts to run into a little bit of turbulence, and some profit taking," CMC Markets analyst Michael Hewson commented.
The mood in New York was no better, with the Dow having now surrendered all of its year-to-date gain.
The Dow Jones Industrial Average was down 0.8% at the time of London's equity market close. It is now 0.3% lower this year. The S&P 500 was down 1.0% on Thursday, while the Nasdaq Composite returned 1.2%.
US retail sales fell 1.1% month-on-month in December, figures on Wednesday showed, worse than market estimates of a lesser 0.8% decline. They had fallen 1.0% in November from October.
Figures on Thursday, however, suggested the US labour market remains strong, despite a spate of job cuts in the technology sector, including plans announced on Wednesday by Microsoft Corp to cut 10,000 jobs.
US initial claims for unemployment insurance in the US fell in the most recent week, according to the Department of Labor.
In the week ending January 14, the advance figure for seasonally adjusted initial claims was 190,000. This represented a decrease of 15,000 from the previous week's unrevised level of 205,000.
Market consensus, as cited by FXStreet, had expected there to be 214,000 new claims in the most recent week.
Microsoft, Amazon, Meta Platforms and Twitter all have announced job cuts in recent weeks.
IG analyst Joshua Mahony commented: "Today's improved US data does help ease some of the fears that we could be facing a sharp economic collapse this month.
"However, US markets appear to have led the drive lower, with the Tuesday declines on the other side of the pond feeding through into Europe yesterday and today."
Despite the risk-off mood, the dollar failed to make robust gains.
The pound was quoted at USD1.2363 at in London on Thursday, a touch lower from USD1.2366 at the equities close on Wednesday. The euro stood at USD1.0795, lower against USD1.0820. Against the yen, the dollar was trading at JPY128.45, lower compared to JPY128.49.
The US Treasury began taking measures Thursday to prevent a default on government debt, as Congress heads towards a high-stakes clash between Democrats and Republicans over raising the borrowing limit.
Such "extraordinary measures" can help reduce the amount of outstanding debt subject to the limit, currently set at USD31.4 trillion, but the Treasury has warned that the tools would only help for a limited time – likely not longer than six months.
"I respectfully urge Congress to act promptly to protect the full faith and credit of the US," said Treasury Secretary Janet Yellen in a letter to Congressional leadership on Thursday.
The world's biggest economy could face severe disruption, with Republicans threatening to refuse the usual annual rubber stamping of an increase in the legal borrowing limit, potentially pushing the US into default.
"This is a potential risk off event that has not gotten much attention even as both parties dig in," BBH Global Currency Strategy analysts commented.
In London, housebuilders struggled. Persimmon closed among the worst of the lot, falling 5.6%.
A downward trend in UK house prices gained further momentum towards the end of 2022, according to surveyors.
A net balance of 42% of professionals across the UK reported seeing a decline in prices, rather than an increase, according to the December 2022, survey from the Royal Institution of Chartered Surveyors.
Mining stocks also suffered, Antofagasta fell 4.3% and Anglo American lost 3.0%. Investors were eyeing miners with caution as rising Covid-19 cases in China damp the outlook for future commodity demand.
Dr Martens plunged 31%. The boot maker lowered its annual guidance due to "significant" operational issues.
London-based Dr Martens suffered a bottleneck at its Los Angeles distribution centre, which it said was caused by a "combination of people and process issues".
It expects the impact of lost wholesale revenue and costs incurred as a result of the issues to hit annual earnings before interest, tax, depreciation and amortisation by around GBP16 million to GBP25 million.
Consequently, it now expects annual Ebitda in the financial year ending March 31 of between GBP250 million and GBP260 million. In financial 2022, the footwear brand posted Ebitda of GBP263.0 million.
Elsewhere in London, Aeorema Communications climbed 17% as the live events agency hailed a "major contract win".
It is now planning scope of work for a project with marketing company Stagwell regarding the Cannes Lions International Festival of Creativity 2023.
"Aeorema's brand experience agency, Cheerful Twentyfirst, will work alongside Stagwell to create a unique and impressive brand activation at Cannes Lions 2023, with the creation of 'Sport Beach', an experience and powerful marketing platform for brands to tap into the cultural zeitgeist of sport and explore the power of fandom," Aeorema said.
Brent oil was quoted at USD85.36 a barrel late in London on Thursday, down from USD87.16 late Wednesday. Gold was quoted at USD1,919.03 an ounce, up against USD1,908.93.
Friday's economic calendar has an interest rate decision from the People's Bank of China overnight. Producer price data from Germany and Ireland are reported at 0700 GMT and 1100 GMT, respectively.
The local corporate calendar has trading statements from merchant banking group Close Brothers and flexible office space provider Workspace Group.
By Eric Cunha, Alliance News news editor
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