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(Alliance News) - Economic growth fears, coupled with worries that monetary policy could soon tighten, sent European equities into the red on Wednesday.
Markets are still reeling from Friday's eye-popping US jobs report miss. In the UK, Prime Minister Boris Johnson has refused to rule out further tax rises after announcing a GBP12 billion-a-year levy to fund health and social care. Focus also turns to the European Central Bank, which announces its latest interest rate decision on Thursday.
"Boris Johnson's plans to raise national insurance rates building on the theme of monetary tightening seen in recent months. Tomorrow sees the ECB come back into play, with Lagarde likely to cut asset purchases," IG Markets analyst Joshua Mahony commented.
The FTSE 100 index was down 39.81 points, 0.6%, at 7,109.56. The blue-chip index pared losses, however. It had fallen as much as 1.2% earlier in the session.
The mid-cap FTSE 250 index was down 107.50 points, 0.5%, at 23,989.98. The AIM All-Share index was down 4.34 points, 0.3%, at 1,303.21.
The Cboe UK 100 index was down 0.6% at 707.07. The Cboe 250 was down 0.7% at 21,742.69, and the Cboe Small Companies was down 0.3% at 15,548.76.
In mainland Europe, the CAC 40 stock index in Paris was 0.5% lower and the DAX 30 in Frankfurt was down 0.9%.
AJ Bell investment director Russ Mould commented: "Economic growth fears have cast a black cloud over global markets, leading to some hefty share price declines across Europe on Wednesday.
"Investors on the whole have enjoyed a fairly decent run this year, but now attention is turning from the post-lockdown spending splurge to how corporate earnings might fare next year."
The pound was quoted at USD1.3761 midday Wednesday, down from USD1.3780 at the London equities close on Tuesday. The euro stood at USD1.1819, down from USD1.1840. Against the Japanese yen, the dollar was trading at JPY110.19, largely unchanged from JPY110.20.
UK PM Johnson will attempt to convince Conservative MPs to back his plan to fix social care on Wednesday at a snap Commons vote called just one day after the manifesto-busting new policy was announced.
Johnson took a political gamble on Tuesday as he scrapped an election promise by raising national insurance contributions to deal with the backlog in the NHS built up during Covid and to deliver long-overdue reform of the social care system in England.
The PM also refused to give a firm commitment that taxes would not go up again – although he said he did not want that to happen.
IG's Mahony added: "This week has seen Boris Johnson provide a timely reminder that the seemingly one-way traffic of increased spending and financial support was always likely to ultimately result in higher taxes as the Treasury seek to cut the deficit built up over the year.
"Investors and business owners are also taking an additional hit, with plans to apply a 1.25% tax on dividend payments from April 2022."
New York futures were lower on Wednesday. The Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite were all called to open 0.1% lower.
Trepidation meant only a handful of blue-chip stocks were in the green in London. Among them, engineer Smiths Group rose 3.3%. It backed a higher offer to sell its Smiths Medical unit to California-based medical technology firm ICU Medical.
The terms of the deal are "superior" to a USD2.3 billion sale it agreed with private equity firm TA Associates. The company had agreed the TA deal in August, though it has now withdrawn its recommendation for that offer.
The ICU Medical deal values Smiths Medical at USD2.7 billion, with a further USD100 million up for grabs depending on Nasdaq-listed ICU's share price performance following the acquisition.
Minus debt and other liabilities, the deal is worth USD2.4 billion, about USD400 million higher than the TA agreement. In addition, Smiths will also receive 2.5 million ICU shares, worth USD500 million at current market prices.
Smiths plans to return 55% of the sales proceeds, equal to GBP737 million, to shareholders through a buyback.
B&M European was the best performing blue-chip stock, surging 6.3%. The variety retailer raised annual guidance on stronger than expected margins.
B&M said it now expects adjusted earnings before interest, tax, depreciation and amortisation for the first half period to September 25 to be between GBP275 million and GBP285 million. The market expectation is currently around GBP235 million.
Revenue for the year to date has been broadly in line with market expectations, while gross margins have been stronger than originally anticipated in the B&M UK fascia business, the company noted.
Supply chain issues are a concern for B&M, however, analysts at Shore Capital Markets said.
Car parts and bicycle retailer Halfords warned on supply-side issues. The stock fell 3.2%.
Halfords said sales rose 11% year-on-year in the 20 weeks to August 20, and were up 19% from two years earlier.
The company reasserted its full-year pretax profit target of above GBP75 million. However, the firm did warn of ongoing supply-side challenges, including factory production constraints and raw material inflation.
Dunelm also flagged potential supply chain challenges, though the homewares retailer surged 13%, topping the FTSE 250 index.
With more time spent indoors due to lockdown measures, the company saw sales jump, despite its store estate being hit by restrictions.
In the year ended June 26, revenue rose 26% to GBP1.34 billion from GBP1.06 billion. Pretax profit jumped 45% to GBP157.8 million from GBP109.1 million.
Dunelm declared a full-year ordinary dividend of 35.0 pence per share, having not paid one a year earlier. It also declared a 65.0p special payout.
"Sales growth in the first ten weeks of the new financial year has been encouraging, including a positive response from customers to our Summer Sale in July and continued outperformance versus the homewares market," Dunelm said.
It expects pretax profit to be "modestly ahead" of current analyst expectations, which range from GBP153 million to GBP175 million.
Dunelm cautioned on "ongoing supply chain disruption and inflationary pressures from raw materials, freight costs and driver shortages".
Shares in fast fashion firms ASOS and boohoo, similarly exposed to supply chain challenge and HGV driver shortages, were down 2.8% and 2.3%. ASOS's shares have fallen in each of the last nine sessions.
Equities in Asia closed mixed on Wednesday. The Nikkei 225 in Tokyo extended its rally with a 0.9% rise. However, the Shanghai Composite tread water and the Hang Seng Index in Hong Kong fell 0.1%.
This was despite Beijing rushing to reassure rattled investors that recent clampdowns on a range of industries including tech firms and the education sector will not detract from its goal of opening up the economy.
Sweeping regulatory changes over the past months have targeted everything from monopolistic behaviour to data security, rattling share prices and wiping billions off companies' valuations.
"Opening to the outside world is China's basic national policy, and this will not waver at any point," a front-page People's Daily editorial proclaimed on Wednesday.
"Unswervingly, the principles and policies of encouraging, supporting and guiding the development of the non-public sector of the economy have not changed," the state outlet added.
Chinese technology stocks ended higher on Wednesday, with JD.com climbing 1.9%, Tencent rising 1.8% and Alibaba adding 0.5%.
Brent oil was quoted at USD72.46 a barrel midday Wednesday, up from USD71.67 late Tuesday. Gold rose to USD1,798.27 an ounce, from USD1,794.50.
Still to come on Thursday, July's US job openings and labour turnover survey will be posted at 1500 BST. The data will be closely-eyed in the wake of August's jobs report. The JOLTS survey reached a record high in June.
By Eric Cunha; ericcunha@alliancenews.com
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