LONDON MARKET CLOSE: Stocks sink as gas price rise fans inflation fear

(Alliance News) - Stocks in London ended sharply lower on Wednesday as European and UK gas prices surged to record peaks, fuelled by fears of runaway demand in the upcoming northern hemisphere winter.

Soaring gas prices - coupled with oil which has struck multi-year highs - have fuelled fears over spiking inflation and rocketing domestic energy bills. Gas demand is also heightened in Asia, particularly from China, while key Russian exports are falling.

Russian President Vladimir Putin said the country would boost natural gas supplies to Europe, which is bearing the brunt of a global energy crunch.

The FTSE 100 index closed down 81.23 points, or 1.2%, at 6,995.87. The FTSE 250 ended down 344.03 points, or 1.5%, at 22,386.62 and the AIM All-Share closed down 17.78 points, or 1.5%, at 1,200.42.

The Cboe UK 100 ended down 1.2% at 694.80, the Cboe UK 250 closed down 1.7% at 20,268.90 and the Cboe Small Companies ended down 1.4% at 15,428.60.

In Paris the CAC 40 stock index ended down 1.3%, while the DAX 40 in Frankfurt ended down 1.5%.

"Another day of major volatility for financial markets, with declines across the board driving the VIX higher once again. Commodity volatility remains a key concern for traders, with natural gas continuing to surprise after first breaking higher and then tumbling back to bring the steepest one-day decline this year. Russian promises to ramp up supplies to Europe has helped provide some respite, yet concerns remain over whether the Russians will go far enough in a bid to drive down prices," said IG Group's Josh Mahony.

"The end of 2021 appears daunting for a whole host of reasons, with supply-chain difficulties, labour shortages, and soaring input prices all serving to dampen sentiment for businesses. There is little worry that consumer and corporate demand is lacking, yet there are major questions over whether firms will be capable of fulfilling that need. Instead, we are faced with a potential end to the year where sky-high input prices drive down margins, and the already dwindling inventories soon result in empty shelves," Mahony added.

In the FTSE 100, Tesco ended the best performer, up 5.9%, after the grocer lifted its annual outlook and set out plans for a GBP500 million buyback as it reported profit more than doubled in its first half.

Revenue in the six months to August 31 rose 5.9% year-on-year to GBP30.42 billion, from GBP28.72 billion. The figure includes fuel but does not factor in value-added tax. Tesco's pretax profit more than doubled to GBP1.14 billion from GBP551 million. Adjusted retail operating profit rose to GBP1.39 billion from GBP1.19 billion a year before.

In addition, the UK's largest supermarket chain unveiled an ongoing share buyback programme, worth GBP500 million in its first tranche which will be carried out until October next year.

The interim dividend was held steady at 3.20p. It confirmed plans for a progressive payout, however.

Looking ahead, Tesco expects full-year adjusted retail operating profit between GBP2.5 billion and GBP2.6 billion. This would be higher than the GBP1.99 billion achieved last year, as well as above the GBP2.33 billion posted for the pandemic-free 2020 financial year.

Rivals J Sainsbury and Wm Morrison Supermarkets closed down 2.9% and flat, respectively.

Precious metals miners Fresnillo and Polymetal International closed up 2.3% and 1.3% respectively, tracking spot gold prices higher.

Micap peers Centamin and Hochschild Mining closed up 1.6% and 1.4% respectively.

Gold was quoted at USD1,760.00 an ounce at the London equities close, rising against USD1,753.55 late Tuesday.

HSBC Holdings closed up 3.4% after UBS raised the global lender to Buy from Neutral.

At the other end of the large-caps, Imperial Brands closed down 3.8%. The tobacco firm said it was on target to meet full-year guidance.

The Winston, Gauloises and Davidoff cigarette maker expects net revenue for the year ended September 30 to grow by around 1% on an organic, constant currency basis, driven by continued strong pricing in tobacco.

Adjusted organic operating profit growth is expected to be in line with guidance of low to mid-single digit constant currency growth, reflecting "significantly reduced" losses in Next Generation Products - such as heated tobacco and vape offerings - and increased Distribution profit.

In the FTSE 250, PageGroup ended the best performer, up 7.8%, after the recruiter lifted its outlook for a second time in just three months following growth in the third quarter.

For the three months to the end of September, gross profit jumped 65% year-on-year to GBP228.1 million. Compared to 2019, profit was 13% ahead. Gross profit per fee earner was up 21% on 2019.

Despite uncertainty ahead, driven by Covid-19 and supply chain disruption, the FTSE 250-listed firm said its performance in the third quarter has boosted confidence for the full-year. It now expects annual operating profit in the region of GBP155 million, having previously been seen in a range of GBP125 million to GBP135 million.

Rival Hays ended up 3.4% in a positive read-across - the second best midcap stock.

The pound was quoted at USD1.3570 at the London equities close, down from USD1.3630 at the close Tuesday, following disappointing domestic economic data.

The UK construction sector saw momentum ebb in September amid weaker demand conditions and supply shortages, a survey showed.

The IHS Markit/Chartered Institute of Procurement & Supply UK construction purchasing managers' index eased to 52.6 points in September from 55.2 in August. The reading remained above the no-change mark of 50.0, indicating the sector continued to expand in September, but at a far slower pace than in August.

This was the weakest growth pace for eight months, as the index continues to edge down from June's 24-year high of 66.3 points.

The euro stood at USD1.1538 at the European equities close, down sharply from USD1.1600 late Tuesday. Against the yen, the dollar was trading at JPY111.34, down from JPY111.50 late Tuesday.

Stocks in New York were lower at the London equities close amid worries over inflation and congressional gridlock on raising the debt ceiling.

The DJIA was down 0.7%, the S&P 500 index down down 0.6% and the Nasdaq Composite down 0.3%.

Investors remain unsettled by the debate in Washington, where Republicans have thus far opposed efforts to raise the debt ceiling despite the risk of a US government default.

On the economic front, ADP's US private sector jobs report for September surpassed expectations, data showed on Wednesday.

Private sector employment increased by 568,000 jobs last month, accelerating from the 340,000 addition reported for August and breezing past expectations, cited by FXStreet, for a rise of 428,000.

Brent oil was retreating from three-year highs, trading at USD81.12 a barrel at the equities close, down sharply from USD82.87 at the close Tuesday. The North Sea benchmark touched a fresh three-year high of USD83.57 in early trade.

The economic events calendar on Thursday has UK Halifax house price index readings at 0700 BST, Germany industrial production at 0700 BST and the latest US jobless claims figures at 1330 BST. Financial markets in Shanghai remain closed for National Day Golden Week.

The UK corporate calendar on Thursday has trading statements from paper and packaging company Mondi and online trading firm CMC Markets.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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