LONDON MARKET CLOSE: Stocks slide as investors nervously look to ECB

Wed, 08th Sep 2021 17:12

(Alliance News) - Stocks in London ended lower on Wednesday with housebuilders weighing on the FTSE 100 as investors look cautiously ahead to Thursday's European Central Bank meeting.

The FTSE 100 index closed down 53.84 points, 0.8%, at 7,095.53. The mid-cap FTSE 250 index closed down 248.59 points, 1.0%, at 23,848.89. The AIM All-Share index ended down 6.89 points, 0.5%, at 1,300.66.

The Cboe UK 100 index was down 0.7% at 706.30 The Cboe 250 was down 1.2% at 21,617.10, and the Cboe Small Companies was down 0.6% at 15,499.00.

In Paris the CAC 40 ended 0.9% lower, while the DAX 30 in Frankfurt ended down 1.5%.

CMC Markets analyst Michael Hewson said: "It's been a uniformly negative day for European stocks, as concerns over slowing economic activity weigh on sentiment against a backdrop of rising prices and chatter that central banks are looking at paring back the amount of stimulus in the weeks and months ahead.

"Tomorrow's European Central Bank rate meeting could well be an interesting affair given comments released earlier today from Austrian governing council member Robert Holzmann who warned that the central bank might normalise policy sooner than markets expect."

In the FTSE 100, B&M European Value Retail ended the best performer, up 6.9%. 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.

Smiths Group closed up 2.6% after the engineer 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 The company had agreed the TA deal in August, though it has now withdrawn its recommendation for that offer.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.

"UK stocks are reflecting some concerns about economic growth this afternoon too, as the market frets that the rise in National Insurance will hit consumer spending, and activity in areas like the housing market. Housebuilders, banks and REITs are sitting at the bottom of the FTSE 100, although the declines are more contained than those on the continent, where indices have fallen much further into the red," said IG's Chris Beauchamp.

Large-cap housebuilders Persimmon, Taylor Wimpey, Barratt Developments and Berkeley ended the worst performers, down 4.0%, 3.8%, 3.4% and 2.8%, respectively.

In the FTSE 250, Dunelm Group ended the star performer, up 13%, after the home furnishings retailer reported rapid growth in online sales and rising demand from customers turning to home improvement during lockdowns led to buoyant annual results.

Dunelm posted a pretax profit of GBP157.8 million for the year ended June 26, jumping from GBP109.1 million the previous year.

Dunelm declared a special payout of 65.0 pence to cap off a bumper year for the FTSE 250 firm, which benefitted from increased demand as a result of the Covid-19 pandemic. A full-year ordinary dividend of 35.0p per share was also declared, having not paid one a year earlier.

The pound was quoted at USD1.3745 at the London equities close, down from USD1.3780 at the close Tuesday, in the wake of the UK government's plan for a tax hike to pay for NHS and social care spending.

UK Prime Minister Boris Johnson will attempt to convince Conservative MPs to back his plan to fix social care on Wednesday at a snap House of Commons vote called just one day after the manifesto-busting new policy was announced.

Johnson took a political gamble on Tuesday after he reneged on an election pledge not to raise three of the main UK taxes. The PM outlined plans to hike 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.

Tory opposition to the plans when first leaked was fierce, but any backbench rebellion appeared to have subsided by Tuesday as MPs provided little challenge to the PM as he presented his proposals to the Commons.

But the plan - along with another manifesto-breaking announcement to temporarily suspend the "triple lock" on pensions - moves Johnson away from his traditional position of low-tax Conservatism.

In addition, Johnson refused to give a firm commitment that taxes would not go up again - although he said he did not want that to happen.

The government's plan will see the introduction of a new health and social care levy, based on a 1.25 percentage-point increase in national insurance contributions - breaking a Tory commitment not to raise NI, income tax or value added tax.

As such, analysts at Pantheon Economics believe the UK government's decision to raise taxes will defer a full recovery in households' spending to the second half of next year.

Patheon's Samuel Tombs explained: "The government's plan to hike the rate of national insurance paid by employees by 1.25 percentage points in April, to cap social care costs for the elderly, is significant enough to slow the economic recovery next year. NICs are calculated on earnings above GBP120 per week, or GBP6,200 a year. As a result, the average worker, who was paid GBP25,800 last year, will see their NICs bill rise by GBP244, reducing take-home pay by 1.2%.

"This hit won't be easily absorbed by households, given that the effective rate of income tax will be rising at the same time, due to the Chancellor's decision in the Budget to freeze the thresholds for the basic and higher rates at current levels for four years."

The euro stood at USD1.1815 at the European equities close, down from USD1.1840 late Tuesday, ahead of the European Central Bank's interest rate decision on Thursday.

The ECB Governing Council meets in Frankfurt, announcing its latest policy decision at 1345 CET on Thursday. This will be followed by a press conference with President Christine Lagarde at 1430 CET.

The taper debate will continue to dominate focus at this week's ECB meeting, but policy-makers are expected to monitor the backdrop for a few more months before taking action.

At the most recent meeting, which took place in July, the Frankfurt-based central bank for the eurozone kept the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility unchanged at 0.00%, 0.25% and negative 0.50%, respectively.

ING said the latest ECB meeting looks set to be a featureless affair, saying "any changes to the communication and policy stance look unlikely."

Against the yen, the dollar was trading at JPY110.40, up from JPY110.20 late Tuesday.

Stocks in New York were lower at the London equities close as investors weigh the latest Covid-19 trends and concerns about shifting monetary policy.

The DJIA was down 0.2%, the S&P 500 index down 0.3% and the Nasdaq Composite down 0.8%.

Stocks have been under pressure since last Friday when a weak US jobs report exacerbated fears that the Delta variant of Covid-19 could slow or derail the recovery.

Brent oil was quoted at USD72.35 a barrel at the equities close, up sharply from USD71.67 at the close Tuesday.

Gold was quoted at USD1,791.85 an ounce at the London equities close, marginally lower against USD1,794.50 late Tuesday.

The economic events calendar on Thursday has China inflation readings overnight, Germany trade data at 0700 BST and the latest US jobless claims numbers at 1330 BST.

The UK corporate calendar on Thursday has interim results from IT services provider Computacenter, private healthcare firm Spire Healthcare and supermarket chain Wm Morrison Supermarkets.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com