LONDON MARKET CLOSE: Stocks slump as US jobless claims instills fear

(Alliance News) - Stocks in London sank Thursday over growing fears the global economic rebound from Covid still has more bumps in the road, highlighted by disappointing weekly US jobless claims.

Fawad Razaqzada, market analyst at ThinkMarkets, said: "It looks like optimism over a sharp global recovery has been replaced by mild fears that growth is nearing a peak and that central banks are likely to slowly taper their emergency stimulus measures. Rising cases of the delta variant of Covid-19 have weighed on the recovery prospects, with Japan officially declaring a state of emergency for Tokyo just two weeks before the Olympics."

The FTSE 100 index closed down 120.36 points, or 1.7%, at 7,030.66 Thursday evening. The mid-cap FTSE 250 index ended down 317.52 points, or 1.4%, at 22,652.72. The AIM All-Share index closed down 1.3% at 1,248.66.

The Cboe UK 100 index closed down 1.7% at 699.62. The Cboe 250 closed down 1.4% at 20,380.47, and the Cboe Small Companies ended down 0.6% at 15,395.21.

In mainland Europe, the CAC 40 in Paris lost 2.0%, while the DAX 30 in Frankfurt was 1.7% lower on Thursday.

CMC Markets Chief Market Analyst Michael Hewson added: "Today's market price action has been curious to say the least with sharp falls in bond yields and stock markets with the Euro Stoxx 50 falling to its lowest levels since 20 May. The FTSE 100 has also fallen sharply, slipping below the 7,000 level.

"The bond market appears to be telling us the reflation trade is dead or dying, with the US 10-year yield falling to its lowest level since mid-February, down over 10bps from last weeks close, while equity markets are also coming under pressure as a consequence of concern over a slowing of the global recovery as infection rates continue to rise."

Adding to fears of a bumpy recovery from Covid was US initial jobless claims unexpectedly edging up last week, the Department of Labor said on Thursday.

For the week that ended July 3, initial jobless claims came in at 373,000, up 2,000 from the prior week's upwardly revised level of 371,000 and missing expectations, according to FXStreet, for a decrease to 350,000. The previous week's reading was initially reported as 364,000.

In London, miners and banks were bearing the brunt of the risk-off session.

"Although miners are usually seen as a hedge against higher inflation, they were not immune to the sell off with Anglo American, Glencore and Antofagasta falling as concerns about the slowing economic recovery led to expectations of lower demand for metals and minerals," Susannah Streeter, markets analyst at Hargreaves Lansdown, said.

Anglo lost 4.1%, Glencore 3.3%, Rio 2.9% while Anto shed 1.6%.

Gold was also struggling, quoted at USD1,796.50 an ounce Thursday evening, lower than USD1,801.50 on Wednesday.

Streeter continued: "Financial stocks like Barclays and Lloyds were also deep in the red zone, as falling bond yields leads to worries that net interest rates will stay lower for longer, eating into margins the banks can earn on loans."

NatWest gave back 3.0%, Barclays 2.8%, Lloyds Banking 2.5% and HSBC lost 1.8%.

Another of the worst blue-chip performers was Persimmon, giving back 4.8%, despite the housebuilder hailing a strong first half, with revenue beating pre-virus levels.

The company said revenue in the six months to June 30 rose 54% year-on-year to GBP1.84 billion from GBP1.19 billion. Revenue was up 5.1% from GBP1.75 billion two years earlier, before the onset of the pandemic.

The housebuilder said it intends to return 110p per share of surplus capital as a single additional interim dividend payment in relation to the 2020 financial year. Previously, it had intended to split the dividend into two payments, one made in August this year and one in December.

"Indications that the housing market is cooling has nudged sentiment down, amid nervousness about high covid transmission rates in the UK," Streeter said.

Peers Barratt, Berkeley and Taylor Wimpey lost 3.9%, 3.6% and 2.7%, respectively.

In the midcaps, Electrocomponents fell 3.9% as it noted industry supply chain constraints ahead.

For the three months to the end of June, the London-based electronic and industrial components maker's like-for-like revenue growth was 37% compared to the same period a year prior, driven by market share gains in all key markets, and strong ongoing availability.

Looking ahead, despite supply chain challenges set to slow industry growth for the rest of the financial year, Electrocomponents said it remains confident and is on-track to achieve low double-digit to mid-teens like-for-like revenue growth for the financial year ending March 31, 2022.

Wall Street was tracking the European losses. The Dow Jones was down 0.9%, S&P 500 down 1.1%, with the Nasdaq Composite down 1.2%.

IG Senior Market Analyst Joshua Mahony said: "Today's unemployment claims figure highlights the somewhat mixed recovery taking shape in the US, with an unwelcome rise in claims furthering the recent unsteady performance for the indicator. Unfortunately, yesterday's FOMC minutes highlight the fact that the Fed are already planning for a tapering phase, which is unwelcome news given the volatile nature of the global recovery."

The euro traded at USD1.1842 up sharply from USD1.1793 late Wednesday, surging after the European Central Bank on Thursday unveiled the outcome of its strategy review, confirming it will adopt a new symmetric 2% inflation target as well as approving an "ambitious" climate change action plan.

"All in all, the new framework is largely in line with expectations, but with a dovish tilt. The more modern and clearer strategy will make it easier for the ECB to communicate with markets and the public. It enshrines the flexibility which the ECB had granted itself anyway," said Holger Schmieding, chief economist at Berenberg.

The new inflation target should better ensure price stability is maintained, ECB President Christine Lagarde said at a press conference following the strategy publication.

"A two per cent inflation target is consistent with standard definitions of price stability and provides a safety margin to protect the effectiveness of monetary policy in responding to disinflationary shocks and to guard against the risk of deflation," she said.

While the eurozone's annual inflation rate recently hit 2%, in May, it has lagged well below the figure for most of the past decade.

The new inflation target will allow room for price overshoots compared with the current aim of "below, but close" to 2%.

Sterling was quoted at USD1.3763 Thursday evening, down from USD1.3770 at the London equities close on Wednesday.

The safe-haven Japanese yen advanced in Thursday's risk-off atmosphere. Against the yen, the dollar was quoted at JPY109.79, down versus JPY110.70.

Brent oil prices rose to USD73.70 a barrel at the local equities close on Thursday from USD73.00 late Wednesday. It's been a rocky week for oil prices after the latest talks by OPEC+ crude producers fell apart.

The economic calendar on Friday has a China consumer price index print overnight, followed by UK GDP, industrial and manufacturing production, and trade balance at 0700 BST and US wholesale inventories at 1500 BST.

The local corporate calendar ends the week with trading statements from housebuilder MJ Gleeson, asset manager Premier Miton and midcap polymer manufacturer Victrex.

By Paul McGowan; paulmcgowan@alliancenews.com

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