LONDON MARKET CLOSE: Tepid finish as traders track debt ceiling talks

(Alliance News) - Stock prices in London ended lower in listless trade on Wednesday, with equities once again searching for catalysts amid a backdrop of US debt ceiling talks, and a stronger dollar on hawkish words from Federal Reserve central bankers.

The FTSE 100 index closed down 27.85 points, 0.4%, at 7,723.23. The FTSE 250 ended 57.27 points lower, 0.3%, at 19,215.45. The AIM All-Share lost 2.84 points, or 0.4%, at 809.20.

The Cboe UK 100 lost 0.4% to 771.74, the Cboe UK 250 ended down 0.2% at 16,795.00, and the Cboe Small Companies lost 0.6% to 13,568.74.

In European equities on Wednesday, the CAC 40 index in Paris closed down 0.1%, while the DAX 40 in Frankfurt ended up 0.3%.

"Today's market session has been more akin to watching paint dry with little in the way of strong direction in the underlying indexes, with the FTSE 100 slipping back, while the DAX has edged higher," CMC Markets analyst Michael Hewson commented.

Focus remains on the US, where the debt ceiling deadlock continues.

US President Joe Biden met Republican House Speaker Kevin McCarthy and other congressional leaders at the White House on Tuesday after saying staff-level talks had produced no shift.

McCarthy told reporters there was still "a lot of work to do", while Biden said he is "confident" a deal can be reached with Republicans leaders to avert a potentially catastrophic default, which could come as early as June 1.

"The leaders have all agreed we will not default," Biden said in brief remarks at the White House, shortly before departing for the G7 meeting of world leaders in Japan.

SPI Asset Management analyst Stephen Innes commented: "Broader sentiment remains throttled by the ongoing debt limit stalemate. But with the lack of volatility and with most investors expecting a deal to happen at some point, I'm surprised folks have not thrown caution to the wind on the back of the solid US data overnight. But it might indicate that the 'good news on the economy might already be in the price given the elevated valuations at the index level, and we might continue trade within current ranges as characterized by equity performance in recent months."

The dollar was on the up on Wednesday as foreign exchange traders digest hawkish comments from US central bankers, which tempered hopes that the Federal Reserve will cut interest rates this year.

The pound was quoted at USD1.2474 at the time of the London equities close, lower compared to USD1.2486 at the close on Tuesday. The euro stood at USD1.0826, lower against USD1.0862. Against the yen, the dollar was trading at JPY137.47, higher compared to JPY136.53.

Richmond Fed President Thomas Barkin on Tuesday suggested he is yet to be convinced that inflation is tame enough to justify a pause in rate hikes.

Fed Chair Jerome Powell earlier in May strongly hinted that the central bank will pause hikes.

In an interview with Bloomberg, Barkin said he would support raising rates some more if need be. He added that he would like to "learn more about what's happening with all these lagged effects" from previous hikes.

"But I also want to reduce inflation. And if more increases are what's necessary to do that, I'm comfortable doing that," Barkin said.

Also on Tuesday, Atlanta Fed chief Raphael Bostic also suggested that more tightening may be needed, Bloomberg reported.

"We haven't gotten to the hard part yet," Bostic said.

According to the CME FedWatch Tool, there is a 76% chance that the Fed leaves rates unchanged on June 14. There was just under a 100% chance this time last week.

Looking further afield, the Fed is expected to hold rates in July but in September, the likelihood of a rate cut has slimmed to 39% from 52% a week earlier, according to the CME tool.

In London, a slate of corporate updates from large-and mid-cap firms received a mixed response. There was also some M&A action among smaller-sized equities, though similarly to mixed reviews.

Melrose closed up 3.9% after it provided updated guidance figures for 2025, after recently announcing it will sharpen is focus on the aerospace sector following its demerger of Dowlais.

Melrose said it expects total Aerospace revenue to hit GBP4.0 billion in 2025. This would be above its Aerospace revenue forecast range of GBP3.35 billion and GBP3.45 billion for 2023.

Sage added 3.1%. The Newcastle, England-based business software provider reported revenue in the six months ended March 31 totalled GBP1.09 billion, up 16% from GBP934 million a year prior.

Pretax profit was GBP139 million, down 26% compared to GBP189 million a year ago. Sage noted a GBP71 million hit to profit, predominantly from adjustments relating to restructuring, and mergers and acquisitions.

Ending in the red, however, JD Sports lost 3.7%. The sportswear retailer said revenue rose by 18% to GBP10.13 billion in the financial year that ended January 28 from GBP8.56 billion the year before. This beat the revenue forecast by Shore Capital Markets of GBP9.67 billion.

However, JD Sports said pretax profit fell by 33% to GBP440.9 million from GBP654.7 million.

"After a storming start to the year, JD Sports' share price has slowed to a jog," AJ Bell analyst Russ Mould commented.

"For now, [Chief Executive Regis] Schultz is off to a flier in his new role, replacing the long-term brains behind the business, Peter Cowgill. JD is demonstrating the strength of its brand and its successful capture of the under-25 demographic as it enjoys resilient sales. However, it needs to be wary of any shifts in consumer preferences. Fashion is by its nature cyclical and a move away from the athleisure trend would be unhelpful to JD."

Also on the decline, Watches of Switzerland slumped 5.8% after it posted decent annual results but warned of a "modest" sales decline in the first quarter of the new financial year.

Keller was among the best FTSE 250 performers. The geotechnical engineering firm said trading in the first four months of the year was strong, amid a "better than expected" profit outturn. Shares surged 5.7%.

On AIM, Purplebricks shares plunged 43% to 0.75 pence. The online real estate agent sold its business to rival Strike for the token sum of just GBP1.

The transaction would mean the firm holds a cash balance of GBP5.5 million, and would return net cash proceeds of around GBP2 million to shareholders after certain costs.

Egdon Resources jumped 87% to 4.30p. The oil and gas explorer agreed to an all-cash takeover offer from Petrichor Partners.

Egdon shareholders will receive 4.5 pence per share, valuing the entire company at about GBP26.6 million. The offer price is a 96% premium to Tuesday's closing price of 2.3p per share.

In New York, the Dow Jones Industrial Average was up 0.3% at the time of the closing bell in London. The S&P 500 and the Nasdaq Composite also rose 0.3%.

Shares in retailer Target climbed 2.8%. It reported consensus-topping first-quarter earnings, though it set out somewhat cautious guidance.

Brent oil was quoted at USD75.96 late Wednesday afternoon in London, up from USD74.84 late Tuesday. Gold was quoted at USD1,982.40 an ounce, lower against USD2,001.14.

Thursday's economic calendar has the latest US jobless claims report at 1330 BST.

On the UK corporate diary, luxury retailer Burberry and telecommunications firm BT report annual results. Budget carrier easyJet posts half-year numbers.

By Eric Cunha, Alliance News news editor

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