LONDON MARKET MIDDAY: Evergrande jitters spark move lower for stocks

(Alliance News) - Market sentiment was downbeat in Europe on Thursday, with worries swirling over another twist in the Evergrande saga and a cool reaction to earnings from IBM and Tesla.

The FTSE 100 index was down 35.00 points, or 0.5%, at 7,188.10 at midday in London. The mid-cap FTSE 250 index was down 47.00 points, or 0.4%, at 22,919.67. The AIM All-Share index was down just 0.38 of a point at 1,237.71.

The Cboe UK 100 index was down 0.5% at 712.98. The Cboe 250 was down 0.2% at 20,654.06, and the Cboe Small Companies down 0.3% at 15,525.87.

In mainland Europe, the CAC 40 in Paris was down 0.3%, while the DAX 40 in Frankfurt was down 0.1% on Thursday afternoon.

"Stock markets have edged back down in early trading, as some of the bullishness from earlier in the week fades due to caution in the wake of Tesla and IBM numbers last night, plus a resurgence of Evergrande worries," said Chris Beauchamp, chief market analyst at IG.

The morale of investors was knocked in the overnight Asian session after the collapse of China Evergrande's planned USD2.5 billion sale of a property services unit left the troubled company closer than ever to its end, ramping up fears it will soon go under and hurt the Chinese economy.

The end of talks to offload Evergrande Property Services marked the latest failure to sell assets to pay for a years-long buying spree that saw it snap up everything from a football club to a bottled water company and amusement parks.

The firm on Wednesday warned "there is no guarantee that the group will be able to meet its financial obligations".

This has heightened fears over what a collapse of Evergrande could mean for the wider Chinese economy, given the property sector makes up a substantial part.

In London, miners - reliant on China as a customer - were the worst performers at midday, with Anglo American down 4.6%, BHP Group down 3.7%, Rio Tinto down 3.6% and Glencore down 2.9%.

Anglo American separately on Thursday said out rose marginally in the third quarter and predicted it is on track to deliver its full-year production guidance. In its report for the third quarter ended September 30, the London-based miner said output was up 2% compared to the third quarter last year, with operating levels generally maintained at about 95% of normal capacity.

Also in the red in London on Thursday was Rentokil, down 1.9% after the pest control and hygiene firm noted strong momentum through the third quarter despite a decline in disinfection revenue following the one-off boost provided by the virus pandemic last year.

Revenue reached GBP761.9 million in the third quarter of 2021, up 0.5% from GBP758.1 million a year prior, or 4.4% at constant exchange rates. Excluding its Disinfection business, revenue was GBP750.8 million, up 9.7% or 14% at constant currency.

Unilever shares rose 2.5% after the consumer goods maker backed its margin forecasts despite warning of substantial cost pressures.

Unilever backed its full-year underlying growth guidance range of 3% to 5% after third quarter growth of 2.5%. It also held margin guidance despite warning that cost inflation remains "at strongly elevated levels", and this is expected to continue into next year.

RELX was up 2.1% at midday after the information and analytics firm reported underlying revenue growth of 6% for the first nine months of 2021. Full-year underlying growth rates in revenue and adjusted operating profit, as well as constant currency growth in adjusted earnings per share, are all now expected to be "above historical trends".

Topping and tailing the FTSE 250 index were Renishaw and Lancashire.

Engineering and scientific technology firm Renishaw rallied 10% after saying its new financial year has started strongly with a record order book.

In the first quarter ended September 30, revenue rose 35% to GBP157.8 million from GBP116.9 million a year earlier. Adjusted pretax profit rose sharply year-on-year to GBP41.7 million in the quarter from GBP18.3 million.

Lancashire, meanwhile, fell 6.5% as the insurer braced for heavy losses from recent natural catastrophe events, including Hurricane Ida and the European storms Bernd, Volker and Xero. Lancashire said the catastrophes will result in a net loss of between USD165 million and USD185 million.

On top of the natural catastrophes, Renishaw noted it has exposure to large loss events within its political violence portfolio, related to the unrest in South Africa during July 2021.

The estimated net loss from the unrest in South Africa is about USD40 million, Lancashire said.

In the US, focus will be on IBM and Tesla, after their shares were sold in the wake of third-quarter earnings.

IBM shares were trading 4.8% lower in the New York pre-market, after the technology consulting firm reported third quarter net income declined 33% to USD1.13 billion from USD1.70 billion the same period a year before. Diluted earnings per share also dropped 34% to USD1.25 from USD1.89.

Tesla was trading 1.0% lower pre-market despite the electric car maker posting a sharp rise in third-quarter earnings mainly due to vehicle volume growth and cost reductions. Third-quarter net income surged to USD1.62 billion from USD331 million the year before, with diluted earnings per share of USD1.44, up sharply from USD0.27.

"Unfortunately despite all that progress, and what looks like an increasingly bright future, we still struggle with the group's valuation," said Nicholas Hyett, equity analyst at Hargreaves Lansdown.

Wall Street is on track for a lower open, with the Dow Jones and S&P 500 both called down 0.3% and the Nasdaq Composite seen 0.2% lower.

Focus in the economic calendar lies on the latest US jobless claims numbers at 1330 BST.

The dollar was mostly strongly ahead of the print, though lost ground against the safe-haven Japanese yen amid Thursday's risk-off mood.

Sterling was quoted at USD1.3798 on Thursday, easing from USD1.3820 at the London equities close on Wednesday. The euro traded at USD1.1639 on Thursday, soft on USD1.1647 late Wednesday.

Thursday's risk adverse tone allowed safe haven assets, such as the yen and gold, to advanced.

Against the yen, the dollar fell to JPY114.03 versus JPY114.24. Gold was quoted at USD1,785.96 an ounce on Thursday, up from USD1,783.82 on Wednesday.

Brent oil was trading at USD84.94 a barrel, lower than USD85.02 late Wednesday.

By Lucy Heming; lucyheming@alliancenews.com

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