LONDON MARKET MIDDAY: Stocks stage fight back but still face pressure

(Alliance News) - Stocks in Europe were attempting to reclaim some positivity in midday trade on Friday, while it remained a bleak picture on Wall Street after Amazon became the latest tech firm to upset investors.

"Having held the line for most of this week, the FTSE 100 finally caved to the negative pressure from big tech disappointments across the pond," AJ Bell head of investment analysis Laith Khalaf said.

"The FTSE 100 may be under-represented on the technology front but the wider hit to sentiment from some of the world's largest companies dropping the ball couldn't be entirely avoided."

Amazon was down 13% in pre-market trade in New York on Friday, as the e-commerce platform late Thursday reported a decrease in quarterly net income on foreign exchange headwinds, but did note a rise in sales.

Apple fared better after its own quarterly result, the stock rising 1.0% before the US open.

In London, the FTSE 100 index was down 36.77 points, or 0.5%, at 7,036.92, fighting its way back from steeper loss seen earlier in the session. At this level, the blue-chip index has added 1.0% this week.

The mid-cap FTSE 250 was down 193.63 points, or 1.1%, at 7,036.92, and the AIM All-Share was down 5.96 points, or 0.7%, at 803.50.

The Cboe UK 100 was down 0.8% at 701.18, the Cboe UK 250 down 1.2% at 15,346.29, and the Cboe Small Companies down 0.3% at 12,368.06.

In European equities on Thursday, the CAC 40 in Paris was down 0.3%, while the DAX 40 in Frankfurt was 0.5% lower - with both following a similar pattern as the FTSE 100 of repairing harsher opening losses.

Helping the mood improve in Germany, its economy expanded in the third quarter, according to flash estimates from the Federal Statistical Office, a significant outperformance over market consensus.

Europe's largest economy is thought to have grown by 0.3% in the third quarter versus the previous quarter. Market consensus - according to FXStreet - forecast a 0.2% contraction.

Versus the year prior, Germany's gross domestic product is estimated to have grown by 1.1%, again well ahead of consensus, which was predicting a 0.7% rise.

ING said: "Looking ahead, the surprise growth in the third quarter does not mean that the recession narrative has changed. All leading indicators point to a further weakening of the economy in the fourth quarter and there doesn't seem to be any improvement in sight.

"Companies and households are increasingly suffering under higher energy bills and ongoing high inflation, adjusting consumption and investments. The government's latest support package, if not implemented retroactively, will be too little too late to prevent a winter recession. It will only be able to soften such a recession."

Keeping the DAX in the red, however, was a 2.5% drop for shares of automaker Volkswagen.

VW posted a drop in earnings despite a significant increase in revenue as it dealt with an increase in costs. In the three months that ended September 30, pretax earnings dropped 4.7% to EUR2.94 billion from EUR3.08 billion the year before.

While the Wolfsburg-based carmaker's revenue increased 24% to EUR70.7 billion from EUR56.93 billion last year, the company's cost of sales widened to EUR58.04 billion from EUR48.01 billion last year. It also faced increasing administrative expenses and a negative financial result of EUR1.33 billion, swung from a positive contribution of EUR484 million last year.

Meanwhile, recently spun-off subsidiary Porsche AG delivered an increase in profit in its first report as a separate company. Porsche was 1.7% lower.

The euro traded at USD0.9938 midday Friday, down from USD0.9984 late Thursday, continuing its slide slower after yesterday's dovish European Central Bank update.

The ECB said interest rates would need to be raised "further" - a slight change in language after it previously said rates would need to be hiked over the "next several meetings".

All eyes are now on the US Federal Reserve, which announces an interest rate decision next Wednesday. Markets are hopeful for signs of a pivot by the central bank, which has raised rates rapidly in a bid to tame inflation.

The Bank of England's next rate decision is a day after its US counterpart.

In London, Centrica was the best performer large-cap on Friday, gaining 5.7%.

The gas utility has reopened its Rough natural gas storage facility off the east coast of England after completing "significant engineering upgrades" over the summer.

Centrica, which owns British Gas, said the facility is operational for winter. The facility increases the UK's storage capacity by 50% despite it operating at just 20% of its previous capacity.

Stuck to the bottom of the FTSE 100, NatWest slumped 9.3%.

The bank reported strong income growth in the third quarter, boosted by both increased lending and higher interest rates, but it warned it is keeping a close on eye on any change in behaviour from its customers.

"At a time of increased economic uncertainty, we are acutely aware of the challenges that people, families and businesses are facing up and down the country. Although we are not yet seeing signs of heightened financial distress, we are very conscious of the growing concerns of our customers, and we are closely monitoring any changes to their finances or behaviours," Chief Executive Alison Rose said.

High-street banking peers Lloyds and Barclays lost 3.6% and 3.3%.

British Airways-parent International Consolidated Airlines tumbled 3.4% lower, despite posting a positive quarter.

IAG swung to profit in the third quarter, as revenue improved on pre-pandemic levels, despite lower capacity. It swung to a pretax profit of EUR1.01 billion from a loss of EUR714 million a year before. Revenue nearly tripled year-on-year to EUR7.32 billion, from EUR2.71 billion.

Passenger revenue saw the strongest recovery, growing to EUR6.42 billion from EUR2.00 billion. Compared to pre-pandemic 2019 levels, it was 22% higher.

Looking ahead to the open in the US on Friday, the tech-heavy Nasdaq Composite was poised to open 1.1% lower, while the Dow Jones Industrial Average was pointed down 0.2%, and the wider S&P 500 down 0.7%.

The Nasdaq is facing continued pressure from a disappointing series of tech earnings.

Victoria Scholar, head of investment at interactive investor, said: "Amazon has added to the chorus of disappointing tech quarterly scorecards this earnings season. Macroeconomic pressures from rising inflation are weighing on consumers and businesses, denting demand both on the e-commerce giant's retail and cloud segments."

Sterling was quoted at USD1.1539 midday Friday, down from USD1.1573 at the London equities close on Thursday.

The dollar was trading at JPY147.65 midday Friday in London, sharply higher from JPY145.90 late Thursday.

The yen was under pressure after Japanese Prime Minister Fumio Kishida's government approved a hefty economic package that will include government funding of about JPY29 trillion, about USD197 billion, to soften the burden of costs from rising utility rates and food prices.

Inflation has been rising in Japan along withside globally surging energy prices, while a weakening of the yen against the dollar has increased the cost of all imports.

Announcing its latest policy decision on Friday, the Bank of Japan kept its long-standing lax stance in place. The central bank has kept its benchmark rate at minus 0.1% since 2016.

Gold was priced at USD1,648.70 an ounce midday Friday, lower from USD1,662.60 on Thursday evening in London. Brent oil was trading at USD94.49 a barrel, soft from USD94.75 late Thursday.

Still to come on Friday, three is the personal consumption expenditures inflationary gauge from the US at 1330 BST. Core PCE is the Fed's preferred inflationary measure.

By Paul McGowan; paulmcgowan@alliancenews.com

Copyright 2022 Alliance News Limited. All Rights Reserved.