LONDON MARKET OPEN: Europe follows NY, Asia into red after CPI shock

Thu, 13th May 2021 08:56

(Alliance News) -Â London stocks plunged at the open on Thursday, taking their cue from markets in New York and Asia overnight, which suffered in the wake of a stronger-than-expected US inflation reading.

Weighing on the FTSE 100 index were mining stocks, Burberry and Hargreaves Lansdown.

The index of large caps was down 106.36 points, or 0.5%, at 6,898.27 early Thursday. The mid-cap FTSE 250 index was down 212.66 points, or 1.0%, at 21,895.18. The AIM All-Share index was down 0.6% at 1,224.65.

The Cboe UK 100 index was down 1.5% at 688.49. The Cboe 250 was down 1.0% at 19,719.28, and the Cboe Small Companies down 0.4% at 14,948.64.

In mainland Europe, the CAC 40 in Paris and the DAX 30 in Frankfurt were both down 1.3% early Thursday.

"Though Europe was able to avoid succumbing to Wednesday's inflation fears, ballooning losses overnight in the US, and a tough session in Asia, weakened the region's defences come the opening bell," said Connor Campbell at Spreadex.

In New York on Wednesday, the Dow Jones Industrial Average ended down 2.0%, the S&P 500 down 2.1%, and the Nasdaq Composite down 2.7%.

Losses spilled over to Asia overnight, with the Japanese Nikkei 225 index closing down 2.5%. In China, the Shanghai Composite ended down 1.0%, while the Hang Seng index in Hong Kong was down 1.5% in late trade. The S&P/ASX 200 in Sydney ended down 0.9%.

"The FTSE, which was yesterday's frontrunner thanks to the UK's better-than-forecast GDP numbers, was hit by a sharp reversal from its commodity stocks," commented Campbell.

Rio Tinto shares were down 3.1%, Anglo American down 2.6% and Glencore down 2.1%, after a strong run for miners driven by surging commodity prices.

Also dragging on the FTSE 100 in opening trade were Burberry and Hargreaves Lansdown.

Luxury fashion brand Burberry fell 8.1% despite bringing its payout back to pre-pandemic levels.

Revenue for the year to March 27 fell 11% to GBP2.34 billion from GBP2.63 billion but, as a result of net operating expenses being cut by 25% to GBP1.14 billion from GBP1.52 billion, pretax profit nearly tripled GBP490.2 million from GBP168.5 million.

The fall in revenue, which was down 10% at constant exchange rates, was due to store closures and reduced tourism, Burberry said, though with a strong recovery in the second half.

The luxury fashion brand said its recovery accelerated through the year, leading to fourth-quarter comparable store sales rising 32% year-on-year, and down 5% on two years ago, even with an average of 16% of stores being closed.

Burberry declared a full-year dividend at the financial 2019 level of 42.5p on the back of strong cash generation with the progressive policy reinstated. This compares to just an interim dividend of 11.3p paid out for the 2020 financial year.

"A weak wider market and some elements of profit taking have made for an ugly start for the shares in response to the results. While this update will reassure bulls of the stock, given the recent strength of the price performance, the shares are seen as being up with events for now," explained Richard Hunter, head of markets at Interactive Investor.

Hargreaves Lansdown fell 3.9% despite a period of "very strong growth", though it did sound caution on post-lockdown life.

Net new business in the four months to April 30 was GBP4.6 billion, with assets under administration of GBP132.9 billion at the end of the period, up 28% in the year-to-date. Revenue for the period was GBP233.2 million, bringing the year-to-date total to GBP532.7 million, up 19% on a year before.

Net new clients for the period were 126,000, taking total active client numbers to 1.6 million.

"Where daily share dealing volumes settle, as we ease out of lockdown and life returns to more normal, is difficult to say. Similar to when previous lockdowns have been lifted, we have begun to see a reduction in share dealing volumes in both UK and overseas trades. However...we are confident that we will see a higher base level of dealing volumes than we did pre Covid-19," the company said.

Bitcoin miner Argo Blockchain was down 10%, after Tesla said it will no longer accept the cryptocurrency to buy its electric cars, citing environmental reasons. The price of bitcoin fell by 15% in response. In New York, cryptocurrency exchange Coinbase lost 4.8% in after-hours trade, having closed down 6.4%.

Markets face a further inflationary test as US producer prices are due to be released on Thursday at 1330 BST. The year-on-year rate is expected to accelerate to 5.9% for April from 4.2% in March, according to FXStreet.

"The PPI typically gets less attention from markets than the CPI, but it does provide a useful gauge of price pressures at an earlier stage of the production process," commented Lloyds Banking.

Due at the same time are the latest US initial weekly jobless claims numbers, expected to fall to 490,000 from 498,000.

The dollar was mostly higher ahead of the data.

Sterling was quoted at USD1.4065 early Thursday, down from USD1.4104 at the London equities close on Wednesday.

The euro traded at USD1.2100 early Thursday, up against USD1.2075 late Wednesday. Against the yen, the dollar rose to JPY109.63 versus JPY109.45.

Gold was quoted at USD1,819.97 an ounce early Thursday, lower than USD1,825.25 on Wednesday.

Brent oil was trading at USD68.26 a barrel, falling from USD69.77 late Wednesday. The major US pipeline network forced offline by a cyber attack began to reopen Wednesday, its operator said, after a five-day shutdown prompted motorists to frantically stock up on gasoline and some gas stations on the US east coast to close.

But Colonial Pipeline warned that it will take "several days" before supplies return to normal.

The restoration of supplies will come as a relief to motorists who drove a wave of panic buying that caused the thousands of stations to run dry, according to GasBuddy. US average gasoline prices topped USD3 a gallon for the first time since November 2014, according to the American Automobile Association.

By Lucy Heming;Â lucyheming@alliancenews.com