LONDON MARKET OPEN: Stocks struggle and pound falls below USD1.12

(Alliance News) - European equities traded lower in early dealings on Friday, with markets wounded by a series of interest rate hikes across the globe as central banks bid to calm rampant inflation.

The negative investment mood on Friday was compounded by another poor UK consumer confidence reading. The pound, meanwhile, slumped to fresh 37-year low.

The FTSE 100 index was down 12.63 points, or 0.2%, at 7,146.89 early Friday. The mid-cap FTSE 250 index was down 14.30 points, or 0.1%, at 18,317.39. The AIM All-Share index was down 2.42 points, or 0.3%, at 845.00.

The Cboe UK 100 index was down 0.1% at 713.78. The Cboe 250 was down 0.1% at 15,685.10, and the Cboe Small Companies was up 0.1% at 13,281.49.

The CAC 40 stock index in Paris was down 0.4% early Friday, while the DAX 40 in Frankfurt was down 0.3%.

"A week dominated by further aggressive monetary tightening around the world has left equity markets bruised on a deteriorating outlook. Quite apart from the Federal Reserve's expected 0.75% hike, there were also notable increases in interest rates in the likes of the UK and Switzerland, as the central bank merry-go-round continues to increase the likelihood of recession on a global scale," interactive investor analyst Richard Hunter commented.

The Bank of England suggested the UK may already be in recession. The BoE said the UK economy will shrink 0.1% in the third quarter, following a decline at the same pace in the second. Two consecutive quarters of falling gross domestic product meets a basic definition of a recession.

In Friday's economic calendar, there are flash purchasing managers' index readings from the EU at 0900 BST, the UK at 0930 BST and the US at 1445 BST.

In the UK, the flash composite PMI is expected to fall to 49.0 points in September from 49.6 in August, according to consensus cited by FXStreet.

The data will follow survey results showing UK consumer confidence has fallen to another all-time low.

GfK's long-running consumer confidence index fell five points in September to minus 49, the worst score since records began in 1974. The latest record low is the fourth out of the last five months.

On the London Stock Exchange, stocks exposed to consumer spending were suffering. Pub and bar operator Mitchells & Butlers lost 1.8%, hotelier Whitbread fell 1.2%, and electrical goods retailer AO World was down 1.5%.

Faring the worst among consumer stocks, Made.com was down 29%.

The sofa seller put itself up for sale and announced a formal review of its strategic options, as it grapples with tumbling demand amid cost-of-living pressures.

Made.com explained that "costs must be reduced further", and it will conduct a headcount review. The Financial Times on Thursday reported Made plans to lay-off more than a third of its workforce.

The wider strategic review will mull its balance sheet options, which include debt finance, strategic investment or even a sale of the company.

PricewaterhouseCoopers will lead the strategic review and formal sale process.

At 4.07 pence, Made.com shares are down 98% from their 200p IPO price.

"Today sees the big reveal of Chancellor Kwasi Kwarteng's 'fiscal event'. As noted recently, typically looser fiscal and tighter monetary policy is a positive mix for a currency – if it can be confidently funded. Here is the rub – investors have doubts about the UK’s ability to fund this package," analysts at ING commented.

The pound fell below the USD1.12 handle on Friday morning. A week ago, it fetched more than USD1.14.

The pound was quoted at USD1.1194 early Friday morning in London, down from USD1.1257 at the London equities close on Thursday. Friday morning was the first time the pound fell below USD1.12 since 1985.

The euro stood at USD0.9790, soft from USD0.9827. Against the yen, the dollar was trading at JPY142.19, marginally up from JPY142.17.

UK Chancellor Kwarteng will pledge to "turn the vicious cycle of stagnation into a virtuous cycle of growth" as he sets out the new government's approach to the UK economy.

Kwarteng will announce tens of billions of pounds both of increased spending and of tax cuts in his mini-budget, officially known as a "fiscal event", at around 0930 BST on Friday.

The government is dubbing it a "growth plan" of some 30 measures, which comes at a time when the UK faces a cost-of-living crisis, recession, soaring inflation and climbing interest rates.

Among other London shares, Smiths Group rose 1.7% as the engineering firm achieved its fastest organic revenue growth in nearly 10 years.

The engineering firm said revenue in the financial year that ended July 31 rose 6.8% to GBP2.57 billion from GBP2.41 billion. Organic revenue rose 3.8%, Smiths added.

Pretax profit fell 57% to GBP103 million from GBP240 million.

During the year, the company sold its Smiths Medical unit to medical technology company ICU Medical.

The deal valued the unit's equity at USD2.7 billion. Including the contribution from the unit, down as a discontinued operation, annual profit soared to GBP1.04 billion from GBP285 million.

Smiths lifted its annual payout by 5.0% to 39.6 pence per share from 37.7p.

Shares in Cellular Goods jumped 14%. The cannabinoids product firm said its Look Better skincare range is now available to be shipped to the US.

"Cellular Goods is on a mission to expand into new markets and increase access to our products. Today we are making another step towards this goal by opening up shipping to the US. I'm thrilled they'll be able to try our breakthrough formulations for the first time," Chief Executive Anna Chokina commented.

Gold was quoted at USD1,668.54 an ounce early Friday, up slightly from USD1,669.31 at the London equities close on Thursday. Brent oil traded at USD89.28 a barrel, down from USD90.24.

By Eric Cunha; ericcunha@alliancenews.com

Copyright 2022 Alliance News Limited. All Rights Reserved.