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LONDON MARKET OPEN: Stocks tumble; UK jobless data a ‘mixed bag’
London’s FTSE 100 opened sharply lower on Tuesday, as US interest rate worries and geopolitical tensions continued to cast a dark cloud over equity markets.
Only Mondi traded higher, with even packaging peer DS Smith falling despite agreeing to a takeover from International Paper, the latest twist in a takeover saga that also involved Mondi. Mondi is yet to respond to the development.
The FTSE 100 index opened 101.52 points lower, 1.3%, at 7,864.01. The FTSE 250 was down 291.66 points, 1.5%, at 19,407.23, and the AIM All-Share was down 7.31 points, 1.0%, at 742.97.
The Cboe UK 100 was down 1.2% at 785.65, the Cboe UK 250 was 1.7% lower at 16,817.23, and the Cboe Small Companies was down 0.2% at 14,819.25.
In European equities on Tuesday, the CAC 40 in Paris plunged 1.4% and the DAX 40 in Frankfurt lost 1.3%.
‘Upside surprises to US data and geopolitical tensions continue to weigh on equities and bonds,’ analysts at Lloyds Bank commented.
‘As a result, with signs of stickiness in inflation, a mid-year Fed rate cut is looking increasingly unlikely, with markets fully discounting only 1 US rate reduction this year.’
Against the dollar, sterling fell to $1.2435 early Tuesday in London, from $1.2458 on Monday. The euro faded to $1.0613 from $1.0636.
The UK unemployment rate rose in the three months to February, numbers on Tuesday showed, while year-on-year growth in average earnings topped expectations.
According to the Office for National Statistics, the UK jobless rate picked up to 4.2% in the three months to February from 4.0% in the three months to January. January’s three-month reading was upwardly revised slightly from 3.9%.
According to market consensus cited by FXStreet, a jobless rate of 4.0% was expected for the period to February.
The ONS noted average growth in regular earnings, so excluding bonuses, cooled slightly to 6.0% in the three months to February from 6.1% in the same period to January.
Including bonuses, average earnings rose 5.6%, in line with the growth seen in the three months to January, and above consensus of a 5.5% climb.
Dutch bank ING labelled the data a ‘bit of a mixed bag’.
Analysts at ING commented: ‘Wage growth is temporarily stuck in the 6% area and that’s another reason to think the Bank of England will wait until August to cut rates for the first time, despite signs of a cooling jobs market.’
In Asia on Tuesday, the Nikkei 225 index in Tokyo fell 1.9%. In China, the Shanghai Composite shed 1.7% lower, while the Hang Seng in Hong Kong was 2.0% lower in late trade. The S&P/ASX 200 fell 1.8% in Sydney.
China’s economic growth in the first quarter beat market expectations, official data showed on Tuesday.
According to the National Bureau of Statistics, China’s gross domestic product expanded by 5.3% annually in the first quarter of 2024, beating FXStreet-cited market consensus of 5.0%.
In the fourth quarter of 2023, China’s economy grew 5.2%. Earlier this year, Chinese officials set an annual target of ‘around 5%’ GDP growth.
Against the yen, the dollar traded at JP¥154.42 early Tuesday London time, up from JP¥154.32 at the European equities close on Monday. The yen traded as low as JP¥154.60 to the dollar earlier on Tuesday.
Deutsche Bank analysts said the yen ‘remains under pressure’ and traded at its weakest level since 1990, ‘despite repeated warnings from the government over potential currency market intervention’.
A barrel of Brent oil fetched $90.23 early Tuesday, up from $89.20 at the time of the London equities close on Monday. Gold rose to $2,372.19 an ounce, rising from $2,348.01.
In London, Mondi was the only blue-chip stock to trade higher shortly after the open, rising 0.7%. Peer DS Smith fell 1.9% to 402.00 pence, after agreeing to a takeover from New York-listed International Paper.
The bid values DS Smith, the London-based paper and packaging company, at around £5.8 billion on a fully diluted basis, and its enterprise value at around £7.8 billion.
The deal values each DS Smith share at 415p.
Elsewhere on the M&A front, TClarke jumped 29% as the engineering services company agreed to a £90.6 million takeover from gas supplier Regent Gas.
Hostmore added 5.3% as it agreed to buy its own franchisor TGI Fridays Inc in a deal with an enterprise value of £177 million.
Dr Martens plunged 30%, the worst mid-cap performer. The boot maker said Kenny Wilson will step down as chief executive. I also added it expects to report earnings in line with expectations for the year just gone, but cautioned on the year to come.
Wilson will be replaced by the firm’s Chief Brand Officer Ije Nwokorie before the end of the new financial year, which runs until late-March.
Dr Martens said that for the year just ended March 31, it expects results ‘in line with guidance and consensus expectations’.
It said an expected pick-up in the direct-to-consumer division materialised in the fourth-quarter, with high single digit growth compared to a 3% annual constant currency sales decline in the third-quarter.
For the new year, it is taking a ‘prudent view’. It expects US wholesale revenue to fall by double-digits, meaning it suffers a ‘significant’ £20 million pretax profit reduction on-year.
In addition, it is seeing ‘single-digit inflation in our cost base’. It also plans to ‘invest in retaining and incentivising talent’.
Dr Martens added: ‘Together these equate to a year-on-year [pretax profit] headwind in the region of £35 million. As previously communicated, we do not anticipate increasing prices further this year, and therefore in FY25 we are unable to offset cost inflation as we have in prior years.’
It has a ‘worst case scenario’ of financial 2025 pretax profit of around one-third of the level of the year just gone.
Defence technology firm Qinetiq fell 4.0%. It announced finance chief Carol Borg stepped down from the role immediately, but will stick around ‘to support the interim arrangements until the end of July’.
Martin Cooper has been named CFO, joining the board ‘no later than October’. Cooper joins from defence firm BAE Systems, where he held a ‘number of positions including UK & Rest of World financial controller, divisional finance director and most recently investor relations director’.
Heather Cashin, Qinetiq’s financial controller, has been named interim CFO. In addition, former CFO David Smith has agreed ‘to provide advice and support services’ to Cashin. Smith stepped down as Qinetiq CFO back in November 2021.
The firm also named Iain Stevenson as chief operating officer, a new role for the company, and Will Blamley as chief executive of the UK Defence division.
Alongside the personnel changes, Qinetiq said it expects results for the year ended March 31 to be in line with current market expectations. Qinetiq put consensus at £1.88 billion for revenue and £211 million for operating profit.
Revenue in financial 2023 totalled £1.58 billion, while operating profit amounted to £172.8 million.
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