LONDON MARKET OPEN: Shares down as UK government borrowing costs leap

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London stocks prices were lower early Thursday, as UK investors joined the selling seen in other European markets, while also digesting another reminder of the pain being caused by rising inflation - this time in the form of rising government borrowing costs.

The FTSE 100 index was down 57.83 points, or 0.8%, at 7,032.39. The FTSE 250 index was down 83.98 points, or 0.4%, at 18,807.24. The AIM All-Share index was down 3.02 points, or 0.3%, at 890.85.

The Cboe UK 100 index was down 0.9% at 700.41. The Cboe 250 was down 0.6% at 16,505.25, and the Cboe Small Companies down 0.1% at 13,592.71.

In mainland Europe, the CAC 40 stock index in Paris was down 0.4%, while the DAX 40 in Frankfurt was down 0.5%.

In the FTSE 100, Rentokil Initial was one of a handful of stocks in the green, up 1.1%, after Deutsche Bank upgraded the pest control company to 'buy' from 'hold'.

At the other end of the large-caps, United Utilities was down 4.0% and British Land was down 3.5%. The stocks went ex-dividend meaning new buyers no longer qualify for the latest payout.

Intertek was down 2.3% after Deutsche Bank downgraded the testing specialist to 'sell' from 'hold'.

In the FTSE 250, Capricorn Energy was the best performer, up 2.7%, after Stifel raised the oil and gas company to 'buy' from 'hold'. Capricorn is the former Cairn Energy and is set for an all-share merger with Tullow Oil, which was down 2.0% early Thursday.

At the other end of the midcaps, Trainline was the worst performer, down 7.5%, after boohoo poached the online ticketing platform's finance head.

boohoo was down 0.5%.

The fast-fashion retailer has hired Shaun McCabe as its new chief financial officer to succeed Neil Catto, who will move to executive director, responsible for strategic projects.

McCabe will step down from the role at Trainline on September 15. Peter Wood, vice president of Finance, will become interim CFO whilst the process to appoint a successor is underway, Trainline said.

Trainline also said it continues to make good financial and operational progress, growing strongly in the UK and internationally, and its expectations for the full year remain unchanged.

The move comes as train services were disrupted across the UK again on Thursday as thousands of railway workers staged their second strike of the week.

Members of the Rail, Maritime & Transport union at Network Rail and 13 train operators walked out after talks failed to resolve a bitter row over pay, jobs and conditions. Just one in five trains are running on Thursday and these are mostly restricted to main lines, with around half of the network closed. Services started later than normal at 7.30am local time and will shut down early at 6.30pm.

The UK government announced plans to change the law to enable businesses to supply skilled agency workers to plug staffing gaps during industrial action.

Meanwhile, UK government borrowing came in higher than expected in May, according figures from the Office for National Statistics on Thursday, and it is paying much more interest on that debt.

UK public sector net borrowing, excluding banks, amounted to £14 billion in May, down from £21.9 billion in April. However, the figure was higher than market expectations of £12 billion.

The ONS said the latest figure was £4.0 billion less than in May 2021, but £8.5 billion more than in May 2019, meaning before the virus pandemic. It was also the third-highest May borrowing since monthly records began in 1993.

The ONS said rising inflation sent interest payments on UK government debt up to £7.6 billion in May from £4.5 billion a year earlier. It is the third highest debt interest payment in any month and the highest seen in any May since records began in 1993.

The wider-than-expected deficit in May meant that cumulative net public borrowing in the first two months of the year reached £35.9 billion, some £6.4 billion greater than the OBR's forecast,‘ noted Daiwa Capital Markets.

‘If such underperformance against the OBR projections continues over coming months, scope for the government to provide extra fiscal policy support for the weakening UK economy in the autumn budget will be diminished.’

Danni Hewson, a financial analyst at AJ Bell, added: ‘With talk of recession getting louder any mention of 'austerity' won't be welcome. People are feeling the pinch, the government has already stepped in with billions of pounds worth of support but there are plenty of voices warning that the help might not be enough to get households through what could be a long, cold winter.’

The Nikkei 225 index in Tokyo closed up 0.1%.

Economic activity in Japan registered its best performance in seven months, as border restrictions were relaxed, survey data showed on Thursday.

The au Jibun Ban-S&P Global flash composite output index rose to 53.2 in June from 52.3 in May. Any reading over the neutral level of 50.0 indicates growth.

‘Activity at Japanese private sector businesses rose solidly at the midway point of 2022 as border restrictions related to the Covid-19 pandemic were eased. The rise was the fourth in as many months and the sharpest recorded since last November amid the strongest expansion in the services sector since October 2013, with firms relating the increase to the return of international visitors,’ said Usamah Bhatti, economist at S&P Global Market Intelligence.

This was driven by the services business activity index, which rose to 54.2 from 52.6. The manufacturing purchasing managers' index eased to 52.7 from 53.3.

In China, the Shanghai Composite closed up 1.4%, while the Hang Seng index in Hong Kong was up 1.6%. The S&P/ASX 200 in Sydney ended up 0.2%.

The pound was quoted at $1.2188 early Thursday, down sharply from $1.2303 at the London equities close Wednesday.

The euro was priced at $1.0511, down from $1.0592. Against the yen, the dollar was quoted at JP¥135.57 in London, lower against JP¥135.89.

Brent oil was trading at $109.66 a barrel Thursday morning, down from $111.14 late Wednesday. Gold stood at $1,835.38 an ounce, lower against $1,841.20.

Thursday's economic calendar has a slew of flash purchasing managers' index readings, including for the eurozone at 0900 BST, the UK at 0930 and the US at 1445 BST.

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