LONDON MARKET MIDDAY: Pound falls again as government debt bill soars

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Stocks were lower in Europe on Thursday, though London blue-chips were benefiting from a weaker pound, as investors prepared for a second day of testimony by the head of the US central bank.

Federal Reserve Chair Jerome Powell on Wednesday had refused to rule out the chances of the world's largest economy sliding into recession.

The FTSE 100 index was up 15.48 points, or 0.2%, at 7,104.70. The FTSE 250 index was down 84.18 points, or 0.5%, at 18,807.04. The AIM All-Share index was down 5.52 points, or 0.6%, at 888.34.

The Cboe UK 100 index was up 0.1% at 709.41. The Cboe 250 was down 0.3% at 16,548.25. The Cboe Small Companies down 0.6% at 13,529.41.

Blue-chip indices in mainland Europe remained lower. The CAC 40 stock index in Paris was down 0.2%, while the DAX 40 in Frankfurt was down 0.9%.

In the FTSE 100, Rentokil Initial was up 1.5% after Deutsche Bank upgraded the pest control company to 'buy' from 'hold'.

At the other end of London large-caps, United Utilities was the worst performer, down 4.2%, and British Land was just behind, down 3.8%. The two stocks went ex-dividend meaning new buyers no longer qualify for the latest payout.

Intertek was down 2.0% after Deutsche Bank downgraded the quality assurance service provider to 'sell' from 'hold'.

In the FTSE 250, Capricorn Energy was up 3.4% after Stifel raised the oil and gas company to 'buy' from 'hold'.

At the other end of the midcaps, Trainline was the worst performer, down 11%, after boohoo poached the online ticketing platform's finance head.

boohoo was down 1.2%.

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 were 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.

On AIM in London, Naked Wines plunged 37% after the wine retailer warned that it expects little sales progress in the year ahead.

In its financial year that ended March 28, the Norwich-based online wine retailer posted a pretax profit of £2.9 million, versus a loss of £10.7 million in financial 2021. Revenue increased by 3.0% to £350.3 million from £340.2 million.

For its current financial year 2023, Naked Wines expects group sales in the range of £345 million to £375 million, down 4% in the worst and up 4% in the best scenario on financial year 2022.

The retailer declared no annual dividend, unchanged from a year ago.

The pound was quoted at $1.2202 at midday on Thursday, down sharply from $1.2303 at the London equities close Wednesday, as UK private sector growth in June remained at the 15-month low seen in May.

The June flash UK composite output index was unchanged from the 53.1-point reading in May, posting just above the neutral 50 value for the sixteenth consecutive month and much weaker than the 58.3 average seen in the first quarter of the year.

The manufacturing purchasing managers' index hit a 23-month low, falling to 53.4 points from 54.6, while the services PMI remained at 53.4 points. A sustained recovery in events and other areas of face-to-face consumer spending helped to boost business activity in the service economy.

Peter Colman, partner at consultancy firm Simon-Kucher & Partners, commented: ‘It's becoming increasingly obvious that UK businesses in the manufacturing and services sectors are caught between a rock and a hard place. With unprecedented levels of inflation, slowing volumes and recession fears, implementing price increases is the only viable option to address margin erosion - a solution that many businesses have been desperate to avoid but may no longer be able to do so.’

In further bad news for sterling, UK government borrowing came in higher than expected in May, according to figures from the Office for National Statistics.

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, due to higher payouts on inflation-linked gilts. It is the third highest debt interest payment in any month and the highest seen in any May since records began in 1993.

The euro was priced at $1.0510 at midday, down from $1.0592 late Wednesday after European survey data indicated sharply slowing growth in June.

Growth in the eurozone hit a 16-month low in June, according to a preliminary PMI reading from S&P Global. The composite output index fell to 51.9 points in June from 54.8 the previous month.

Manufacturing PMI hit a 22-month low and service sector growth cooled, easing most notably in consumer-facing services. The manufacturing PMI slipped to 52.0 in June from 54.6 in May. The services PMI fell to 52.8 from 56.1, marking a five-month low.

Against the yen, the dollar was quoted at JP¥135.37 in London midday Thursday, lower against JP¥135.89 late Wednesday.

Brent oil was trading at $110.06 a barrel Thursday at midday, down from $111.14 late Wednesday. Gold stood at $1,829.18 an ounce, lower against $1,841.20.

New York was pointed to a higher open on Thursday following a lower close on Wednesday, as Powell prepares to give his second day of testimony on Capitol Hill before the House Financial Services panel.

The Dow Jones Industrial Average was called up 0.3% and the S&P 500 up 0.7% and the Nasdaq Composite up 0.9%. The indices had lost 0.2%, 0.1% and 0.2% respectively on Wednesday.

On Wednesday, the Fed chief admitted that a series of aggressive rate hikes meant to cool soaring inflation could eventually trigger a recession in the US.

Powell again stressed that the US central bank understands the hardship caused by rising prices and is committed to bringing down inflation, which has reached a 40-year high.

But when peppered by lawmakers with questions about the prospect of a recession, Powell admitted it could not be ruled out. ‘It's not our intended outcome at all, but it's certainly a possibility,’ he told the Senate Banking Committee.

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