LONDON MARKET OPEN: Stocks hit as US consumers lack faith in Fed

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Share prices were lower in London early Wednesday, after a survey showed deteriorating consumer confidence in the US, sending Wall Street to a lower close.

The FTSE 100 index was down 30.47 points, or 0.4%, at 7,292.94. The blue-chip measure had closed higher on three consecutive trading days from Friday to Tuesday.

The FTSE 250 index was down 216.01 points, or 1.1%, at 19,135.26. The AIM All-Share index was down 5.05 points, or 0.6%, at 902.55.

The Cboe UK 100 index was down 0.8% at 725.41. The Cboe 250 was down 0.5% at 16,851.25, and the Cboe Small Companies was flat at 13,578.87.

In mainland Europe, the CAC 40 stock index in Paris was down 0.6%, while the DAX 40 in Frankfurt was down 1.2%.

Wall Street had ended deep in the red on Tuesday, with the Dow Jones Industrial Average down 1.6%, S&P 500 down 2.0% and Nasdaq Composite down 3.0%.

Stocks in New York fell after the Conference Board's monthly survey showed a further slide in US consumer confidence.

Amid the fastest increase in US consumer prices in more than four decades, made worse by the war in Ukraine, the consumer confidence index in June fell to 98.7 points, its lowest level since February 2021.

Consumers flush with savings and government aid money have been a key driver of the recovery of the world's largest economy, spending freely on big-ticket purchases like homes, cars and appliances. But supply chain snarls, made worse by Covid-19 lockdowns in China, meant demand has outstripped supply, and that dynamic has fuelled inflation.

The survey hinted at softer economic activity as a result of the tightening monetary policy by the US Federal Reserve.

The downbeat report was due in part to the feeling that higher prices will persist, suggesting US consumers are not confident the Federal Reserve's aggressive efforts to tame inflation will have the desired effect.

In Asia on Wednesday, the Japanese Nikkei 225 index closed down 0.9%. In China, the Shanghai Composite was down 0.9%, while the Hang Seng index in Hong Kong was down 1.8%. The S&P/ASX 200 in Sydney ended down 0.9%.

In the FTSE 100, gambling firm Flutter Entertainment was the best performer, up 2.0%, and Entain was up 1.3% after the UK government said it will publish a White Paper into gambling reform in coming weeks, with the measures not as severe as feared. 888 was the best performer in the FTSE 250, up 5.3%.

UK Prime Minister Boris Johnson is set to announce restrictions on the industry as part of the review of the 2005 Gambling Act amid concerns current regulations require changes to accommodate the growth of online betting.

The Times reported proposals to prohibit gambling companies from shirt sponsorship were set to be rejected in favour of reaching a voluntary agreement with Premier League clubs, while also keeping the option of legislation in reserve.

The government will reportedly announce measures including online casinos having maximum stakes of between £2 and £5, a ban on free bets and VIP packages for those who incur heavy losses, as well as ‘non-intrusive’ affordability checks.

Shore Capital analyst Greg Johnson saw this as a ‘potentially better outcome than feared for the industry and positive for stocks’ but acknowledged the ‘devil will be in the detail’.

National Grid was up 1.5%. The utility responded to UK regulator Ofgem saying it was ‘working through the detail’ of the draft determinations.

‘As we move towards final determinations, we will work hard with Ofgem to ensure we agree a price control that meets the outcomes our customers have asked of us, including resilient and reliable networks, as well as enabling the transition to net zero. Final determinations are expected in December,’ National Grid said.

Ofgem set out its initial five-year plan from April 2023 to March 2028 for building sustainable and affordable regional energy grids, as part of its draft plans for the next electricity distribution price control, known as RIIO-ED2.

Ofgem noted the average customer in the UK pays £100 per year toward the costs of operating local grids, which is in addition to what they pay for the electricity itself. The new price controls for 2023 to 2028 set the revenue that Britain's 14 distribution network operators can earn from these charges.

Ofgem also proposed a £20.9 billion package of funding to build greener power grids.

This will come at the expense of investors, rather than consumers, the regulator vowed.

In response, power utility SSE called Ofgem's initial determination ‘tough and stretching’. It said it will review the plan and engage with Ofgem ahead of its final determination. SSE was down 0.2%.

Oil majors BP and Shell were up 1.1% and 0.8% respectively, tracking spot oil prices higher. Brent oil was quoted at $117.46 a barrel Wednesday morning, up from $117.21 late Tuesday.

OPEC members are meeting on Wednesday, with a production policy meeting involving the wider OPEC+ group set for Thursday.

Meggitt was up 0.6% after its takeover by US defence firm Parker-Hannifin moved closer to completion.

Late Tuesday, the UK government said the US engineering and aerospace company has addressed competition and national security concerns over its £6.3 billion takeover of its UK rival.

‘The business secretary is minded to accept undertakings offered by Parker-Hannifin to address the concerns. This decision follows advice from the Ministry of Defence and the Competition & Markets Authority,’ the UK government said.

B&M European Value Retail was up 0.1%. The variety goods retailer said revenue declined in its financial first-quarter, but it left guidance unchanged.

For the 13 weeks to this past Saturday, group revenue was down 2.2% to £1.16 billion from £1.19 billion in the first quarter last year. For B&M UK, revenue was down to £957 million from £1.02 billion.

Looking ahead, B&M said there is no change to the guidance issued at its annual results in May, with financial 2023 adjusted earnings before interest, tax, depreciation, and amortisation expected to be in the range of £550 million to £600 million. Adjusted Ebitda in financial 2022 came in at £619 million.

At the other end of the large-caps, British Land and Land Securities were the worst performers, down 4.2% and 2.7% respectively. Bank of America downgraded both property companies to 'underperform' from 'neutral'.

The pound was quoted at $1.2185 early Wednesday, down from $1.2191 at the London equities close Tuesday.

The euro was priced at $1.0509, down from $1.0531. Against the yen, the dollar was trading at JP¥136.10 in London, lower against JP¥136.22.

Gold stood at $1,818.35 an ounce, slightly lower against $1,820.14 late Tuesday.

Wednesday's economic calendar has eurozone consumer confidence at 1000 BST, German inflation at 1300 BST and US GDP at 1330 BST. In addition, market focus will lie on remarks from US Federal Reserve Chair Jerome Powell, Bank of England Governor Andrew Bailey and European Central Bank President Christine Lagarde in Sintra, Portugal.

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