UK stock markets down sharply as fears grow over potential winter blackouts

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London stock prices were below water on Tuesday after an influential trading conditions survey showed a steady weakening in Britain’s private sector economy.

Even a weak pound was insufficient to lift the FTSE 100 index, filled as it is with dollar earnings.

The large-cap index was down 23.43 points, or 0.3%, at 7,510.36 midday Tuesday. The mid-cap FTSE 250 index fell 82.09 points, or 0.4%, to 19,417.25. The AIM All-Share Index fell 4.65 points, or 0.5%, to 902.63.

The Cboe UK 100 index fell 0.3% to 750.15. The Cboe 250 fell 0.5% to 16,736.82, but the Cboe Small Companies rose 0.1% to 14,186.99.

In continental Europe, the CAC 40 in Paris was down 0.2%, while the DAX 40 in Frankfurt was down 0.1%.

London stocks underperformed continental Europe as investors digested a “catastrophic” UK manufacturing PMI for August.

Britain’s S&P Global-Chartered Institute of Procurement & Supply composite purchasing managers index slipped to an 18-month low of 50.9 points in August from 52.1 in July. The reading remains above the 50.0 mark unchanged, indicating that the economy is still growing, but is approaching stagnation.

This was due to the manufacturing PMI falling to 46.0 points from 52.1, well below expectations of 51.1.

It contrasts with a resilient services sector, which posted a score of 52.5 points, down slightly from 52.6 in July. Consensus had expected a bigger decline to 52.0.

The pound was weaker, trading at $1.1751 at midday Tuesday against $1.1787 at the London stock close on Monday.

“The UK PMI data held up better overall than the Eurozone figures, but the manufacturing figure was dire. Whatever else the weaker pound is doing, it is not helping UK manufacturing enough to offset the other negative factors hitting the economy,” said Societe Generale’s Kit Juckes.

Daniel Mahoney, UK economist at Handelsbanken, said “the latest PMI figures suggest the UK private sector is approaching a state of stagnation”.

He added: “Given that the manufacturing sector is generally more energy intensive than the service sector, rapidly rising energy costs will no doubt contribute to weighing on the sector in the coming months.”

The eurozone flash PMI composite production index fell to an 18-month low of 49.2 points in August from 49.9 in July. Nonetheless, the reading beat the consensus, according to FXStreet, of 49.0.

The reading, below 50 unchanged, indicates that the eurozone slowdown worsened in August.

The deterioration was driven by the services PMI falling to 50.2 points in August from 51.2 in July. At the same time, the manufacturing PMI posted a lesser decline, but remained in contraction territory with a score of 49.7 against 49.8 the previous month.

The euro was trading at $0.9918 around midday in London, down from $0.9964 on Monday evening.

Against the yen, the dollar was quoted at 137.42 JP¥, up from 137.26 JP¥. Gold was listed at $1,736.89 an ounce, slightly higher from $1,736.39 on Monday.

Stocks in New York showed a rebound on Tuesday after losses earlier in the week. The Dow Jones and S&P 500 were both called up 0.1%, and the Nasdaq Composite rose 0.2%.

The tech-heavy Nasdaq took the brunt of Monday’s decline on Wall Street, closing down 2.6%.

In London, there was a cross-read in tech stocks with online grocer Ocado down 3.6%, the worst performer on the FTSE 100.

Towards the other end of the index were the oil majors, with Shell up 1.8% and BP up 1.5%, tracking higher commodity prices. A barrel of Brent was trading at 97.91 dollars at noon, against 93.26 dollars on Monday evening.

Concerns over energy supply were renewed after Russian supplier Gazprom said gas deliveries through the Nord Stream pipeline would cease from August 31 until September 2 for “maintenance”.

“It is necessary to carry out maintenance every 1,000 hours” of operation, Gazprom said in a statement. As a result, “gas transport via the Nord Stream pipeline will be suspended for three days”.

The announcement of a new rise in energy prices heightened inflationary fears. A spike in gas prices following the Nord Stream announcement has added almost £500 a year to the expected ceiling for UK energy prices next year, hitting UK households already under pressure. struggling to pay the bills.

Energy experts at consultancy Auxilione expect the price cap to rise to £3,576 from early October, rising to £5,066 in January before rising further to £6,552 from April. It will then pull back a bit, but will still remain at what would have been record prices before, hitting £5,897 in July 2023 and £5,548 three months later.

Ofgem is expected to announce its price cap decision for October at the end of this week. Analysts widely expect the cap to rise above £3,500, down from £1,971 today.

That put consumer-facing stocks under pressure as household incomes looked set to shrink further, with retailer Frasers Group the worst-performing mid-cap, down 4.7%, and shoe retailer Dr Martens down. by 4.1%.

John Wood Group fell 2.5% after the engineering and consultancy firm announced a widened interim loss as revenues stagnated, and said generating cash was its ‘top priority’ going forward .

Revenue for the six months to June 30 edged down 0.4% to $2.56 billion from $2.57 billion a year earlier. However, the engineering and consulting company’s pre-tax loss nearly doubled to $31.5 million from $18.4 million as finance charges rose 19% to $64.1 million. dollars, compared to $53.9 million.

“The strong order book gives me confidence for the future, but there is still a long way to go to generate cash and that is our top priority,” Chief Executive Ken Gilmartin said.

The company suffered a free cash outflow of $363 million, which included a working capital outflow of $208 million and exceptional cash charges of $102 million.

Elsewhere in London, Cineworld shares were down 16%, taking the share price drop since the start of the year to 92%. The title had fallen by 21% on Monday.

The cinema chain operator confirmed on Monday that it is considering filing for Chapter 11 bankruptcy in the United States, as it continues to struggle with liquidity problems.

Last week, Cineworld warned that lackluster trading was prompting potential funding decisions that could significantly dilute shareholders. This was followed by a Wall Street Journal report on Friday that the London-based cinema chain had engaged with lawyers from Kirkland & Ellis and consultants from AlixPartners to advise Cineworld on its bankruptcy process.

In response on Monday, Cineworld said the strategic options through which it could achieve its restructuring goals include a possible voluntary Chapter 11 filing in the United States and associated ancillary proceedings in other jurisdictions as part of a orderly implementation process.

Copyright 2022 Alliance News Limited. All rights reserved.


Date of issue: August 23, 2022

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