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LONDON MARKET MIDDAY: Stocks struggle as inflationary worries mount

(Alliance News) - Stubbornly high energy prices, combined with concerns over labour costs, put ...

Alliance News 12 October, 2021 | 12:06PM
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(Alliance News) - Stubbornly high energy prices, combined with concerns over labour costs, put pressure on stock prices in London on Tuesday.

In London, the FTSE 100 index was down 26.16 points, or 0.4%, at 7,120.69 midday Tuesday. The mid-cap FTSE 250 index was down 26.29 points, or 0.1%, at 22,461.18. The AIM All-Share index was down 4.03 points, or 0.3%, at 1,205.02.

The Cboe UK 100 index was down 0.2% at 707.16. The Cboe 250 was down 0.1% at 20,256.65, and the Cboe Small Companies down 0.4% at 15,475.08.

In Paris, the CAC 40 index was down 0.5% on Tuesday. The DAX 40 in Frankfurt was down 0.4%.

Inflation fears returned on Tuesday as energy prices continue to trade at elevated levels.

Brent oil was changing hands at USD83.57 a barrel midday Tuesday, soft on USD83.77 late Monday but still trading around three-year highs. Crude prices have more than doubled compared to this time a year ago.

“The energy crisis is showing no signs of abating, which means considerable cost pressures on companies, and consumers facing the prospect of having less money in their pocket to spend on products and services, thereby having a negative effect on the economy," said Russ Mould, investment director at AJ Bell.

In addition, UK firms had labour costs to worry about as data showed the workforce returned to pre-virus levels in September and vacancies hit a record high.

The unemployment rate eased in line with market expectations, standing at 4.5% in the three months to August versus 4.6% for July. Growth in average total pay - which includes bonuses - was 7.2% on a year before and regular pay, which strips out bonuses, was 6.0% for the three months to August.

The number of payrolled employees rose 207,000 to a record 29.2 million in September, returning to pre-pandemic levels. The number of job vacancies in the three months to September hit a record high of 1.1 million, an increase of 318,000 from its pre-pandemic level.

Sterling was trading at USD1.3603 on Tuesday, lower than USD1.3625 at the London equities close on Monday.

Meanwhile, in Germany, the latest ZEW survey pointed to worries over a profit hit from supply chain issues.

The ZEW indicator of economic sentiment fell to 22.3 points in October from 26.5 in September. The reading also undershot consensus, which had stood at 24.0, according to FXStreet.

"The economic outlook for the German economy has dimmed noticeably. The further decline of the ZEW indicator of economic sentiment is mainly due to the persisting supply bottlenecks for raw materials and intermediate products," said ZEW president Achim Wambach.

"The financial market experts expect profits to go down, especially in export-oriented sectors such as vehicle manufacturing and chemicals/pharmaceuticals."

The euro traded at USD1.1555, softening from USD1.1570 late Monday.

Against the yen, the dollar was quoted at JPY113.33, higher versus JPY113.28 and the greenback trading around three-year highs.

With inflationary worries swirling, Wall Street futures were pointing to a downbeat session. The Dow Jones was pointed down 0.2% and the S&P 500 down 0.1%, but the Nasdaq Composite slated to start 0.1% higher.

In London, miners were dragging down the FTSE 100. Rio Tinto fell 2.8%, Anglo American shed 2.1% and BHP Group tumbled 1.7%.

"The mining sector is also highly sensitive due to renewed jitters about contagion from a possible collapse of the huge Chinese property group Evergrande. The company looks set to miss payments on interest payments due yet again," said Susannah Streeter, senior investment & markets analyst at Hargreaves Lansdown.

Concerns over higher fuel costs weighed on British Airways parent International Consolidated Airlines, which was down 2.7% at midday.

This was despite an upbeat outlook for the travel industry from easyJet, which itself was down 2.6%.

The budget airline now expects to report a headline pretax loss for the financial year that ended September 30 of around GBP1.14 billion to GBP1.18 billion, compared to consensus of a GBP1.18 billion loss. The expected headline loss is still larger than the GBP835 million loss posted for financial 2020, which suffered only a half year's impact of the Covid-19 pandemic.

easyJet's fourth quarter headline loss decreased by more than half from a year earlier with positive operating cash generated, helped by greater clarity on UK travel restrictions.

It flew 17.3 million seats in its fourth quarter, operating 58% of pre-pandemic capacity after flying just 17% of 2019 volumes in the third quarter - and positively, it expects this to improve further to 70% in the first quarter of the new financial year.

Polymetal International shares rose 1.5% after Deutsche Bank started the precious metals miner with a Hold rating. Gold was quoted at USD1,759.28 an ounce on Tuesday, firm against USD1,758.25 on Monday.

At the bottom of the FTSE 250 was Diversified Energy, down 16% as it hit back at a Bloomberg article.

The FTSE 250-listed energy company is focused on the acquisition of "mature, low-decline and low-risk" wells. Reporters visited some of Diversified's well sites and found methane leaks "at most" the places they visited. However, Diversified stressed that the wells sampled represent less than 0.05% of the company's total portfolio of assets.

"Extrapolated emissions across Diversified's entire portfolio are consistent with levels specified in the company's public reports," it said.

Diversified added that it has a "well-established, highly successful and well-funded program" to retire assets.

By Lucy Heming; lucyheming@alliancenews.com

Copyright 2021 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
easyJet PLC 556.00
Diversified Energy Co PLC 99.10 -
Polymetal International PLC 1,332.50 -
International Consolidated Airlines Group SA 142.34
Anglo American PLC 2,812.50
BHP Group PLC 2,058.50
Rio Tinto PLC 4,592.50

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