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LONDON MARKET CLOSE: Stocks fall on weakening global growth outlook

(Alliance News) - Stocks in London ended lower on Tuesday after the International Monetary Fund ...

Alliance News 12 October, 2021 | 5:09PM
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(Alliance News) - Stocks in London ended lower on Tuesday after the International Monetary Fund downgraded growth forecasts and warned developing countries are being left behind.

The IMF trimmed its 2021 global growth forecast, warning that the failure to distribute vaccines worldwide is worsening the economic divide and darkening prospects for developing nations. Output worldwide is expected to grow 5.9% this year, only slightly lower than projected in July, before slowing to 4.9% in 2022, the report said.

However, in a report published as the IMF and World Bank hold their biannual meetings, the fund said it now expects growth of 5% for the eurozone, compared to just 4.6% in its previous forecast in July.

The single-currency area's growth forecast stands in stark contrast to other major economies for which the IMF downgraded its outlook on Tuesday. It predicted 6% growth in the US, down one point. Output is now forecast at 8% in China.

The IMF said it expects UK output to grow by 6.8% in 2021, down from a previous estimate of 7%.

The FTSE 100 index closed down 16.62 points, or 0.2%, at 7,130.23. The FTSE 250 closed down 18.57 points, or 0.1%, at 22,468.90 and the AIM All-Share closed down 2.78 points, or 0.2%, at 1,206.27.

The Cboe UK 100 ended down 1.2% at 707.60, the Cboe UK 250 closed down 0.2% at 20,246.80 and the Cboe Small Companies ended down 0.4% at 15,468.10.

The CAC 40 stock index in Paris and the DAX 40 in Frankfurt both ended down 0.3%.

Stocks in New York were lower at the London equities close as investors await key US inflation data amid worries over a weakening global growth outlook.

The DJIA was down 0.1%, the S&P 500 index down 0.1% and the Nasdaq Composite down 0.2%.

IG Group's Josh Mahony explained: "Risk-off sentiment has pushed European and US markets lower today, with resurgent fears over rampant inflation and Chinese risks coming back into play. Evergrande may have helped ease fears with recent sales, yet the failure to pay a third round of bond payments in as many weeks provides a reminder that all is not well.

"The IMF has provided a less than encouraging assessment of the global economic outlook, with downgrades to growth forecasts coming as they warned of overvalued markets and increased risks within emerging markets. Easy lending conditions have brought higher valuations, which the IMF see as a major risk as we move towards an inflation-fuelled phase of monetary tightening."

In the FTSE 100, precious metals miners ended in the green amid the risk-off mood, with Polymetal International and Fresnillo up 1.9% and 0.6% respectively.

In addition, Deutsche Bank started coverage on Russia's Polymetal with a Hold rating.

Gold was trading at USD1,763.12 an ounce at the London equities close, firm against USD1,758.25 late Monday.

GlaxoSmithKline closed up 0.9% after Bloomberg reported the drugmaker's consumer arm was drawing interest from private equity firms.

According to Bloomberg, Advent International, CVC Capital Partners and KKR & Co were among potential suitors evaluating the business. Further, Blackstone, Carlyle Group and Permira were also seen as likely suitors for the unit, which could be valued at GBP40 billion.

At the other end of the large-caps, British Airways parent International Consolidated Airlines ended the worst performer, down 3.4% in a negative read-across from peer easyJet.

FTSE 250-listed easyJet lost 3.7% after the budget airline said it 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.

Ryanair closed down 2.2%, Tui down 2.5% and Wizz Air Holdings down 3.8%.

Commenting on easyJet, CMC Markets analyst Michael Hewson said: "The numbers weren't all bad, however today's update also serves to illustrate the challenges facing the industry as we head into another fiscal year which is still likely to be pandemic affected. We've seen a decent rally off the lows this year, however the rebound has been somewhat constrained with the shares pretty much where they were at the start of this year."

Entain closed down 1.7% even as the blue-chip gambling firm backed full-year guidance following a "strong" third quarter.

Net gaming revenue in the third quarter of 2021 was up 4% on a year ago, with online growth of 7% but retail revenue slipping 1%. On a constant currency basis, online growth was 10% and retail registered a 1% rise, resulting in total net gaming revenue growth of 6% for the quarter.

The sports-betting and gaming firm continued to expect 2021 earnings before interest, tax, depreciation and amortisation in line with previous guidance of GBP850 million to GBP900 million.

CMC's Hewson said: "Today's update from Entain appears to encapsulate why US betting giant DraftKings wants to pay USD22 billion for the business... BetMGM also saw a strong quarter, cementing its position as one of the market leaders in its segment, with the company restating its full year guidance of EBITDA between GBP850 million to GBP900 million. It certainly raises the bar further for DraftKings given the performance of BetMGM and given this performance it certainly makes the task of pushing the bid forward much more complicated.

"Entain certainly has plenty of assets, with a strong brand in the UK as well as its other 27 markets. With this in mind MGM is highly unlikely to want to give up its designs on Entain, but if it does it may look to extract a higher price from DraftKings to be even persuaded to do a deal, and that's even before competition authorities stick their noses in, which would seem likely if any deal starts to materialise."

The pound was quoted at USD1.3595 at the London equities close, down from USD1.3625 at the close Monday, despite positive UK labour market data.

The UK 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%, and regular pay, which strips out bonuses, was 6.0% among employees for the three months to August.

Ahead of the wind-up of the government's pandemic job retention scheme on September 30, the redundancy rate remained around pre-virus levels.

Paul Dales, chief UK economist for Capital Economics, commented: "The further tightening in the labour market and rise in underlying wage growth in August increases the chances of the Bank of England raising interest rates in the coming months despite other evidence that the economic recovery is spluttering."

The euro stood at USD1.1544 at the European equities close, down from USD1.1570 late Monday. Against the yen, the dollar was trading at JPY113.34, up from JPY113.28 late Monday.

Brent oil was quoted at USD83.50 a barrel at the equities close, down from USD83.77 at the close Monday.

The economic events calendar on Wednesday has China trade data overnight, a monthly UK economic growth reading at 0700 BST and US consumer prices at 1330 BST.

The UK corporate calendar on Wednesday has third-quarter results from food delivery firm Just Eat Takeaway, education publisher Pearson and recruiter PageGroup.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

Copyright 2021 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Rating
Fresnillo PLC 888.00 -
Entain PLC 1,690.00 -
Wizz Air Holdings PLC 4,483.00
GlaxoSmithKline PLC 1,554.80
Ryanair Holdings PLC 15.75
International Consolidated Airlines Group SA 142.34
Polymetal International PLC 1,332.50 -
TUI AG 212.50 -
TUI AG 2.52 -

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