LONDON MARKET CLOSE: Stocks down as windfall tax woe hits energy firms

(Alliance News) - Stocks in London ended lower on Tuesday following weak PMI data, while fears ...

Alliance News 24 May, 2022 | 5:06PM
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(Alliance News) - Stocks in London ended lower on Tuesday following weak PMI data, while fears over a potential windfall tax hurt energy companies.

The FTSE 100 index closed down 29.09 points, or 0.4%, at 7,484.35. The mid-cap FTSE 250 index closed down 296.36 points, or 1.5%, at 19,849.82. The AIM All-Share index closed down 8.56 points, or 0.9%, at 955.29.

The Cboe UK 100 index closed down 0.3% at 746.14. The Cboe 250 ended down 1.1% at 17,604.63 and the Cboe Small Companies finished 0.4% lower at 14,605.46.

In mainland Europe, the CAC 40 stock index in Paris closed down 1.7%, while the DAX 40 in Frankfurt ended down 1.8%.

"Markets in Europe have given back some of yesterday's gains, weighed down by further evidence of economic weakness in the form of a big earnings downgrade from US social media company Snap, after last night's US close, and lacklustre PMI reports that suggests rising prices, are reducing profits and demand," said CMC Markets analyst Michael Hewson.

"The FTSE 100 has once again outperformed due to its more defensive qualities, although utilities, which traditionally do well are being hampered by the prospect that the UK government might be considering submitting to populist demands for a windfall tax, on not only oil companies, but energy companies as well," Hewson added.

In the FTSE 100, Barclays ended up 3.5%, after the bank launched its delayed share buyback programme.

Barclays said it will kick off a GBP1.00 billion share buyback programme on Tuesday. The programme, initially announced in February, had been delayed in March after the bank admitted it sold more products to investors than it was allowed to.

Glencore closed up 1.8% after the commodities house said in response to media enquires, that it expects to resolve its US, UK and Brazilian investigations this year.

Glencore said it will appear in court in the US and UK on Tuesday in connection with proposed resolutions of the relevant investigations. Glencore expects to issue an announcement following the conclusion of these court hearings, it added.

Bloomberg on Tuesday reported that Glencore will pay USD1.5 billion to settle US and UK investigations into alleged wrongdoing, according to people familiar with the matter.

At the other end of the large-caps, ad agency WPP ended the worst performer, down 9.3%, in a negative read-across from US social media platform Snap which issued a profit warning.

The Snapchat owner was down 41% in New York after warning it would struggle to meet its own targets for revenue and adjusted earnings in the current quarter.

Last September, Snap teamed up with WPP to launch the AR Lab global partnership, which set out to help brands build augmented reality-based immersive experiences, with a focus on e-commerce.

Royal Mail ended down 4.4% after Peel Hunt downgraded the former state postal monopoly to 'sell' from 'buy'.

Utility and energy firms were also among London's laggards on Tuesday, falling on broker recommendation cuts and also reports of a UK windfall tax which would go above and beyond just hitting oil majors.

A windfall tax is a one-off tax imposed on a company or group of companies and was introduced by Tony Blair's Labour government in 1997.

SSE tumbled 7.7%. Citigroup cut the electricity utility to 'neutral' from 'buy'.

The US bank also cut electricity generator Drax to 'sell' from 'neutral'. Shares in the FTSE 250-listed power generation firm slumped 14%.

Blue-chip Harbour Energy shed 4.6%.

Elsewhere, British Gas owner Centrica lost 7.6%, Frankfurt-listed RWE fell 4.5% and Scottish Power owner Iberdrola fell 0.5% in Madrid.

The Financial Times reported on Monday that UK Chancellor Rishi Sunak is mulling a windfall tax on more that GBP10 billion of excess profit achieved by electricity generators.

Calls for a windfall tax, particularly on oil majors such as BP and Shell, have intensified as the UK cost of living crisis worsens, and clubbing in electricity generators such as SSE, RWE and Iberdrola's Scottish Power would boost the revenue a potential windfall tax could bring.

The pound was quoted at USD1.2518 at the London equities close, down from USD1.2575 at the close Monday after a survey of private sector activity in the UK indicated a sharp slowdown in economic growth.

The latest S&P Global/CIPS flash composite purchasing managers' index fell to 51.8 points in May, from April's final tally of 58.2. Should May's final figure land at 51.8, it would represent a 15-month low.

The flash manufacturing PMI weakened to 54.6 points in May, from the final tally of 55.8 in April, signalling a 16-month low.

The services PMI slumped to a 15-month low of 51.8 points, from 58.9 in April.

In services, "economic and geopolitical uncertainty had contributed to a slowdown in client demand," S&P Global said.

The euro stood at USD1.0725 at the European equities close, higher against USD1.0690 late Monday following mixed PMI data from the continent.

The seasonally adjusted S&P Global eurozone purchasing managers' index composite output index slipped to 54.9 in May from 55.8 in April. The figure came in behind market expectations, cited by FXStreet, of 55.3.

The flash eurozone services PMI index fell to 56.3 from 57.7, and came in behind market expectations of 57.5. Flash eurozone manufacturing PMI index was down to 54.5 from 55.5, again behind market expectations, which forecast a drop to 54.9.

In Europe's largest economy Germany, the flash composite PMI inched higher to 54.6 in May from 54.3 in April. The growth was driven by "strong" post-lockdown recovery across the country's service sector.

Against the yen, the dollar was trading at JPY126.67, down sharply from JPY127.78 late Monday.

Stocks in New York were sharply lower at the London equities close following lacklustre PMI data. The DJIA was down 1.5%, the S&P 500 index down 2.5% and the Nasdaq Composite down 3.7%.

US private sector activity lost further momentum in May as fears over higher interest rates rise, preliminary estimates from S&P Global showed on Tuesday.

The S&P Global US services purchasing managers' index fell to 53.5 points in May from 55.6 in April. The latest reading was the lowest in four months and below market consensus, cited by FXStreet, of 55.2.

Brent oil was quoted at USD113.97 a barrel at the equities close, up from USD112.23 at the close Monday.

Gold stood at USD1,866.09 an ounce at the London equities close, higher against USD1,854.61 late Monday.

The economic events calendar on Wednesday has US durable goods orders at 1330 BST and the Federal Open Market Committee meeting minutes at 1900 BST.

The UK corporate calendar on Wednesday has annual results from food, clothing and homewares retailer Marks & Spencer and from utilities SSE and Severn Trent.

By Arvind Bhunjun;

Copyright 2022 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Harbour Energy PLC 363.80 GBX -1.14 -
Glencore PLC 446.61 GBX -2.96
Barclays PLC 153.48 GBX -2.09
Drax Group PLC 642.00 GBX -0.54 -
Centrica PLC 81.70 GBX -0.37
SSE PLC 1,614.00 GBX -2.21
Royal Mail PLC 269.70 GBX 0.52 -
Iberdrola SA 10.08
RWE AG 35.08 EUR -5.27

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