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FTSE 100 down 1%, Royal Mail off 6%
The FTSE 100 index is down by more than 1% after US markets slumped last night on consumer confidence fears sparked by weak updates from retailers Target and Walmart.
Shares in Tesco and B&Q owner Kingfisher fell 4%, while consumer goods giant Unilever traded more than 2% lower.
Royal Mail was the biggest faller, declining 6% as annual results warned that 2023 guidance depended on striking a pay deal with unions broadly in line with the current offer. It pointed out that every 1% of pay equated to about £45 million of cost inflation.
Scottish Mortgage Investment Trust, the Tesla and Amazon backer whose annual results today showed a 13.1% decline in net asset value, was also 4% lower.
The FTSE 100 index fell 86.62 points to 7351.47, while the FTSE 250 index was down 1.4% or 278.73 points to 19,670.71.
Boiler repair company Homeserve surged 10% after its board backed a £4.1 billion takeover proposal from Canadian asset manager Brookfield, while low-cost airline easyJet was 2% higher following its interim results.
Royal Mail transformation at a “crossroads”, profits rise
Royal Mail operating profits rose 6.5% to £707 million in the year to March 27, while share owning postal workers are poised to benefit as the final dividend increased to 13.3p a share for payment on September 6.
Despite the progress, the company warned that it needs to adapt to a post-pandemic world and that its transformation is at a crossroads. Royal Mail is currently in pay discussions with CWU amid the threat of potential industrial disruption.
Chief executive Simon Thompson said over 50% of parcels are now processed automatically, but more needs to be done in reinventing services for the digital age.
He told investors: “The need to accelerate the transformation of our business – particularly in delivery – has become more urgent.
“Our future is as a parcels business, so we need to adapt old ways of working designed for letters and do it much more quickly to a world increasingly dominated by parcels.
“The last two years has shown us all how quickly customer needs can change.
“Our focus now is to work at pace with our people and our trade unions to reinvent this British icon for the next generations, so that we can give our customers what they want, grow our business sustainably and deliver long-term job security for our great team. We have no time to waste.”
Weak start for FTSE 100 after S&P 500 slides
The S&P 500 fell 4% in its worst session since June 2020 as US markets responded to weak updates from retailers Target and Walmart.
Amid fears over declining consumer confidence and the impact of inflation on corporate profit margins, the Dow Jones Industrial Average also slid 3.6% and the tech-focused Nasdaq lost 4.7% in the latest heavy sell-off on Wall Street.
Target lost a quarter of its value in the retailer’s worst session since 1987 after missing expectations for the most recent quarter and lowering profit forecasts due to cost pressures. Walmart, which issued a warning the previous day, fell 7%.
Deutsche Bank analyst Henry Allen said weak housing data also fed concerns that the US consumer might not be in as strong a position as previously thought.
He said: “That’s on top of all the other worries of late that the global economy is heading in a stagflationary direction amidst various supply-chain issues, alongside the prospect that tighter central bank policy is going to further dent growth and risks tipping various economies into recession.”
The latest Wall Street downturn means traders in Europe are expecting a weak start, with CMC Markets forecasting a decline of 44 points to 7394. The top flight closed 80 points lower last night after a late sell-off in response to the US weakness.
The S&P 500 is now facing its seventh consecutive week in negative territory, the longest run of declines for the index since 2001. Yesterday’s session saw just eight constituents end the day higher, which is the lowest number since November.
And with recessionary concerns back in focus, bond markets rallied as investors sought out safe havens. Yields on 10 year US Treasuries were at 2.90% this morning.
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