London open: Stocks edge down amid US debt deal uncertainty

(Sharecast News) - London stocks fell in early trade on Tuesday amid continued uncertainty over whether a US debt default will be averted, and as data showed that shop price inflation edged higher in May. At 0835 BST, the FTSE 100 was down 0.3% at 7,604.97, after a number of US Republican lawmakers said they would oppose a deal to raise the debt ceiling.

Richard Hunter, head of markets at Interactive Investor, said: "US markets have not yet had a chance to react to the news that an agreement in principle to the debt ceiling conundrum was reached over the weekend, having been closed on Monday.

"While the initial reaction is likely to be positive, sentiment will be tempered fact that the deal is not yet over the line, with the next hurdle being Congress where there have already been some rumbles of dissatisfaction.

"In any event, further developments will be keenly awaited this week as the political saga continues to unfold, and until a definitive agreement is reached, markets are likely to resume something of a holding pattern."

On home shores, the latest BRC-NielsenIQ index showed that shop price inflation nudged up in May despite some food price rises starting to slow. Annual shop price inflation accelerated to a fresh high of 9.0% in May, from 8.8% in April.

Within that, food price inflation - which has reached record highs in recent months - nudged marginally lower, falling to 15.4% from 15.7% a month previously. Non-food inflation edged higher, however, to 5.8% from 5.5%.

Fresh food inflation was 17.2%, still at historic highs but down on April's 17.8%. In contrast, ambient food inflation rose to 13.1% from 12.9%, with the price of coffee and chocolate rising in response to higher global costs for both commodities.

Helen Dickinson, chief executive of the British Retail Consortium, said: "While overall shop price inflation rose slightly in May, households will welcome food inflation beginning to fall.

"The slow in inflation was largely driven by lower energy and commodity costs starting to filter through to the lower price of some staples, including butter, milk, fruit and fish.

"Fierce competition between supermarkets has helped keep British food among the cheapest of the large European economies."

Elsewhere, a closely-watched survey showed that business optimism across the service sector held up in May despite ongoing pressure on both costs and profits.

According to the latest quarterly service sector survey from the CBI, cost pressures continued to build in business and professional services - with the net balance rising to 61% from 58% - while profitability fell for the sixth consecutive quarter.

There was also a sixth consecutive fall in profitability in consumer services, and cost growth also accelerated, to 81% from 73%, the second fastest rate of growth on record. Both sub-sectors saw business volumes decline during the quarter, although the fall was more sharply felt in consumer services.

But volumes were forecast to return to growth in business and professional services in the next quarter, and to stabilise in consumer services

And overall, sentiment about the general business situation was broadly unchanged in business and professional services in the three months to May, with a net balance of -2%. It was also largely unchanged in consumer services, with a net balance of 3%.

Charlotte Dendy, head of economic surveys and data at the CBI, said: "It is encouraging that the quarter ahead looks brighter for services firms' trading conditions. Business volumes are set to return to growth in the next three months, underpinning expectations or stronger employment growth and improved investment intentions.

"However, rapid cost growth continues to squeeze margins and adds to mounting evidence that underlying inflationary pressures remain strong."

In equity markets, Rolls-Royce and BAE Systems fell after India filed a criminal complaint against the companies for "criminal conspiracy" in the procurement and licensed manufacturing of 123 advanced jet trainers.

Dr Martens was also under the cosh after RBC Capital Markets downgraded shares of the iconic bootmaker to 'sector perform' from 'outperform'.

"Whilst we view the longer-term growth potential for DOCS as attractive, we are mindful of nearer term challenges particularly for the US market (37% revenues), which do not appear to be adequately reflected in company FY24E revenue guidance or consensus," it said.

On the upside, advertising giant WPP rallied after it signed a content engine deal with Nvidia.

Hunting surged as the energy services group lifted guidance for 2023 after winning a new contract worth up to £91m with Cairn Oil and Gas, Vedanta. It now expects full-year core earnings to be in the range of $92-$94m, a further increase to the guidance issued at its 2022 results in March.

Market Movers

FTSE 100 (UKX) 7,604.97 -0.29% FTSE 250 (MCX) 18,830.66 0.19% techMARK (TASX) 4,589.97 -0.03%

FTSE 100 - Risers

Frasers Group (FRAS) 692.50p 3.05% WPP (WPP) 894.20p 2.43% Centrica (CNA) 120.55p 1.82% Endeavour Mining (EDV) 2,042.00p 1.59% Land Securities Group (LAND) 608.20p 1.54% Ocado Group (OCDO) 412.10p 1.25% Pearson (PSON) 808.80p 1.07% SEGRO (SGRO) 795.60p 1.07% British Land Company (BLND) 349.20p 1.01% BT Group (BT.A) 145.50p 1.01%

FTSE 100 - Fallers

Rolls-Royce Holdings (RR.) 146.70p -1.58% Shell (SHEL) 2,320.00p -1.38% Standard Chartered (STAN) 640.80p -1.32% International Consolidated Airlines Group SA (CDI) (IAG) 154.55p -1.31% Lloyds Banking Group (LLOY) 44.94p -1.24% Prudential (PRU) 1,113.50p -1.02% HSBC Holdings (HSBA) 604.60p -1.02% Barclays (BARC) 155.78p -0.98% CRH (CDI) (CRH) 3,890.00p -0.97% Ashtead Group (AHT) 4,876.00p -0.91%

FTSE 250 - Risers

Hunting (HTG) 233.50p 15.88% RHI Magnesita N.V. (DI) (RHIM) 2,352.00p 14.73% Helios Towers (HTWS) 95.00p 4.34% Keller Group (KLR) 732.00p 3.98% Assura (AGR) 49.06p 2.64% Telecom Plus (TEP) 1,586.00p 2.45% Ascential (ASCL) 235.40p 2.35% TI Fluid Systems (TIFS) 131.80p 2.17% Dechra Pharmaceuticals (DPH) 3,208.00p 2.17% Jupiter Fund Management (JUP) 110.30p 2.13%

FTSE 250 - Fallers

Auction Technology Group (ATG) 706.00p -4.59% Dr. Martens (DOCS) 155.00p -3.91% Rotork (ROR) 318.20p -2.27% QinetiQ Group (QQ.) 362.40p -2.16% Harbour Energy (HBR) 231.40p -1.49% Dunelm Group (DNLM) 1,086.00p -1.45% Capricorn Energy (CNE) 195.20p -1.11% Mitchells & Butlers (MAB) 205.60p -1.06% easyJet (EZJ) 480.50p -1.01% HGCapital Trust (HGT) 392.50p -1.01%