Global markets retreat and Centrica finds new burst of energy from US deal

“It’s a sour end to the trading week with hefty declines across Europe and Asia, echoing a miserable showing on Wall Street last night,” says Russ Mould, Investment Director at AJ Bell.

“Spooking investors was heightened tensions between Asia and North America whereby China ordered the US to close one of its consulates in Chengdu. Adding to the market woes was data showing the first weekly rise in new US unemployment claims in almost four months, dampening hopes of a quick economic recovery from the pandemic.

“A broader sell-off in tech stocks also extended from the US across Europe and Asia, hurting the likes of FTSE 100 investment trust Scottish Mortgage which has large stakes in Tesla and Amazon, as well as Just Eat Takeaway and Ocado.

“The FTSE 100 fell 1.4% to 6,125 with telecoms, healthcare and industrials particularly out of favour alongside tech. Only eight stocks were in positive territory on the FTSE 100, led by plumbing specialist Ferguson, United Utilities and Tesco.

“The DAX 30 fell 1.9% and the Hang Seng slumped 2.5%. On the currency markets, the pound slipped 0.2% against the euro to €1.0962 and down 0.1% against the US dollar to $1.2728. Gold continued to shine, trading at $1,892 per ounce as investors flocked to the precious metal as it has historically been a good store of value during volatile times.”

Centrica

“Centrica has been looking to power up for a long time and it’s finally got a potential major cash injection that will relieve debt and pension pressures.

“The utility provider’s agreement to sell its US energy supply business may not be the deal the market was expecting, but it could provide a major boost to its finances at a very difficult time for the business.

“Centrica had been trying to sell its nuclear and oil and gas businesses as part of a broader restructuring initiative, yet the slump in energy prices derailed those plans.

“Its share price has been very weak because the market expects Centrica either to not be able to sell those energy assets in the near-future or that it will have to accept a low price. The sales process for both assets is currently on hold until financial and commodity markets have settled down.

“It seems that the unexpected offer for the US business, called Direct Energy, was something too good to turn down. Centrica needs shareholders to vote on the proposal and one can imagine it will sail through without any fuss.

“After all, the deal gives Centrica some breathing space with its debt pressures and potentially puts the business further ahead on the road towards restarting dividends, which is very important to shareholders.”

These articles are for information purposes only and are not a personal recommendation or advice.