Share prices started lower in London and the rest of Europe on Thursday, after the US central bank promised to stay on the path of interest rate hikes and ahead of key policy decision by the Bank of England.
‘'Ugly' is a good word to describe the market mood this morning. The selloff will likely continue,’ said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
The US Federal Reserve lifted interest rates by 75 basis points again on Wednesday, taking the target range for the federal funds rate to 3.00%-3.25%. The three-quarter point hike was largely what the market expected, though there had been some that believed the Fed would turn to a 1% lift.
In a press conference following the decision, Fed Chair Jerome Powell said the US central bank ‘will keep at it’ until inflation is well and truly tackled.
The question on investors' minds now will be whether the Bank of England will follow the Fed's lead with its own 75 basis point hike or opt for a more modest 50 basis point hike, in line with its August decision.
Russ Mould at AJ Bell said markets, according to data from Refinitiv, are putting an 82% chance on the bigger hike of 75 points, taking the bank rate to 2.5%.
‘Governor Andrew Bailey and his colleagues made a total mess of it by arguing inflation would prove transitory and insisting policy was 'data dependent',’ Mould said. ‘That leaves them catching up and investors in shares and bonds and traders in currencies could be forgiven for thinking that the Old Lady of Threadneedle Street may now overcompensate and tighten policy too much at a time when the economic outlook is already fragile.’
The Bank of England will announce its interest rate decision at 1200 BST on Thursday. The UK government 'mini-budget' will be presented to Parliament on Friday.
The FTSE 100 index was down 62.67 points, or 0.9%, at 7,174.97 early Thursday. The mid-cap FTSE 250 index was down 195.66 points, or 1.1%, at 18,522.16. The AIM All-Share index was down 5.11 points, or 0.6%, at 850.23.
The Cboe UK 100 index was down 0.8% at 717.03. The Cboe 250 was down 0.9% at 15,880.97, and the Cboe Small Companies down 0.8% at 12,576.57.
The CAC 40 stock index in Paris was down 1.6% early Thursday, while the DAX 40 in Frankfurt was down 1.7%.
In the FTSE 100, JD Sports Fashion fell 4.0%.
The sportswear retailer announced a rise in interim revenue but a drop in profit, which it said was due to the previous year experiencing a one-off benefit in the US from government stimulus.
In the six months to July 30, JD Sports' revenue rose to £4.42 billion from £3.89 billion a year previous. Pretax profit dropped to £298.3 million from £364.6 million, while cost of sales ticked up to £2.28 billion from £2.00 billion.
Nonetheless, JD Sports Chair Andrew Higginson said the results were at the ‘top end’ of the company's expectations.
Halma shares edged up 0.2% after reporting that its progress in the first half of its financial year to date has been in line with expectations, despite a challenging operational environment.
The safety equipment maker noted strong demand for products and services and left its revenue growth guidance for the full-year unchanged at ‘good single digit percentage organic constant currency revenue growth.’
In the FTSE 250, gambling software firm Playtech slipped 0.4% as it reported a fall in interim pretax profit but a rise in revenue.
In the six months ended June 30, Playtech's revenue jumped to €792.3 million from €457.4 million, while pretax profit fell to €103.7 million from €278.1 million.
The fall in profit was blamed on ‘€299.9 million of unrealised fair value gains on derivative financial assets recognised in the prior period,’ Playtech explained.
Elsewhere in London, shares in Ceres Power dropped 16% as the firm reported a significantly widened interim loss and a sharp fall in revenue.
In the six months ended June 30, the clean energy developer posted a pretax loss of £24.2 million, widened from a loss of £7.7 million the previous year.
Ceres Power's revenue plummeted to £9.7 million from £17.1 million, as its gross margin fell to 55% from 72%.
Biome Technologies plunged 59%. The bioplastics and radio frequency technology firm admitted that full-year revenue will be ‘substantially’ below current market expectations.
Biome added that this drop in full-year revenue will have a consequential ‘substantial’ impact on its result before interest, tax, depreciation, amortisation.
‘Growth has been limited in both divisions in the first half by ongoing supply challenges. The trading environment for Biome Bioplastics is becoming more difficult with a number of factors impacting our revenue expectations for this year and 2023,’ explained Biome's chief executive.
In the first half of 2022, Biome narrowed its pretax loss marginally to £667,000 from £700,000 the previous year, though revenue fell to £2.4 million from £2.6 million.
Sterling was quoted at $1.1244 early Thursday, down from $1.1336 at the London equities close on Wednesday.
The euro traded at $1.0160 early Thursday in London, up from $0.9879 late Wednesday.
Against the yen, the dollar was quoted at JP¥145.79, up from JP¥144.13.
The US dollar hit a fresh 24-year high against the Japanese yen on Thursday, breaking through the 145 level after the Bank of Japan left its ultra-loose monetary policy unchanged.
In a statement, the bank said it would leave its current policy in place, ‘aiming to achieve the price stability target of two percent, as long as it is necessary’.
That call widens the gulf between Japan and other major economies, where central banks - particularly the US Federal Reserve - are hiking rates to tackle inflation.
The Nikkei 225 index in Tokyo closed down 0.6% on Thursday.
In China, the Shanghai Composite closed down 0.3% on Thursday, while the Hang Seng index in Hong Kong was down 1.9% in late trade.
Hong Kong is set to end the year in the midst of a full-blown recession, the city's finance chief warned, as Covid-19 controls and spiralling interest rates hammer the economy.
‘There is a very high chance for Hong Kong to record a negative GDP growth for this year,’ Financial Secretary Paul Chan told reporters.
‘Hong Kong has been raising interests at a pace that was never seen in the past three decades,’ he added.
Brent oil was trading at $90.24 a barrel, up from $89.80 late Wednesday. Gold was quoted at $1,660.45 an ounce, lower than $1,667.36 on Wednesday.
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