European equities struggled to find their groove on Wednesday, with investors fretting over the US interest rate outlook after hawkish words from policymakers.
Eyes turn to Federal Reserve Chair Jerome Powell and what he has to say about the US interest rate outlook.
Closer to home, Bank of England Governor Andrew Bailey ruled out any cuts to the benchmark bank rate any time soon.
The star of the show in London, meanwhile, was Marks & Spencer after it reported robust half-year numbers.
The FTSE 100 index edged up 4.22 points, 0.1%, at 7,414.26. The FTSE 250 was up 27.88 points, 0.2%, at 17,789.59, while the AIM All-Share was down just 0.11 of a point at 698.52.
The Cboe UK 100 was up 0.1% at 740.17, the Cboe UK 250 also edged up 0.1% at 15,434.67, though the Cboe Small Companies slipped 0.1% at 12,926.19.
In European equities, the CAC 40 in Paris was up 0.1%, while the DAX 40 in Frankfurt was marginally lower.
US Federal Reserve Governor Michelle Bowman on Tuesday predicted another interest rate hike, despite officials holding rates steady at their latest meeting.
Last Wednesday, the central bank unanimously agreed to hold the key federal funds rate in a target range between 5.25% to 5.50%, fuelling hopes the central bank may be ready to pivot.
Bowman said in prepared remarks in Ohio: ‘I continue to expect that we will need to increase the federal funds rate further to bring inflation down to our 2% target in a timely way.’
This comes amid ‘an unusually high level of uncertainty regarding the economy,’ with data revisions and geopolitical risks, said Bowman, who also sits on the rate-setting Federal Open Market Committee.
The market is now looking ahead to Fed Chair Powell’s speech at 1415 GMT for further insight on the outlook for US monetary policy.
Sterling was quoted at $1.2264 at midday on Wednesday, lower than $1.2304 at the London equities close on Tuesday. The euro traded at $1.0675, down versus $1.0688. Against the yen, the dollar was quoted at JP¥150.72, up versus JP¥150.51.
‘We are inclined to think a pushback against the doveish interpretation of the latest Fed meeting will continue, and despite some resistance against re-entering paying position in long-term rates, the FX markets seem to be responding more swiftly to this narrative,’ said ING analyst Francesco Pesole.
Focus was also on UK monetary policy. Bank of England Governor Andrew Bailey has said he is ‘optimistic’ inflation will come down to normal levels, but warned that the cost of borrowing will stay high for some time.
Speaking at an event in Dublin, the governor reiterated that it is ‘too early’ to talk about cutting interest rates.
Bailey said: ‘I think it is common when you look at the Fed minutes, you look at ECB, you look at us, it’s really too early to be talking about cutting rates. The market of course will reach a view, it has to reach a view on the future path of interest rates. But we are very clear. We’re not talking about that. What we’re saying is that policy is going to have to be restrictive for an extended period.’
Stocks in New York are set for a muted open. The Dow Jones Industrial Average was called up 0.1%, the S&P 500 index marginally higher, but the Nasdaq Composite down 0.1%.
In London, Marks & Spencer was the top-performing blue-chip stock, jumping 10%.
It posted robust interim results and early signs suggest the clothing, home and food retailer will enjoy a decent Christmas.
Revenue in the half-year to September 30 increased 11% to £6.13 billion from £5.54 billion a year earlier. Pretax profit jumped 56% to £325.6 million from £208.5 million.
Food sales rose 15%, while in Clothing & Home, they increased 5.7%. The company’s interim dividend amounted to 1.0 pence per share. It did not pay an interim dividend in the year prior.
It was not an interim results statement, it was ‘an M&S interim results statement’, AJ Bell analyst Russ Mould commented, referencing one of the retailer’s more renowned advertising campaigns.
‘Marks & Spencer’s first-half results are so good that management’s biggest challenge now may be to stop analysts getting over-excited and prevent them from upgrading their numbers too much and setting too high a bar of expectations,’ Mould said.
In the FTSE 250, ITV fell 5.2%. Only beleaguered cross-border payments and foreign exchange firm CAB Payments, down 5.3% and still reeling from a guidance cut in October, was a worse mid-cap performer heading into the afternoon.
A decline in advertising revenue kept a lid on its top line growth so far in 2023, numbers from ITV showed.
Total revenue in the nine months to September 30 amounted to £2.98 billion, a rise of just 0.9% from £2.95 billion a year earlier. In the ITV Studios production arm, revenue rose 9.3% on-year to £1.52 billion, though in Media & Entertainment, it fell 6.5% to £1.46 billion. M&E includes ITVX, as well as ITV’s television networks.
M&E’s outcome was hurt by a 7% decline in total advertising revenue.
‘The advertising market remains challenging and over the full year 2023 we expect ITV TAR to be down around 8% versus 2022 TAR, which was the second highest in ITV’s history and included the positive impact of the FIFA World Cup,’ the company said.
Investec rose 2.3%, after the financial services firm revised upwards its interim earnings guidance, seemingly getting a boost from the merger between Investec’s UK Wealth & Investment and Rathbones.
It upgraded earnings per share guidance to between 69.0 pence and 70.0p for the six months to September 30, from 50.6p a year before. In September, the company said it expected EPS to range between 67.2p and 69.2p.
On AIM, net-zero energy services provider eEnergy surged 46%, after it said it received a ‘strategic investment’ from partner Luceco.
Lighting manufacturer and distributor Luceco will invest £1.8 million in eEnergy. It will subscribe for 35.1 million eEnergy shares at 5 pence each, a 25% premium to the firm’s closing price on Tuesday.
It will mean Luceco has a 9.1% stake in the AIM listing. Luceco shares were 0.7% higher.
In addition, eEnergy said it received several unsolicited approaches regarding a potential sale of its energy management division, with a number of indicative cash offers valuing the unit at more than £30 million. The board is in a period of exclusivity now with one of the interested partners.
A barrel of Brent Crude fetched $81.05 at midday on Wednesday, lower than $82.55 late Tuesday. Gold was quoted at $1,964.65 an ounce, slightly higher than $1,963.77.
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