The FTSE 100 finished red at the close on Wednesday, hampered by data which showed the UK economy shrank more than anticipated in July, ahead of the Bank of England’s interest rate decision next week.
The FTSE 100 index was down just 1.54 points at 7,536.27 on Wednesday. Meanwhile, the FTSE 250 ended up 19.20 points, or 0.1%, at 18,561.50. The AIM All-Share closed down 2.46 points, or 0.3%, at 740.75.
The Cboe UK 100 ended up 0.1% at 750.66, the Cboe UK 250 closed up 0.3% at 16,211.76, and the Cboe Small Companies ended up 0.1% at 13,125.73.
According to figures from the Office for National Statistics on Wednesday, UK gross domestic product contracted by 0.5% in July, having grown by 0.5% in June. The figure came in worse than FXStreet-cited market consensus, which had expected just a 0.2% contraction in GDP during July.
Conall MacCoille at Davy Research said Wednesday’s data will ‘only encourage fears that the impact of higher interest rates is now being felt’ and that the UK will ‘at best’ see flat growth in the second half of 2023, ‘with the risk of a recession’.
The Bank of England will announce its next interest rate decision on Thursday next week. Before then, the European Central Bank will announce its next interest rate decision on Thursday at 1315 BST.
UBS expects the ECB to deliver a final 25 basis point hike this week but, in light of weak economic data in recent weeks, the Swiss lender acknowledged that the central bank may pause, ‘leaving the door open for a hike in October’.
European equities struggled on Wednesday amid the pre-decision nerves, with the CAC 40 in Paris and the DAX 40 in Frankfurt both closing 0.4%.
In London, Aviva was the top blue-chip performer at the close on Wednesday, finishing 4.5% higher after it announced it has agreed to sell its quarter ownership of Singapore Life to fellow shareholder Sumitomo Life Insurance for about £800 million.
The insurance, wealth and retirement products provider said the exit from the joint venture is part of its effort to simplify its business and focus on the UK, Ireland and Canada. The stake in Singlife contributed £17 million to Aviva operating profit in 2022.
In the FTSE 250, Redrow was the top performing stock, closing 6.5% higher despite warning that it expects a drop in revenue and profit in its next financial year.
The housebuilder said it expects to generate revenue of between £1.65 billion to £1.70 billion in the financial year ending July 2, and pretax profit between £180 million and £200 million.
This compares to pretax profit of £395 million and revenue of £2.13 billion in the year ended July 2, reported on Wednesday.
Russ Mould, investment director at AJ Bell, suggested that investors are shrugging their shoulders to the news that Redrow’s profit could halve as ‘bad news from housebuilders has become the norm’ as they adapt to a weakening property market.
Elsewhere in London, On The Beach shares jumped 13% after the online beach holiday retailer predicted it will deliver ‘record’ revenue and total transaction value in the year ending September 30.
Further, On The Beach said its adjusted pretax profit will be ‘at the top end of the range’ of market expectations, primarily due to higher than expected interest income. In financial 2022, the company reported an adjusted pretax profit of £14.1 million.
On AIM, t42 IoT Tracking Solutions announced that its five-year distribution and sales contract with OpenBox Venture has, to date, not produced any orders.
Consequently, t42 said the contract has failed to perform according to the distributor’s estimates as their estimated $1.9 million minimum order level for 2022 has not being achieved.
t42 provides real-time tracking, analysis, monitoring, and security internet-of-things solutions for the global container and freight market. Its shares closed down 15% on Wednesday.
Stocks in New York were higher at the London equities close, with the Dow Jones Industrial Average up 0.2%, the S&P 500 index up 0.3%, and the Nasdaq Composite up 0.5%.
Wall Street was seemingly unfazed by fresh data that showed the inflation rate in the US accelerated slightly more than anticipated in August.
According to the US Bureau of Labor Statistics, the consumer price index picked up to 3.7% on an annual basis in August, from a 3.2% rise in July. The headline inflation figure was expected to accelerate to 3.6%, according to FXStreet-cited marked consensus.
Meanwhile, core inflation - which excludes items such as food and energy - cooled to 4.3% annually, from a 4.7% increase in July. This was in line with market expectations.
Capital Economics’s Andrew Hunter said there was ‘little in the report to convince [US Federal Reserve] officials that they need to raise interest rates further.’
‘Overall, there is nothing here to change the Fed’s plans to hold interest rates unchanged at next week’s [Federal Open Market Committee] meeting, and we still expect weaker economic growth and a continued normalisation in the labour market to help drive a sharper fall in core inflation over the next 12 months than most others expect,’ he said.
Markets currently see a 97% chance of the US central bank holding interest rates steady at its meeting next week, according to the CME FedWatch Tool. Just one day prior, markets saw a 92% chance of this outcome.
The Fed will announce its next interest rate decision on Wednesday next week.
The pound was quoted at $1.2496 at the London equities close on Wednesday, up from $1.2477 at the close on Tuesday. The euro stood at $1.0744, higher against $1.0729 at the same time on Tuesday.
Meanwhile, against the yen, the dollar was trading at JP¥147.42, higher compared to JP¥147.13 late Tuesday.
Brent oil was quoted at $92.15 a barrel at the London equities close on Wednesday, down from $92.26 late Tuesday.
The International Energy Agency warned on Wednesday that oil cuts by OPEC+ allies Saudi Arabia and Russia will cause a ‘significant’ global supply shortfall through the end of the year, raising the risk of further market volatility.
‘From September onwards, the loss of OPEC+ production, led by Saudi Arabia, will drive a significant supply shortfall through the fourth quarter,’ the Paris-based IEA said.
‘Oil stocks will be at uncomfortably low levels, increasing the risk of another surge in volatility that would be in the interest of neither producers nor consumers, given the fragile economic environment.’
Gold was quoted at $1,912.70 an ounce at the close on Wednesday, higher against $1,912.01 late Tuesday.
In Thursday’s UK corporate calendar, there are full-year results from MJ Gleeson, Renishaw and Kier Group. There will also be half-year results THG and trading statements from Trainline and IG Group.
The economic calendar has the US weekly unemployment claims report at 1330 BST alongside US retail sales data and the latest US producer price index print.
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