The FTSE 100 declined on Thursday, with blue-chip European markets still hurting after a US credit rating cut on Wednesday, though the FTSE 250 recovered after a difficult morning as investors see the end of the Bank of England hiking cycle in sight.
The pound climbed despite some less robust BoE base rate expectations, though it did come into Thursday’s meeting in bad shape. Interest rate sensitive stocks such as those in housebuilding and property got a boost.
The BoE lifted UK interest rates by 25 basis points on Thursday. It took the benchmark bank rate to 5.25% from 5.00% previously, with a majority of Monetary Policy Committee members voting for the hike.
Two members - Jonathan Haskel and Catherine Mann - preferred a 50 basis point hike and one member - Swati Dhingra - preferred to maintain the bank rate at 5.00%.
The FTSE 100 index ended down 32.47 points, 0.4%, at 7,529.16. The FTSE 250, however, added 20.77 points, or 0.1%, at 18,833.65, despite sitting in the red all morning. The AIM All-Share closed up 1.45 points, 0.2%, at 759.54.
The Cboe UK 100 was down 0.4% at 750.09, the Cboe UK 250 rose 0.1% to 16,509.97, and the Cboe Small Companies added 0.3% to 13,775.97.
In European equities on Thursday, the CAC 40 in Paris fell 0.7% and the DAX 40 in Frankfurt ended down 0.8%.
Stocks in New York were mixed. The Dow Jones Industrial Average was down 0.1%, the S&P 500 down 0.2%, but the Nasdaq Composite edged up 0.1%.
The pound traded at $1.2719 around the time of the London equities close, up from $1.2707 late Wednesday.
Analysts are of the opinion that the rate hike was one of, if not the last, from Threadneedle Street during the current hiking cycle.
Bank of England Governor Andrew Bailey said the ‘stance of monetary policy is restrictive’ and the evidence is clear that hikes are having an impact.
AJ Bell analyst Laura Suter commented: ‘It might feel like madness to call peak interest rates when the Bank of England has just raised rates for the 14th time, and the market is still pricing in another couple of hikes from the Bank this year. But for consumers this could be peak interest rates, as banks and building societies have started cutting both savings and mortgage rates.
‘Slowing inflation means that interest rates aren’t expected to rise by as much as they previously were – a few months ago we were expecting rates to peak at 6.5% but expectations now are 6% or even 5.75%. This has had the knock-on benefit that banks have reduced rates for mortgage customers. We’ve now seen a raft of big banks trim their rates – not sufficiently to make a dramatic difference to people’s monthly repayments, but homeowners will be breathing a sigh of relief that mortgage rates are headed in the right direction.’
Hope that the end of the hiking cycle is in sight lifted the interest rate sensitive housebuilding and property sectors. Taylor Wimpey rose 1.1% in London, while Great Portland Estates added 2.6%.
The euro stood at $1.0951 late Thursday, up against $1.0940 at the European equities close on Wednesday. Against the yen, the dollar was trading at JP¥142.22, markedly lower compared to JP¥143.32.
The dollar had traded as high as JP¥143.88 on Thursday, after the yen tumbled following a Bank of Japan bond market intervention.
The BoJ announced an unscheduled move to buy JP¥400 billion worth of government bonds, initially sending the yen lower.
Brown Brothers Harriman analysts commented: ‘At this point, there doesn’t seem to be any rhyme or reason behind the BoJ’s bond-buying interventions. Is it triggered by certain levels in yields? Or by the pace of increase in yields? The bank is keeping the markets guessing but at the same time, this invites further [Japanese government bonds] selling as the market probes and prods.’
Back in London, Mondi shares fell 7.2%, among the worst FTSE 100 performers. The Weybridge, England-based firm said pretax profit from continuing operations, excluding Russian operations, slumped by 55% to €418 million for the six months that ended June 30, from €933 million a year earlier.
Revenue for the first half dropped by 14% to €3.88 billion, from €4.51 billion, dragging down earnings before interest, taxes, depreciation and amortisation. The underlying Ebitda was 28% lower at €680 million from €942 million.
Davy noted the Ebitda result represented a 3% beat on the €661 million Bloomberg-cited consensus. The Irish broker, however, said this outcome was ‘flattered’ by a €86 million fair value gain on its forestry assets, which Mondi said was up from €30 million a year earlier.
Davy said that without the gain, Mondi would have missed the Ebitda consensus by 5%.
At the other end of the large-cap index, Rolls-Royce added 4.2% as it lifted guidance.
In the six months to June 30, the London-based maker of power and propulsion systems swung to a pretax profit of £1.42 billion from a loss of £1.75 billion a year prior, as financing costs were cut to £313 million from £2.27 billion a year prior.
Revenue rose by 34% to £7.52 billion from £5.60 billion the year before, driven by higher large engine deliveries, contractual improvements and increased large engine shop visits, Rolls-Royce said.
Looking ahead, Rolls-Royce raised its full-year guidance for underlying operating profit to between £1.2 billion and £1.4 billion, up from £652 million in 2022. It had previously guided for £800 million to £1.0 billion.
Elsewhere in London, Devolver Digital plunged 28%.
The Austin, Texas-based digital publisher and developer of indie video games said its performance in the first half of 2023 was negatively impacted by delays to new title releases, a reduction in revenue from subscription deals and a lower contribution from its back-catalogue.
As a result, it now expects normalised adjusted earnings before interest, tax, depreciation and amortization to be negative in the half. For the full-year, normalised adjusted Ebitda is expected to be ‘at least’ break-even.
Also tumbling, Videndum dropped 6.4% and shares are around 29% lower than they were at the start of May.
The maker of hardware and software for the content creation market, including broadcasters and film studios, has seen its valuation hurt as traders fret over continued strikes in the US entertainment space.
The film and TV industry in the US has been brought to a standstill amid a Screen Actors Guild walkout, and another strike by film and TV writers that began in May over pay and the threat of artificial intelligence.
Videndum in May warned it expected short-term demand for some of its products to be hurt by strikes.
Facilities by ADF, meanwhile, ended 5.6% higher. The provider of production facilities for film and television said it ‘remains confident’ about its prospects.
‘Much has been publicised in the media about USA writers and actors strikes which have been impacting productions around the globe. As the strikes have drawn on, several film and TV productions in the UK, on which ADF is currently engaged, have seen stoppages or delays to productions that were scheduled to start filming in autumn 2023, having now been pushed into early 2024 commencement,’ the firm explained.
‘Notwithstanding the above effects on productions affected by the US strikes, revenues from the group’s unaffected UK productions and pipeline are expected to generate revenues for the full year ending 31 December 2023 of between £35 million and £40 million, assuming there is no resolution to the strikes in the current financial year. ADF continues to assess the impact on its planned work programme for the remainder of the financial year in conjunction with its production company contacts. Any alleviation of the prevailing strike action will provide the potential for further upside in the current financial year.’
Brent oil was quoted at $84.90 a barrel late Thursday in London, up from $83.09 late Wednesday. Gold was quoted at $1,937.55 an ounce, up against $1,934.77.
Friday’s economic calendar has a UK construction purchasing managers’ index reading at 0930 BST, eurozone retail sales at 1000 BST, before the main event, the US nonfarm payrolls, at 1330 BST.
The local corporate calendar has half-year results from advertising agency WPP.
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