European share prices were mixed to higher early Tuesday, mostly holding their ground despite another rout on Wall Street overnight, as investors prepare for US interest rates to rise by three-quarters of a percentage point in one go.
‘It's perhaps an understatement to say the market will be hyper focused on how the Fed communicates the near-term path of policy at this week's [Federal Open Market Committee meeting], especially including what size rate hikes they're considering as adequate for the rest of the year,’ said Deutsche Bank.
The FTSE 100 index was up 20.96 points, or 0.3%, at 7,226.77 early Tuesday. The mid-cap FTSE 250 index was up 77.89 points, or 0.4%, at 19,238.10. The AIM All-Share index was marginally lower, down just 0.09 of a point at 923.97.
The Cboe UK 100 index was up 0.3% at 720.84. The Cboe 250 was up 0.4% at 16,939.13, and the Cboe Small Companies down 0.3% at 14,222.07.
In mainland Europe, the CAC 40 in Paris was down 0.1%, while the DAX 40 in Frankfurt was up 0.4% early Tuesday.
Ahead of Thursday's Bank of England decision, data on Tuesday showed the UK unemployment rate unexpectedly rose, while wages struggled to keep up with sky-high inflation.
The jobless rate rose to 3.8% in the three months to April, up from 3.7% in March and confounding market expectations, according to FXStreet, for an improvement to 3.6%.
At the same time, average earnings excluding bonuses rose 4.2% on an annual basis, in line with the reading for March and ahead of FXStreet-cited consensus of 4.0%. Including bonuses, wages grew 6.8%, below consensus of 7.6% and softening from 7.0% in March.
After accounting for soaring inflation, average pay including bonuses rose 0.4%, but when stripping bonuses out, pay fell 2.2% in real terms.
Sterling was quoted at $1.2183 early Tuesday, rising against $1.2150 at the London equities close on Monday.
‘With the employment market tight and inflation running rampant, the Bank of England will feel they are on the correct course when they come to raise interest rates on Thursday - providing no last minute surprises. Certainly, a labour market such as this does not scream an impending recession, but this goes to show how difficult a task Bailey and co has when deciding monetary policy,’ said Paul Craig, a portfolio manager at Quilter Investors.
Meanwhile, market expectations for Wednesday's US interest rate decision rapidly shifted overnight to price in a massive 75 basis point hike.
The likelihood of a 75 basis point hike is now priced in by 95% of market participants, according to the CME's FedWatch tool, up from just 23% a day ago.
It was a rough session on Wall Street on Monday as this repricing spread through the market, with the benchmark of the tech-heavy Nasdaq diving nearly 5%. The Dow Jones Industrial Average ended down 2.8%, the S&P 500 down 3.9% and the Nasdaq Composite down 4.7%.
In Asia on Tuesday, the Japanese Nikkei 225 index closed down 1.3%. In China, the Shanghai Composite ended up 1.0% after an impressive afternoon recovery, while the Hang Seng index in Hong Kong was down 0.4%. The S&P/ASX 200 in Syndey closed down 3.6% after reopening from a public holiday in Australia on Monday.
At the top of London's FTSE 100 index were banks, rising on the prospect of higher interest rates both sides of the Atlantic. HSBC led the gainers, up 2.7%, while NatWest rose 2.2% and Lloyds advanced 1.3%.
UK housebuilders Persimmon and Barratt Developments were higher on the back of positive updates from the sector. The stocks rose 2.3% and 1.9% respectively.
Mid-cap home builder Crest Nicholson rose 5.6% after upgrading its full-year adjusted pretax profit guidance to a range of £135 million to £140 million - versus just £107.2 million the year before - after a strong interim performance. Half-year revenue increased 12% to £364.3 million from £324.5 million, reflecting the ‘underlying strength’ of the UK housing market, and adjusted pretax profit jumped to £52.5 million from £36.1 million.
On a reported basis, Crest swung to a pretax loss of £52.5 million from a profit of £36.3 million a year before, due to a £10.5 million exceptional charge which includes its obligations under the UK government's Building Safety Pledge, which addresses the issue of dangerously flammable cladding.
Bellway gained 2.4% after the housebuilding peer said it has seen strong housing sales demand in the period stretching February 1 to June 5. It reported an average of 253 reservations per week, up 5.9% year-on-year, and added that positive pricing momentum continues to offset inflationary pressures.
discoverIE rose 5.8% after posting annual profit growth and saying it expects inflationary pressures to be ‘manageable’ in the year ahead.
Revenue for the financial year ended March 31 rose 25% to £379.2 million from £302.8 million the year before, and pretax profit improved 27% to £17.1 million from £13.5 million.
The FTSE 250-listed maker of customised electronics, for sectors such as renewables and transport, declared a full-year dividend of 10.8p, up 6% on the year prior.
‘The new financial year has started well, with continued strong growth in organic sales, and the order book at record high levels. While supply chain headwinds and inflationary pressures remain, they are expected to be manageable,’ the company said.
Shares in Smurfit Kappa were down 0.8% early Tuesday, having lost 2.7% on Monday. A Smurfit Kappa storage yard in the Nechells area on the outskirts of Birmingham city centre caught fire on Sunday, with up to 110 firefighters tackling the dramatic blaze at its height.
Smurfit said the fire broke out at a property adjacent to the Smurfit Kappa SSK Paper Mill in Birmingham, with high winds carrying the fire into the mill's recovered fibre yard. ‘The paper mill itself is unaffected, and we do not expect any material impact on production,’ Smurfit said on Monday.
The euro traded at $1.0460 early Tuesday, up versus $1.0425 late Monday. Against the yen, the dollar rose to JP¥134.34 from JP¥133.90.
Gold was quoted at $1,829.70 an ounce early Tuesday, rising from $1,826.77 on Monday. Brent oil was trading at $121.95 a barrel, up from $119.33 late Monday.
The economic events calendar on Tuesday has US producer prices at 1330 BST. In addition, the Fed's two-day monetary policy meeting gets underway.
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