Stocks in London were a mixed bag around midday on Thursday, as the FTSE 100 ticked higher after Bank of England Governor Andrew Bailey hinted at a peak in interest rates.
The FTSE 100 index was up 25.33 points, or 0.3%, at 7,451.50. The FTSE 250 was virtually flat at 18,445.22, and the AIM All-Share was down 4.34 points, or 0.6%, at 732.64.
The Cboe UK 100 was down 0.4% at 741.94, the Cboe UK 250 was flat at 16,077.57, and the Cboe Small Companies was down 0.3% at 12,980.66.
Bailey hinted on Wednesday that the UK central bank was close to ending a prolonged policy of raising interest rates amid expectations that inflation will fall substantially by the end of the year.
‘I think we are much nearer now to the top of the cycle,’ Bailey told a panel of cross-party lawmakers gathered to question the BoE chief on the state of the UK economy with UK inflation the highest among G7 nations.
‘And I’m not therefore saying we’re at the top of the cycle because we’ve got a meeting to come but I think we are much nearer to it,’ he added.
Francesco Pesole at ING at market are now ‘for the first time’ starting to have doubts about whether the BoE will hike rates at all at its September meeting.
‘For now, our base case is that they will go ahead with a hike but that it will be the last one, meaning markets will have to price out the additional hike still priced for later this year,’ Pesole explained.
Bailey also said that the fall in UK inflation rate ‘will continue’on Wednesday.
‘I think it [the fall] will be quite marked by the end of this year,’ he told MPs.
The UK annual inflation rate cooled to 6.8% in July, from 7.9% in June. It remains well above the BoE’s 2% target and also above the 5% UK Prime Minister Rishi Sunak is aiming to reach by the end of the year.
Sterling was on the backfoot after Wednesday’s seemingly hawkish comments, dropping below the $1.25 mark - a level not seen since June.
The pound was quoted at $1.2454 at midday on Thursday in London, down from $1.2500 at the London equities close on Wednesday.
In London, Melrose Industries was the top blue-chip performer at midday, up 6.2% after it upgraded it full-year guidance on the back of some strong interim results.
The aerospace manufacturer said it traded ahead of expectations in the first half of 2023, with revenue up 20% year-on-year to £1.63 billion and its pretax loss narrowing significantly to £62 million from £314 million.
As a result, Melrose upgraded its annual guidance. It guides for Aerospace adjusted operating profit between £375 million and £385 million, over 8% higher than prior guidance. It is also expecting revenue between £3.35 billion and £3.45 billion.
Melrose had reported revenue of £7.54 billion in 2022, though this included Dowlais, which has since been demerged. It had reported Aerospace operating profit of £186 million.
In the FTSE 250, Direct Line jumped 16% despite reporting a widened loss in the first half of 2023, as it also announced the disposal of a business line.
The motor and home insurer’s pretax loss widened to £76.3 million from £11.1 million, as the firm swung to an insurance service loss of £93.4 million from a £166.5 million profit.
Direct Line also announced the sale of its brokered commercial insurance business to RSA Insurance, a subsidiary of Intact Financial, for a £520 million initial payment, with a potential further payment of up to £30 million.
The company said the sale will allow the firm to ‘focus on retail, personal and direct small business commercial lines, restore the resilience of its capital position and drive the long-term value potential for its customers and shareholders.’
For Russ Mould, investment director at AJ Bell, the sale puts Direct Line on a ‘more sustainable footing’ moving forward, though he added the market ‘probably shouldn’t’ expect a return to the dividend list in the immediate future.
Elsewhere in London, CVS Group plunged 30% on AIM after the UK competition watchdog launched a review into the veterinary industry amid concerns that pet owners are not getting value for money and that the cost of care has soared faster than inflation.
FTSE 250-listed peer Pets at Home also suffered, dropping 8.8% at midday.
AJ Bell’s Mould warned that the sell-off could be an ‘overreaction’, though he added that the CMA review looks to be ‘wide-ranging’.
‘The problem for both businesses is the process is likely to be time-consuming and, with a further update not due until early 2024, it could weigh on both stocks for some time to come,’ he said.
In European equities on Thursday, the CAC 40 in Paris was up 0.3%, while the DAX 40 in Frankfurt was up 0.1%.
Stocks in New York were seen largely lower. The Dow Jones Industrial Average was seen flat, while the S&P 500 index and the Nasdaq Composite were called down 0.3% and 0.7% respectively.
The euro stood at $1.0708 midday Thursday, lower against $1.0715 at the London equities close on Wednesday. Against the yen, the dollar was trading at JP¥147.44, lower compared to JP¥147.67.
Brent oil was quoted at $90.11 a barrel at midday in London on Thursday, up from $90.01 late Wednesday. Gold was quoted at $1,920.13 an ounce against $1,915.77.
Still to come in Thursday’s economic calendar, the US weekly unemployment claims report will be published at 1330 BST.
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