Stocks in Europe closed lower on Thursday, as investors digest interest rate hikes from both the European Central Bank and the US Federal Reserve.
The FTSE 100 index closed down 85.73 points, or 1.1% at 7,702.64 on Thursday. The FTSE 250 ended down 120.69 points, or 0.6%, at 19,244.91. The AIM All-Share closed down 3.30 points, or 0.4%, at 824.98.
The Cboe UK 100 ended down 1.0% at 770.87, the Cboe UK 250 closed down 0.7% at 16,869.86, and the Cboe Small Companies ended down 1.0% at 13,497.45.
On Wednesday evening, the Federal Reserve lifted US interest rates by 25 basis points, but strongly hinted this was the end of its current tightening cycle.
The widely expected decision was unanimous and took the federal funds rate range to 5.00% to 5.25%. It was the central bank’s tenth hike to interest rates since March 2022.
In a press conference shortly after the announcement, Chair Jerome Powell emphasised a change in language around future policy.
Powell said that the central bank would be ‘prepared to do more if greater monetary policy restraint is warranted’ in his post-decision conference.
However, he pointed to a ‘meaningful’ change in language in the Fed’s policy statement on future rate increases.
‘In the statement from March we had a sentence that said: ’the committee anticipates that some additional policy firming may be appropriate’. That sentence is not in the statement any more, we took that out,’ Powell said.
‘So why didn’t stock markets rally?’ asked Russ Mould, investment director at AJ Bell.
‘Many investors thought falling inflation would be the principal reason why the Fed would pivot. That’s not the case now. Under the current circumstances, the Fed is more likely to pause rate hikes because the US faces the prospect of a recession and in light of more banks struggling. Therefore, not a reason to celebrate,’ Mould explained.
Consequently, the dollar slipped. The pound was quoted at $1.2565, up from $1.2543 at the close on Wednesday.
Against the yen, the dollar was trading at JP¥133.94 late Thursday, sharply lower compared to JP¥135.09.
Stocks in New York were also lower, with the Dow Jones Industrial Average down 1.2%, the S&P 500 index down 0.8%, and the Nasdaq Composite down 0.4%.
Wall Street suffered as US banks came under heavy selling pressure again, less than a day after Fed Chair Jerome Powell declared the banking sector sound and resilient.
Among the worst performers was PacWest, down 46%. The bank said it was looking to sell assets to firm up its finances.
In European equities, the CAC 40 in Paris ended down 0.9%, while the DAX 40 in Frankfurt ended 0.5% lower.
The euro stood at $1.1002 at the European equities close on Thursday, sharply lower against $1.1057 at the same time on Wednesday.
The ECB lifted its own interest rates by 25 basis points on Thursday, resisting the urge to enact another half-point hike in the face of sticky inflation and record low unemployment in the eurozone.
The hike took the interest rate on the main refinancing operations, the interest rate on the marginal lending facility, and the deposit facility to 3.75%, 4.00% and 3.25%.
ING analyst Carsten Brzeski said that today’s decision signals that the ECB has entered the ‘final stage’ of its current tightening cycle.
‘In the current, very complicated macro environment with the lagged impact from previous hikes, banking turmoil, and subdued growth but still sticky inflation, the ECB will tread more carefully,’ Brzeski said.
However, in a press conference following the decision, ECB President Christine Lagarde said a slowdown in the pace of the Frankfurt-based institution’s rate hikes is not a sign that a pause in monetary policy tightening is looming.
Lagarde said she believes the ECB still has ‘more ground to cover’ in the fight against inflation, adding that the central bank is yet to see enough transmission from previous hikes to the ‘real activity’ part of the economy.
In London, Next was the best blue-chip performer, up 2.8%.
The clothing retailer said its first quarter sales fell year-on-year but topped guidance, as it lowered its second quarter outlook slightly.
In the 13 weeks to April 29, full price sales fell 0.7% year-on-year, which was ahead of guidance of a 2% decline. Online sales were down 1.6% year-on-year, while retail sales fell 0.6%.
Believing it to be ‘too early’ to raise its sales guidance for the half or the full year, Next moderated its sales forecasts for the second quarter to a year-on-year fall of 5%, compared to the 4% decline it previously forecast.
‘This adjustment seems reasonable, as some of the first quarter’s success, particularly in holiday clothing sales leading up to Easter, might have been pulled forward from the second quarter,’ Next explained.
Glencore was the FTSE 100’s worst performer, down 5.9%.
The miner and commodities trader said it has reached an agreement with Norsk Hydro to acquire a 30% equity stake in Alunorte and a 45% interest in Mineracao Rio do Norte for a combined $775 million.
Oslo-based Norsk Hydro is an aluminium and renewable energy company. Alunorte is an alumina refinery plant that produces alumina from bauxite ore located in Barcarena, Brazil, while Mineracao Rio do Norte is a bauxite miner based in Brazil.
‘The purchase of the equity stakes in Alunorte and MRN provide Glencore with exposure to lower-quartile carbon alumina and bauxite, enhancing our capability to supply such critical material for the ongoing energy transition to our customers,’ said Robin Scheiner, head of alumina and aluminium at Glencore.
In the FTSE 250, Trainline jumped 13%.
The ticketing platform reported annual revenue and profit growth, and said it is looking to the future with confidence as it plots being the ‘aggregator of choice in Europe’.
Trainline said revenue in the year ended February 28 rose 74% to £327.1 million, from £188.5 million. It swung to a pretax profit of £22.1 million from a £15.5 million loss the year prior.
Net ticket sales totalled £4.32 billion, rising 72% from £2.52 billion the year prior, and 16% from pre-virus levels.
‘Trainline is building great momentum, delivering a record operating performance this year, selling [around] 200 million train tickets across Europe, and expecting further strong growth in the year ahead,’ Chief Executive Officer Jody Ford said.
Liontrust Asset Management dropped 6.9% after it said it conditionally has agreed to buy Zurich-listed GAM in an all-share deal valuing the Swiss peer at fr.107 million, or £96 million.
GAM has some fr.23.3 billion assets under management and advice as at March 31, and the combination of the firms would create a global asset manager with £53 billion in AuMA.
Elsewhere in London, LSL Property Services jumped 9.0% after it said its entire owned estate agency network of 183 branches will become franchises.
Significant cost reductions of around £110 million will be achieved ‘immediately’ from the franchise move, the estate agency said.
Brent oil was quoted at $72.38 a barrel at the London equities close on Thursday, up from $72.01 late Wednesday. Gold was quoted at $2,049.92 an ounce, higher against $2,025.44 at the close on Wednesday.
In Friday’s UK corporate calendar, there will be first quarter results from International Consolidated Airlines and a trading statement from InterContinental Hotels.
In the economic calendar, the eagerly-awaited US non-farm payrolls will be released at 1330 BST.
Nonfarm payrolls net additions are expected to slow to 179,000 from 236,000 in March, according to FXStreet.
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