Stocks in London ended lower on Friday, with interest rate worries providing a disheartening end to a strong week for equities.
The FTSE 100 index ended down 8.17 points, or 0.1%, at 8,004.36. The FTSE 250 closed down 92.52 points, or 0.5%, at 20,088.93, and the AIM All-Share lost 3.89 points, or 0.5%, at 865.70.
For the week, the FTSE 100 rose 1.6%, the FTSE 250 added 0.3%, though the AIM All-Share lost 1.0%.
The Cboe UK 100 closed down 0.2% at 800.44, the Cboe UK 250 also fell 0.2% at 17,525.99, and the Cboe Small Companies lost 0.3% at 13,978.35.
In European equities on Friday, the CAC 40 in Paris and the DAX 40 in Frankfurt each lost 0.3%.
Two Federal Reserve officials, Loretta Mester and James Bullard, on Thursday spoke in favour of a 50 basis-point interest rate hike from the US central bank in its next meeting in March.
The hawkish rhetoric added to fears among markets that interest rates may stay higher for longer, sending stocks lower.
The pound was quoted at $1.1999 late Friday in London, a touch lower compared to $1.2004 at the equities close on Thursday. The euro stood at $1.0662, lower against $1.0674. Against the yen, the dollar was trading at JP¥134.37, higher compared to JP¥134.08.
According to the CME FedWatch Tool, investors are pricing in an 82% chance of another 25 basis point hike by the Fed next month, which would take the federal funds rate range to 4.75%-5.00%.
This time last week, however, there was a 91% chance of a quarter-point hike.
Stocks in New York were lower at the time of the closing bell in London. The Dow Jones Industrial Average was down 0.3%, the S&P 500 index down 0.9%, and the Nasdaq Composite tumbling 1.3%.
In London, NatWest closed the worst-performer, falling 6.9%. The lender reported pretax operating profit of £5.13 billion in 2022, up from £3.84 billion the previous year.
This came as net interest income jumped to £9.84 billion from £7.53 billion, and non-interest income climbed to £3.31 billion from £2.89 billion.
It was NatWest’s chunkiest annual profit since its financial crisis bailout. It also declared a fresh £800 million share buyback programme. Neither fancy was enough to prevent the stock sliding, however.
‘Investors are far more concerned about what’s coming next and that’s less positive. Income for 2023 is now guided to be lower than expected, with the key net interest margin metric also falling short. Costs are also set to be higher than forecast,’ AJ Bell analyst Russ Mould commented.
‘NatWest’s rescue by the state during the financial crisis means criticism of its tardiness in passing on higher interest rates to savers arguably carries more weight and that could have some impact on profitability.’
The UK government’s stake in NatWest was trimmed to just below 50% last year, for the first time since its bailout.
Banking sector earnings continue next week, with HSBC on Tuesday and Lloyds on Wednesday.
Elsewhere in London, EnQuest shares dropped 11%. It said it expects to report that operating expenditure increased faster than output during 2022.
The UK and Malaysia-focused oil and gas producer said average production in 2022 was 47,259 barrels of oil equivalent per day, up 6.4% from 44,415 in 2021.
However, citing high inflation, Enquest expects to report operating expenditure of around $400 million, increased by 25% from $321.0 million in 2021.
Looking forward, EnQuest said average net production is expected between 42,000 boepd and 46,000 boepd in 2023, down from 2022’s level.
‘Looking ahead, changes to the UK Energy Profits Levy will impact cash flow generation and have implications for our capital allocation strategy and our UK production growth ambitions,’ Chief Executive Amjad Bseisu cautioned.
‘However, given the strong performance towards our leverage target, returns to shareholders are becoming an increasingly important consideration for our capital allocation decisions. In the immediate future, we remain focused on deleveraging and intend to prioritise organic investments with quick pay backs and accretive M&A opportunities that allow us to leverage our operating capability and tax loss position.’
Inland Homes jumped 69%. It said that it has secured waivers from two lenders, after breaching its covenants with both following a challenging financial year.
One of the waivers concerns a £26.0 million facility with Secure Trust Bank, secured on Wilton Park in Beaconsfield, which expires in March 2024.
A waiver has been obtained and concluded for a historic breach of the gearing covenant, which will next be tested on September 30, the brownfield site developer, housebuilder and regeneration specialist said.
The other waiver relates to a revolving credit facility with HSBC, which is currently drawn at £22.7 million, and secured on housebuilding at Meridian Waterside, Southampton and Cressing, Essex.
Brent oil was quoted at $82.79 a barrel at late Friday in London, down sharply from $85.13 late Thursday. Gold was quoted at $1,835.70 an ounce, largely flat against $1,835.31.
Monday’s local corporate calendar has annual results from Nicosia-based lender Bank of Cyprus Holdings and Georgia-focused investor Georgia Capital.
The economic calendar has a People’s Bank of China interest rate decision, as well as the latest Rightmove UK house price index, overnight. The week picks up pace with a series of flash PMIs on Tuesday, German inflation on Wednesday and a US gross domestic product reading on Thursday.
Markets in New York are closed on Monday for the Washington’s Birthday holiday.
Also in focus next week will be progress in Northern Ireland protocol talks. On Friday, several Stormont leaders described talks with UK Prime Minister Rishi Sunak on a potential Brexit protocol breakthrough as high on positively but low on detail.
The PM held bilateral meetings with all five of the main Northern Ireland parties at a hotel on the outskirts of Belfast on Friday, amid mounting speculation that a UK-EU deal on the Irish trading arrangements is close.
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