Large-cap equities in Europe were on the back foot during cautious trade on Tuesday, ahead of expected rate hikes by the Federal Reserve and European Central Bank.
The Fed is expected to lift rates by 25 basis points. The ECB may be minded to do the same, though another red-hot inflation report on Tuesday may have put a half-point hike on the table.
The FTSE 100 index was down 2.15 points at 7,868.42. The FTSE 250 was up 77.46 points, 0.4%, at 19,502.60, and the AIM All-Share was up 1.99 points, 0.2%, at 831.93.
The Cboe UK 100 was up marginally at 786.72, the Cboe UK 250 up 0.5% at 17,135.61, and the Cboe Small Companies up marginally at 13,464.49.
In European equities on Tuesday, the CAC 40 in Paris was down 0.5%, while the DAX 40 in Frankfurt was down 0.3%.
The pound was quoted at $1.2470 at midday on Tuesday in London, down compared to $1.2575 at the equities close on Friday. The euro stood at $1.0960, down against $1.1040. Against the yen, the dollar was trading at JP¥137.49, up compared to JP¥136.18.
Annual inflation in the eurozone accelerated slightly in April from March, according to a flash estimate from Eurostat on Tuesday.
The consumer price index rose by 7.0% in April from a year before, picking up pace from a 6.9% annual inflation rate in March. The rate of inflation had been expected to remain unmoved at 6.9%, according to consensus cited by FXStreet.
Core inflation unexpectedly eased to 5.6% in April from 5.7% in March. It had also been expected to remain unmoved, according to FXStreet.
‘The small decline in core HICP inflation in April leaves it close to its all-time high and will not resolve the debate between 25bp and 50bp for the ECB this week,’ Capital Economics analyst Andrew Kenningham commented.
‘Our hunch is that the bank will pull a hawkish surprise by going for a 50bp rather than 25bp hike, and we think sticky services inflation and the tight labour market will ultimately persuade them to raise rates to 4.0% before ending the tightening cycle.’
In March, the ECB lifted rates by 50 basis points. It took the interest rate on the main refinancing operations, the interest rate on the marginal lending facility, and the deposit facility to 3.50%, 3.75% and 3.00% respectively.
Before the ECB on Thursday, the US Federal Reserve will announce its own rate decision on Wednesday. Market consensus is expecting another 25 basis point hike, bringing rates to their expected peak.
At its last meeting in March, the central bank lifted interest rates by 25 basis points in a unanimous decision, taking the federal funds rate range to 4.75%-5.00%.
In Australia, equities took a hit as the central bank announced a surprise interest rate hike. The
S&P/ASX 200 lost 0.9%.
The Reserve Bank of Australia lifted the key interest rate by 25 basis points to 3.85%, wrong-footing many economists who predicted there would be no change. Figures released in late April showed that consumer price inflation slowed to 7.0% from 7.8% in December but still stubbornly above the bank’s target of between 2% and 3%.
Reserve Bank Governor Philip Lowe said inflation had ‘passed its peak’, but was still too high.
‘Given the importance of returning inflation to target within a reasonable timeframe, the board judged that a further increase in interest rates was warranted today,’ he said.
The downturn in the UK’s manufacturing sector continued in April, according to survey data.
The UK S&P Global/CIPS manufacturing PMI slipped to a three-month low of 47.8 points in April from 47.9 in March. However, the final reading was better than the flash estimate of 46.6 points.
Despite the ongoing deterioration in the sector, manufacturers were feeling positive towards the future, with optimism reaching a 14-month high. Over 61% of the companies surveyed expected output to rise over the next year.
However, there were ‘tentative signs of a recovery’ in UK house prices, according to mortgage lender Nationwide. In April, house prices rose 0.5% from the previous month, halting seven consecutive months of decline.
The pace of annual decline in house prices slowed to 2.7% in the month, compared to 3.1% annually in March.
On the back of the news, London-listed housebuilders were among the top performers at midday, with Persimmon jumping 7.0%, Barratt Developments rising 2.1% and Taylor Wimpey up 1.7%.
‘UK housebuilders have been signalling some green shoots recently and house price growth picking up in April is just the tonic for a sector which has looked decidedly sickly for some time now,’ AJ Bell analyst Russ Mould commented.
HSBC was also among the best performers on the FTSE 100 at midday, up 5.0%, after it announced a $2 billion share buyback programme.
In the first quarter of 2023, HSBC said its pretax profit more than tripled to $12.89 billion from $4.14 billion a year before. This was well above market consensus of $8.64 billion.
Net interest income rose 38% year-on-year to $8.96 billion from $6.48 billion. Market analysts had been expecting $8.85 billion, according to company-compiled consensus. Overall net operating income reached $19.74 billion, compared to $11.67 billion a year before.
HSBC declared its first quarterly dividend since 2019, announcing a payout of $0.10, topping market expectations of $0.08. It also announced a share buyback of up to $2 billion.
At the other end of the FTSE 100, BP lost 4.9%, despite swinging to a profit in the first quarter as revenue ticked up.
In response, the London-based oil major declared a higher dividend and announced a $1.75 billion share buyback.
Underlying replacement cost pretax profit was $13.23 billion in the first quarter, swinging from a loss of $20.40 billion a year earlier. Statutory pretax profit was $12.63 billion, swinging from $16.90 billion loss. This was in line with total revenue and other income rising by 11% to $56.95 billion from $51.22 billion.
While financial performance improved from a year before, earnings dropped from the fourth quarter of 2022. Underlying RC pretax profit fell 31% from $19.15 billion, statutory pretax profit fell 29% from $17.72 billion, and revenue dropped 19% from $70.36 billion.
On AIM, Longboat Energy shares more than doubled. The stock traded at 21.14 pence, having closed at 9.50p on Friday.
The North Sea-focused oil explorer and producer announced a new agreement with Japan Petroleum Exploration for a significant investment into its Norwegian subsidiary, Longboat Energy Norge, in order to form a joint venture.
The JV will be called Longboat Japex Norge, and will receive a cash investment of $50 million for a stake of just under 50%. Japan Petroleum will also provide the JV with a $100 million acquisition financing facility.
Stocks in New York were called lower. Both the Dow Jones Industrial Average and the S&P 500 index are called down 0.2%, whilst the Nasdaq Composite is called marginally lower.
Brent oil was quoted at $78.98 a barrel at midday in London on Tuesday, down from $79.87 late Friday. Gold was quoted at $1,983.82 an ounce, down against $1,990.27.
Still to come on Tuesday’s economic calendar, there is the US job openings & labour turnover survey.
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