Stock markets were on the rise on Wednesday, lifted by some strong earnings reports, in the lead-up to a US interest rate decision after the London close.
The Federal Open Market Committee will conclude its two-day policy meeting on Wednesday and announce its decision at 1900 BST. This will be followed by a press conference with Federal Re-serve Chair Jerome Powell at 1930 BST.
The US central bank is widely expected to announce a second successive 75 basis points increase, taking the funds rate to 2.25% to 2.50%. The main focus will be on the Fed’s outlook for the economy and clues about future path for aggressive rate hikes.
The FTSE 100 was up 39.51 points, or 0.5%, at 7,345.84. The FTSE 250 index was up 90.20 points, or 0.5%, at 19,658.99. The AIM All-Share index was up 1.23 point, or 0.1%, at 899.75.
The Cboe UK 100 index was up 0.4% at 732.47. The Cboe 250 was up 0.4% at 17,114.12. The Cboe Small Companies was up 0.3% at 13,597.61.
In mainland Europe, the CAC 40 stock index in Paris was up 0.2%, while the DAX 40 in Frankfurt was 0.4% higher.
New York was pointed to a higher open on Wednesday with sentiment lifted by upbeat earnings reports from trillion-dollar tech names.
The Dow Jones Industrial Average was called up 0.4%, S&P 500 up 0.8% and Nasdaq Composite up 1.4%. The indices closed down 0.7%, down 1.2%, and down 1.9% respectively on Tuesday.
Google-owner Alphabet on Tuesday after the market close revealed a second quarter profit fall, as it missed top- and bottom-line consensus.
Alphabet Class A and Class C shares were up 3.5% in pre-market trade in New York.
In the second quarter to June 30, revenue improved 13% year-on-year to $69.69 billion from $61.88 billion. The revenue figure came in below a CNN-cited market forecast of $69.9 billion. In addition, growth slowed markedly from a 62% surge in the second quarter of 2021.
Pretax profit declined 14% to $19.01 billion from $21.99 billion a year earlier. Basic earnings per share fell 12% to $1.22 each, lagging a CNN-cited consensus of $1.27.
Dow 30-member Microsoft, also Tuesday, reported a strong rise in revenue in the final quarter of its financial year, thanks to continued strong Cloud services demand.
In the three months to June 30, revenue rose 12% to $51.87 billion from $46.15 billion a year before. Net income increased slightly to $16.74 billion from $16.46 billion. Diluted earnings per share im-proved to $2.23 from $2.17.
The stock rose 3.8% in the pre-market.
‘Solid reports from tech giants Microsoft and Alphabet have given a fresh boost to market sentiment on Wednesday, sparking hopes that companies can handle tighter monetary conditions and a slower economy.
However, even if market volatility may be on the rise, we don’t expect any clear direction on most benchmarks ahead of tonight’s FOMC policy decision where traders will be expecting more clues on where the Fed is going, alongside a much anticipated 0.75 percentage point rate hike,’ said ActivTrades analyst Pierre Veyret.
Ahead in a busy US earnings calendar Wednesday, aerospace and defence firm Boeing and food company Kraft Heinz report earnings before the market open in New York. Facebook-parent Meta Platforms will report after the closing bell.
In the FTSE 100, Smurfit Kappa was the best performer, up 5.1%. The Irish corrugated packaging firm reported a ‘strong’ half-year performance as profit rose significantly.
For the six months ended June 30, the Dublin-based company increased pretax profit by 86% to €769 million from €413 million a year ago. Revenue rose 36% to €6.39 billion from €4.68 billion.
Further boosting profit, Smurfit’s EBITDA margin improved to 18.4% from 16.7%.
Smurfit Kappa declared an interim dividend of 31.6 cents per share, up 7.8% on the 29.3 cents paid out a year before, reflecting ‘the confidence in the quality of our business and its future prospects’.
Reckitt Benckiser was the second-best large-cap performer in London, up 4.5%.
The hygiene and household goods maker raised its annual guidance following a positive first-half performance.
For the six months to June 30, the Slough, England-based firm swung to a pretax profit of £1.69 billion from loss of £1.94 billion last year, on revenue of £6.89 billion, up 4.4% from £6.60 billion.
Looking ahead, Reckitt said annual sales growth will be in a range of 5% to 8%, up from previous guidance of 1% to 4%. It also expects growth in its adjusted operating margins.
‘We are already delivering sustainable mid-single digit net revenue growth and remain firmly on track to deliver our medium-term goal of mid-20s adjusted operating margins by the mid-2020s,’ Reckitt added.
Lloyds Banking was up 3.8% after the high-street lender raised its annual guidance against a beneficial backdrop of rising UK interest rates.
For the six months to June 30, net income was £8.45 billion, up sharply from £7.56 last year, but pretax profit was £3.66 billion, down from £3.91 billion.
Lloyds said it set aside £377 million to cover a possible increase in loan defaults as UK interest rates rise to combat rampant inflation.
Underlying profit before the impairment was up 34% to £4.1 billion in the first half, driven by strong net income growth.
Lloyds’s CET1 ratio - a key measure of a bank’s financial strength - stood at 14.7% on June 30, down from 16.7% at the same time last year.
Turning to returns, Lloyds declared a 0.80p interim dividend, up 20% from last year and worth £550 million in total.
Looking ahead to 2022, Lloyds said its banking net interest margin is now expected to be greater than 280 basis points. It was 2.77% in the first half, up from 2.50% a year before.
Lloyds said its return on tangible equity is now seen at 13% in 2022. It was 13.2% in the first half, down from 19.2% a year ago.
Domestic rivals NatWest and Barclays were up 1.9% and 0.5% respectively in a positive read-across.
Russ Mould, investment director at AJ Bell, said investors were reacting cautiously to Lloyds’s strong results, due to concerns that the lender’s mortgage business is heading for tougher times.
‘A downturn in the [UK] housing market, which has defied gravity for longer than many would have believed possible, feels inevitable at some point,’ Mould said. ‘However, Lloyds and the other banks have much stronger balance sheets than they did 15 years ago, and it still looks well placed to pay out to shareholders through dividends and share buybacks.’
Legal & General was up 2.5% after Berenberg raised the general insurer to ‘buy’ from ‘hold’.
At the other end of the FTSE 100, Unite Group was the worst performer, down 5.5%. The student accommodation provider said it delivered a strong performance in the first half following removal of the last remaining Covid-19 restrictions on Higher Education.
EPRA net tangible asset per share jumped 6.6% to 940 pence at June 30 from 882p at end of December, and was up 12% from 837p a year ago also. Pretax profit rose to £334.1 million from £130.4 million year-on-year.
Unite hiked its interim dividend by 69% to 11.0p from 6.5p.
Still, Peel Hunt downgraded Unite to ‘reduce’ from ‘add’, saying the stock appears fully valued.
Rio Tinto was the second-worst performer, down 3.5%, after the Anglo-Australian miner slashed its first-half dividend, as earnings were dented by weaker iron ore prices.
Rio said it saw ‘significant movement’ in the pricing for commodities in the half amid growing re-cession fears and a decline in consumer confidence.
For the six months to June 30, revenue fell to $29.78 billion from $33.08 billion last year, and pretax profit slumped to $12.32 billion from $18.05 billion.
Rio Tinto declared an interim dividend of 267.0 US cents, down 29% from 376.0 cents last year.
During the period, Rio said $10.5 billion in net cash generated from operating activities, 23% lower than the 2021 first half - primarily driven by downward price movements for major commodities.
In June, Rio said it made a $1.1 billion final payment to the Australian Taxation Office in respect of 2021 profit. It also experienced a rise in working capital, mainly due to elevated prices for raw mate-rials in aluminium inventory.
The miner said operations and growth projects continue to be hurt by the ‘high unplanned absences’, tight labour markets, rising input costs and supply chain disruptions.
In the FTSE 250, Wizz Air was the best performer, up 9.0%. The Hungarian airline said it more than quadrupled its revenue in the first quarter of its new financial year.
In the three months to June 30, the budget airline reported revenue of €808.8 million, up sharply from €199.0 million the previous year. In the first quarter ending June 30, 2019 - the last first quarter result before the pandemic hit - revenue was €691.2 million.
The pound was quoted at $1.2059 at midday on Wednesday, up from $1.2021 at the London equities close Tuesday.
The euro was priced at $1.0150, up from $1.0120. Against the yen, the dollar was trading at JP¥136.73, higher against JP¥136.63.
Brent oil was quoted at $104.72 a barrel Wednesday morning, down from $105.24 late Tuesday. Gold stood at $1,721.55 an ounce, firm against $1,717.77.
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