Banks topped London’s FTSE 100 index on Tuesday after the US Federal Reserve warned that larger interest rate hikes may be on horizon to tackle inflation.
The FTSE 100 index closed up 34.33 points, or 0.5%, at 7,476.72. The FTSE 250 ended up 106.04 points, or 0.5%, at 21,112.60, and the AIM All-Share closed just 0.28 of a point lower at 1,037.58.
The Cboe UK 100 ended up 0.2% at 742.37, the Cboe UK 250 closed up 0.5% at 18,625.16, and the Cboe Small Companies ended up 1.1% at 15,110.50.
In European equities on Tuesday, the CAC 40 in Paris ended up 1.2% and the DAX 40 in Frankfurt rose 1.0%.
Markets were unperturbed after Federal Reserve Chair Jerome Powell on Monday said the US central bank is prepared to raise interest rates by bigger steps than the quarter-point hike announced last week if needed to contain ‘much too high’ inflation.
‘If we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so,’ he said in a speech to an economics conference.
The Fed last week raised the benchmark lending rate for the first time since the Covid-19 pandemic began to try to tamp down inflation pressures.
Powell was optimistic the Fed can achieve that without tipping the US economy into a recession, an elusive goal known as a ‘soft landing.’
Even with the oil price shock sparked by the conflict in Ukraine, he noted that ‘today the economy is very strong and is well positioned to handle tighter monetary policy.’
Brent oil was quoted at $115.05 a barrel at the London equities close Tuesday, up from $114.84 late Monday.
Financials topped the FTSE 100 on Tuesday amid the prospect of a higher interest rate world, with Prudential gaining 4.1%, Lloyds advancing 3.3% and NatWest rising 3.1%. In Frankfurt, Deutsche Bank gained 5.5% to finish as the best performer in the DAX 40 index.
Stocks in New York were higher at the London equities close, with the DJIA up 0.6%, the S&P 500 index up 0.8%, and the Nasdaq Composite up 1.4%.
Powell’s comments supported the dollar. The euro stood at $1.1014 at the European equities close Tuesday, soft against $1.1033 at the same time on Monday. Against the yen, the dollar rose to JP¥120.55 compared to JP¥119.25 late Monday.
However, the pound rallied to $1.3255 at the London equities close Tuesday, up compared to $1.3192 at the close on Monday, as investors eye a busy Wednesday in the UK.
First up will be the latest UK inflation reading at 0700 GMT, expected to accelerate to an annual rate of 5.9% in February, according to FXStreet consensus, from 5.5% in January.
Then the UK will hear from Chancellor Rishi Sunak in his so-called ‘mini-Budget’ as the country faces a cost of living crisis. There are suggestions the chancellor could temporarily cut fuel duty by as much as 5p per litre and reports that he is considering raising the threshold at which people start paying national insurance.
With pressure mounting on Sunak to act, he told the BBC on Sunday that ‘of course’ he was prepared to step-in to help those on tightly-squeezed budgets. However, the No 11 incumbent added that he ‘can’t solve every problem’ as he conceded Britons faced a ‘difficult’ time amid ballooning inflation.
Back on the London Stock Exchange, shares in Kingfisher fell 6.3%. The DIY retailer lifted its payout after enjoying a ‘record’ year for earnings, benefiting as the pandemic-induced jump in demand for home improvement has endured.
The FTSE 100 listing owns the B&Q and Screwfix brands in the UK, as well as Castorama in France.
In the 12 months ended January 31, sales rose 6.8% to £13.18 billion, from £12.34 billion. At constant currency, sales were up 9.7%. Pretax profit rose by a third to £1.01 billion from £756 million.
Fresnillo shares fell 3.9%, the precious metals miner tracking the price of gold lower. Safe haven asset gold was quoted at $1,922.93 an ounce at the London equities close Tuesday, down against $1,936.69 at the close on Monday amid an improved risk mood.
Trustpilot shares tumbled 15% after reporting a widened loss for 2021 and guiding for expenses to remain at similar percentages in proportion to revenue in 2022.
For 2021, Trustpilot’s pretax loss came to $25.9 million, widened from $12.3 million the year before, as a result of administrative expenses nearly doubling to $51.6 million, including non-recurring IPO costs and share-based compensations.
General & administrative expenses and technology & content costs both increased in proportion to revenue, which G&A taking up 39% of revenue, and T&C making up 26%, as a result of investment in the business.
Looking ahead, also due to cost inflation, Trustpilot expects these expenses to remain at largely similar percentages in 2022, with ‘overhead leverage to come thereafter’.
On AIM, Knights Group shares plummeted 51% after saying Omicron and recent ‘macro conditions’ have slowed its growth to a greater extent than expected.
The legal and professional services now expects to deliver revenue of £126 million and an underlying pretax profit of £18 million for the financial year ending April 30. In financial 2020, the company generated revenue of £103.2 million and an underlying pretax profit of £18.4 million.
The UK corporate calendar on Wednesday has full-year results from defence engineering company Ultra Electronics, automotive retailer Pendragon and funeral services provider Dignity, and a trading statement from safety equipment provider Halma.
In the economic calendar, alongside UK consumer price inflation at 0700 GMT is the producer price index for February. Eurozone consumer confidence is out at 1500 GMT.
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