Stock markets were trading solidly on Wednesday despite several new sources of concern for investors. These include Google-owner Alphabet showing it isn’t invincible and Russia ratcheting up its threat to gas supplies in Europe.
The FTSE 100 index was up 71.13 points, or 1.0%, at 7,457.32 at midday on Wednesday, recovering by more than 100 points after dropping to a low in the morning of 7,344.89.
The mid-cap FTSE 250 index was up 56.28 points, or 0.3%, at 20,548.40. The AIM All-Share index was down 2.94 points, or 0.3%, at 1,021.35.
The Cboe UK 100 index was up 1.0% at 742.53. The Cboe 250 was up 0.2% at 18,152.88, and the Cboe Small Companies was flat at 15,125.22.
In mainland Europe, the CAC 40 in Paris was up 0.8% and the DAX 40 in Frankfurt up 0.6% on Wednesday.
European markets had a shaky start to the day after the governments of EU member states Bulgaria and Poland said Russia was halting delivery of natural gas supplies as of Wednesday.
The Bulgarian Energy Ministry said late Tuesday that the Bulgarian natural gas supply company Bulgargaz had received a notification of the gas cut from Russia’s state-backed energy giant Gazprom. Meanwhile, Polish natural gas company PGNiG said Tuesday afternoon that Gazprom was stopping gas flows as of Wednesday morning because Warsaw refused a demand by Moscow to pay for its supplies in roubles.
Russia’s moves raised fears it could halt gas supplies to other members of the EU. The euro traded around five-year lows at €1.0609 midday Wednesday, down from $1.0655 late Tuesday.
‘So far, Russia has halted supplies to relatively small European countries, probably with the intention of sending a message to bigger countries, like Germany and France,’ said Walid Koudmani, chief market analyst at XTB.
‘As the situation benefits no one, the question is who will give in first. The situation is putting upward pressure mostly on European gas prices while investors should also follow US prices as European countries continue to increase their purchases of US LNG in an attempt to prepare for the possibility of total Russian natural gas supply halt.’
Oil prices remained supported amid the tensions between Russia and the EU. Brent oil was trading at $105.34 a barrel on Wednesday around midday, up from $103.65 late Tuesday.
In London, miners were benefiting from higher commodity prices after a rough start to the week. Anglo American shares were up 3.5%, Rio Tinto up 2.8% and Glencore up 2.6%.
The natural resources sector was also lifted by comments from Chinese President Xi Jinping, who has called for an ‘all-out’ campaign to build infrastructure, according to state media, marking the latest attempt by leaders to boost growth in the Covid-battered economy.
‘Infrastructure is an important support for economic and social development,’ Xi said at a high-level meeting on Tuesday, according to the official Xinhua news agency.
The meeting identified several sectors such as transport and energy where an infrastructure boost was needed, including the construction of ports and airports.
Wednesday also was a good session for London’s banking sector after Lloyds raised guidance despite noting an ‘uncertain outlook’ for the UK economy.
Underlying net interest income for the first quarter of 2022 rose 10% to £2.95 billion, with total net income for the period up 12% to £4.11 billion. Despite this increase, pretax profit fell 14% to £1.62 billion, with Lloyds’s profit hit by a £177 million underlying impairment versus a net credit of £360 million a year before.
The impairment reflects ‘a low incurred charge and limited impact from revised economic outlook, including higher inflation offset by stronger house prices and unemployment.’
Given the solid start to the year, Lloyds now expects its full-year banking net interest margin to be above 270 basis points, versus guidance of 260 basis points previously, and return on tangible equity to be greater than 11%, versus a prior prediction of around 10%. This compares to a banking net interest margin of 2.68% in the first quarter and RoTE of 10.8%.
Lloyds shares were up 2.2% at midday, and the update lifted the wider banking sector. HSBC topped the FTSE 100, recovering 4.7% after tumbling 5.5% on Tuesday following its own first-quarter results. NatWest, which reports on Friday, rose 1.5%. Standard Chartered, which releases results early Thursday, was up 1.3%.
Limiting the FTSE 100’s advance was Aveva, down 14% at midday after the industrial software firm warned revenue growth in the year ahead is set to slow and earnings will come under pressure from higher costs.
Aveva warned that revenue growth in the new financial year is expected to slow and margins are set to reduce amid cost pressures. It cautioned that reported revenue will be impacted by the timing of revenue recognition as it strives to boost annual recurring revenue growth, and also warned that revenue will be knocked by the war in Ukraine and sanctions on Russia.
Adjusted earnings before interest and tax in the current financial year will be pressured by additional costs, including wage inflation, increased travel and event costs post-Covid and investment, the company said.
‘Taking all of these factors into account, revenue growth is expected to be lower in FY23 than in FY22 and adjusted Ebit margin is expected to reduce, before resuming growth in FY24,’ Aveva said.
In the FTSE 250, WH Smith fell 5.5% despite swinging to a half-year profit.
Revenue in six months ended February 28 rose 44% to £608 million from £420 million a year prior. WH Smith swung to a pretax profit of £18 million from a £38 million loss.
The stationery and magazines retailer said it is well placed for a rebound in travel following the easing of Covid restrictions, though noted that the outlook for the broader global economy ‘remains uncertain’.
Drax rose 5.2% after the power generator said full-year earnings will be around the top end of the current range of analyst expectations after reporting a strong system support performance during the first three months of 2022.
Elsewhere in London, Alfa Financial Software rose 5.2% after declaring a special dividend of 3 pence per share due to it generating ‘excess cash’. This came alongside strong trading in the first quarter of 2022, with revenue rising 11% to £22.5 million.
In New York, stocks are poised for a recovery after steep losses on Tuesday. The Dow Jones was called up 1.1%, the S&P 500 up 1.0% and the Nasdaq Composite up 0.9%.
The Nasdaq bore the brunt of Tuesday’s falls, with the index tumbling 4.0% as investors grew nervous ahead of heavyweight tech earnings.
Focus will be on Alphabet shares on Wednesday, with the stock trading 2.7% lower pre-market after reporting a sharp fall in first-quarter earnings. The Google parent posted first-quarter net income of $16.44 billion, or $24.62 per diluted share, down from $17.93 billion, or $26.29 diluted EPS, last year.
‘Once considered incapable of doing anything wrong, tech superstars such as Alphabet are now shocking investors with news that growth can slow, and that they are susceptible to headwinds like any other business,’ said Russ Mould, investment director at AJ Bell.
‘Apple, Amazon and Meta are next to report their earnings and investors seems to be braced for potential bad news...Meta is heavily reliant on advertising spend so if YouTube is seeing weakness, it too might be suffering.’
Shares in Facebook parent Meta were trading 2.2% lower pre-market in New York ahead of its first quarter earnings to be released after the closing bell. Apple and Amazon follow on Thursday.
The economic events calendar on Wednesday has US trade data at 1330 BST.
Sterling was quoted at $1.2582 on Wednesday, down from $1.2622 at the London equities close on Tuesday.
Dollar strength on Wednesday weigh down safe-haven assets such as gold and the Japanese yen. Gold was quoted at $1,895.90 an ounce on Wednesday, down from $1,903.55 on Tuesday. Against the yen, the dollar rose to JP¥127.89 from JP¥127.27.
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