Share prices were suffering on Wednesday from a growing conviction that the interest hiking cycle has further to go, while heavyweight mining shares were showing the effects of lower profits and dividend cuts.
The FTSE 100 index was down 96.70 points, or 1.2%, at 7,881.05 midday Wednesday. The FTSE 250 was down 258.02 points, or 1.3%, at 7,881.05, and the AIM All-Share was down 8.63 points, or 1.0%. at 853.53.
The Cboe UK 100 was down 1.2% at 789.45, the Cboe UK 250 was down 1.4% at 17,074.47, and the Cboe Small Companies was down 1.2% at 13,803.82.
Stocks were also hit by a risk-off mood among investors ahead of the release of the US Federal Reserve’s January meeting minutes at 1900 GMT.
‘We know that the Fed officials will sound concerned with the strong jobs market and will point at the resilience of the economy to continue hiking the rates. So, the chances are that the minutes will be hawkish, and could further weigh on sentiment,’ said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
In European equities on Wednesday, the CAC 40 index in Paris was down 1.0%, while the DAX 40 in Frankfurt was down 0.8%.
Ahead of the US open, stocks on Wall Street were called down, with the Dow Jones Industrial Average, the S&P 500 index and the Nasdaq Composite all seen 0.2% lower.
The dollar was firm. The pound was quoted at $1.2085 at midday on Wednesday in London, lower compared to $1.2121 at the close on Tuesday.
ING’s Francesco Pesole said sterling has continued to display ‘very good resilience’ despite a re-strengthening in the dollar on Wednesday amid ‘the current instability in the geopolitical picture’.
This solid sterling positioning was due to a very strong PMI reading on Tuesday, he explained.
The S&P Global/CIPS UK flash composite purchasing managers’ index rose to an eight-month high of 53.0 points in February from 48.5 in January.
Crossing over the 50-point no-change mark, it shows the UK private sector has returned to growth and was well above the 48.7 market consensus, as cited by FXStreet.
Pesole said that the big and unexpected jump into expansionary territory for the UK private sector was translating into ‘rising bets on Bank of England tightening - the biggest driver of GBP performance of late’.
The euro stood at $1.0628 midday Wednesday in London, lower against $1.0673 late Tuesday. Against the yen, the dollar was trading at JP¥134.76, virtually unchanged compared to JP¥134.74
In London, Rio Tinto dropped 3.0% as the Anglo-Australian mining and metals company reported a steep drop in annual profit due to falling prices for iron ore.
For 2022, Rio Tinto reported pretax profit of $18.66 billion, down 39% from $30.83 billion in 2021. Revenue decreased to $55.55 billion, 12% lower than $63.50 billion in 2021, though marginally above JPMorgan analyst expectations of $52.49 billion.
Net earnings fell 41% to $12.4 billion from $21.1 billion the previous year. Rio Tinto attributed this to movement in commodity prices, alongside the impact of higher energy and raw materials prices on operations, and higher rates of inflation on operating costs and closure liabilities.
The company received an average iron ore price of $97.6 per wet metric tonne, compared to $132.3 per tonne the previous year. This equates to $106.1 per dry metric tonne, down from $143.8 per dry metric tonne.
Russ Mould, investment director at AJ Bell, said the results illustrate how the mining industry’s fortunes ‘fluctuate’ from year to year.
‘Having enjoyed a boom in 2021, a pull-back in commodity prices in 2022 has led to a big drop in both earnings and the dividend. This was already expected by the market; hence the mild share price reaction to the news,’ he said.
Mining peers Anglo American, Glencore, Endeavour Mining and Antofagasta were all in the red on Wednesday morning in a negative read-across. The stocks were down 2.9%, 2.7%, 2.2%, and 3.1%, respectively.
Lloyds Banking was down 1.9% after it reported a nearly flat profit for 2022, due to credit impairments, but also announced a share buyback programme and a £300 million acquisition by a subsidiary.
The Edinburgh-based bank said net interest income rose 49% to £13.96 billion in 2022 from £9.37 billion in 2021. It noted this was ‘supported by higher interest rates and solid business volumes’.
Pretax profit, however, was little changed at £6.93 billion, compared to £6.90 billion and 0.3% lower than the market expectation of £6.95 billion.
The bank proposed a final dividend of 1.60 pence, bring the total to 2.40p, in line with market expectations and up 20% from 2.00p in 2021.
Lloyds also announced the launch of a £2.0 billion share buyback, 1.5% higher than the £1.97 billion expected by the company-compiled consensus, but in line with the expectations of analysts at Barclays.
In the FTSE 250, TBC Bank plunged 8.1% despite reporting a profit rise in the final quarter of 2022 and in the full year, as net interest income jumped on higher interest rates.
For all of 2022, the Tbilisi, Georgia-headquartered lender reported pretax profit of ?1.25 billion, up 35% from ?921.4 million in 2021. Net interest income jumped 29% to ?1.29 billion from ?1.00 billion.
TBC said it benefited from the growing economy of Georgia, which it said expanded by 10% in 2022.
Elsewhere in London, Conduit Holdings slipped 0.8% as it reported a widened annual loss in a year knocked sideways by extreme natural and man-made disasters, from Hurricane Ian to Russia’s attack on Ukraine.
In 2022, Conduit posted a total comprehensive loss of $89.7 million, widened from a loss of $42.0 million in 2021. Conduit made a small underwriting profit of $300,000, compared to a $7.0 million loss the year before, but its investment loss widened to $52.8 million from $3.1 million.
On AIM, Conroy Gold & Natural Resources jumped 18% after it announced it found up to 123.0 grams of gold per tonne in a newly discovered area of gold mineralisation in Longford-Down Massif, Ireland.
Gold was quoted at $1,838.41 an ounce at midday in London on Wednesday, up $1,837.01 late Tuesday. Brent oil was quoted at $81.87 a barrel, down from $82.73.
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