A ’hawkish hold’ by the US Federal Reserve was holding back share prices and boosting the dollar early Thursday in London, as market attention now turns to the European Central Bank.
The ECB is expected on Thursday to hike interest rates in the eurozone, but in Asia, the Bank of Japan is expected on Friday to make no change to its loose policy, while China’s central bank cut rates this week.
The FTSE 100 index opened down 10.67 points, or 0.1%, at 7,592.07. The FTSE 250 was marginally higher, up 3.93 points at 19,179.43. The AIM All-Share was down 2.52 points, or 0.3%, at 791.67.
The Cboe UK 100 was down 0.3% at 757.16, the Cboe UK 250 was flat at 16,702.29, and the Cboe Small Companies was down 0.2% at 13,271.00.
The Federal Reserve held US interest rates steady on Wednesday, as expected, though the central bank left the door open for hikes in policy meetings to come in 2023.
The Fed left the federal funds rate range unchanged at 5.00% to 5.25%.
Speaking to reporters after the decision, Fed Chair Jerome Powell said nearly all committee participants view some further hikes this year as ‘appropriate’.
‘We have raised our policy interest rate by 5 percentage points, and we’ve continued to reduce our security holdings at a brisk pace. We’ve covered a lot of ground and the full effects of our tightening have yet to be felt,’ he said.
Wall Street ended largely higher on Wednesday after the decision and Powell’s comments. The Dow Jones Industrial Average was down 0.7%, the S&P 500 up 0.1%, and the Nasdaq Composite up 0.2%.
The hawkish hold gave support to the dollar, which was firmer on Thursday morning in London.
The pound was quoted at $1.2647 at early on Thursday in London, down from $1.2694 at the close on Wednesday. The euro stood at $1.0810, lower against $1.0850.
Against the yen, the dollar was trading at JP¥141.38, sharply higher compared to JP¥139.37 on Wednesday.
With the Fed decision made, market focus shifts to the European Central Bank, which will announce its interest rate decision on Thursday at 1315 BST. A press conference with ECB President Christine Lagarde will follow half an hour later.
In contrast to the US central bank, another 25 basis point hike by the ECB is see as a done deal by markets. The eurozone base rate currently is 3.75%.
‘Assuming today’s hike is as expected, the key focus for markets will be on the prospects for further interest rate rises in July and possibly beyond. In particular, whether Lagarde comments at the post-meeting press conference sounds as hawkish as last time or are tempered by recent weaker-than- expected data will be watched. Previous indications have suggested that a June hike will probably not be the last, and markets are partly pricing in another 25 basis point hike in July,’ commented analysts at Lloyds Bank.
In European equities on Thursday, the CAC 40 in Paris was down 0.3% and the DAX 40 in Frankfurt was down 0.2%.
In London, Informa was the best blue-chip performer in early morning trade, up 3.7%.
The publishing and events firm upped its full-year guidance on the back of a strong performance in all its businesses in the first five months of the year.
Informa said underlying revenue was up 25% against the year prior, with consistent growth in both Academic and Business-to-Business markets.
As a result of this underlying strength, Informa raised its revenue guidance for the full-year by 7% to between £2.95 billion and £3.05 billion. It improved its adjusted operating profit guidance by 10% to between £750 million and GPB790 million.
Halma lost 4.7%, making it the worst performer in the FTSE 100 on Thursday morning.
The safety equipment manufacturer posted pretax profit of £291.5 million, down sharply from £304.4 million the year prior.
Halma said the drop in profitability reflected the non-recurrence of a £34.0 million gain on a disposal in the year prior. Excluding this gain, pretax profit was up 8% year-on-year, it said.
Chief Executive Marc Ronchetti added: ‘We have made a positive start to the new financial year. We have a strong order book, and order intake in the year to date is broadly in line with revenue and ahead of the comparable period last year. Based on current market conditions, we expect to deliver good organic constant currency revenue growth in the year ahead, and return on sales to increase to approximately 20%.’
In the FTSE 250, Asos jumped 14%.
The online fashion retailer said it returned to profitability with its ’P3’ adjusted earnings before interest and tax in the three months ended May 31, despite a drop in revenue.
P3 adjusted Ebit was improved by more than £20 million year-on-year, putting the online fashion retailer on-track to deliver adjusted Ebit guidance of £40 million to £60 million in the second half of its financial year.
In response, investment bank Berenberg said it will reduce its revenue assumption for Asos’s current financial year to flat from up 5%, but it will leave its adjusted Ebit forecast largely unchanged ‘given clear progress on resetting profitability’.
Asos is set to be demoted from the FTSE 250 on Monday next week.
Elsewhere in London, Fuller, Smith & Turner shares added 1.7%.
The UK pub and hotel chain reported a 10% decline in annual profit but a 33% jump in revenue as its business improved from the impact of Covid-related resections on trade.
Pretax profit totalled £10.3 million, down from £11.5 million the year prior, while revenue climbed to £336.6 million from £253.8 million.
Looking forward, Chief Executive Simon Emeny said he is ‘more optimistic about the future’ than he has been since before the pandemic.
‘While the well-documented inflationary environment has been a challenge, there are positive signs on the horizon. In addition, we are ever hopeful of a resolution to the ongoing train strikes to allow us to further benefit from the increasing numbers of office workers and international tourists returning to the Capital,’ he said.
In Tokyo on Thursday, the Nikkei 225 index closed 0.1% lower.
On Friday, the Bank of Japan will announce its rate decision. The central bank is expected to keep its ultra-loose monetary policy unchanged.
In China, the Shanghai Composite closed up 0.7%, while the Hang Seng index in Hong Kong finished 2.0% higher.
China’s central bank cut a key interest rate and injected $33 billion into financial markets Thursday, as data showed the world’s second-largest economy was flagging.
The medium-term lending facility rate – the interest for one-year loans to financial institutions – was lowered 10 basis points to 2.65%, the People’s Bank of China said in a statement.
The PBOC said it was offering $33 billion of funds to banks through the medium-term lending facility, ‘to maintain reasonable and sufficient liquidity in the banking system’.
The bank also had announced a surprise cut in a short-term interest rate earlier this week, which analysts said reflected growing concern about the state of the economy among Chinese policymakers.
The S&P/ASX 200 index in Sydney closed up 0.2%.
Brent oil was quoted at $73.31 a barrel at early in London on Thursday, down from $74.27 late Wednesday. Gold was quoted at $1,933.22 an ounce, sharply lower against $1,957.97.
Still to come in Thursday’s economic calendar, the US weekly unemployment insurance claims report is out at 1330 BST, alongside US retail sales data.
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