Financial market participants across asset classes were positioning themselves ahead of what is expected to be a historically large hike in US interest rates, with analysts saying the in-favour dollar could face selling if the Federal Reserve shows any sign of cooling hawkishness.
The FTSE 100 index was up 28.41 points, or 0.4%, at 7,215.87 early Wednesday. The mid-cap FTSE 250 index was up 221.80 points, or 1.2%, at 19,266.83. The AIM All-Share index was up 2.89 points, or 0.3%, at 917.93.
The Cboe UK 100 index was up 0.4% at 720.26. The Cboe 250 was up 0.9% at 16,929.87 and the Cboe Small Companies down 0.2% at 14,143.21.
In mainland Europe, the CAC 40 in Paris was up 1.1%, while the DAX 40 in Frankfurt was up 1.0% early Wednesday.
‘Markets have settled somewhat over the last 24 hours, but overall have continued to struggle as they await today's all-important Federal Reserve decision,’ said Deutsche Bank.
The Fed unveils its interest rate decision at 1900 BST, followed by a press conference with Chair Jerome Powell at 1930 BST.
In Asia on Wednesday, Tokyo's Nikkei 225 index closed down 1.1%. The Shanghai Composite ended up 0.5%, while the Hang Seng index in Hong Kong was up 1.0%. The S&P/ASX 200 in Sydney closed down 1.3%.
Gold was quoted at $1,821.20 an ounce early Wednesday, up against $1,814.44 on Tuesday.
Sterling was priced at $1.2030 early Wednesday, firm against $1.2011 at the London equities close on Tuesday. The pound earlier Tuesday was trading at levels not seen since the start of Covid lockdowns in March 2020.
The euro traded at $1.0488, higher than $1.0414 late Tuesday.
The yen recovered after hitting fresh multi-year lows, with the dollar quoted at JP¥134.65, down from JP¥134.88. Earlier Wednesday, the dollar hit a high of JP¥135.56, its highest level against the Japanese currency since 1998.
‘As we hit this big day, markets now fully price in a 75bps hike today. Indeed, 76.3bps is priced, so that actually incorporates a small risk of 100bps,’ Deutsche Bank said.
‘Anything less than a 75 basis point hike, and a firm indication that a similar move is coming in July, would likely trigger a dollar sell-off,’ said Matthew Ryan, senior market analyst at financial services firm Ebury. ‘A 50 basis point move, which we contend remains very much possible, would lead to a violent move lower in the greenback, in our view.’
As well as the Fed, the European Central Bank will meet on Wednesday. ECB policymakers will gather for an exceptional meeting as more indebted eurozone members come under stress from rising borrowing costs.
‘The Governing Council will have an ad-hoc meeting on Wednesday to discuss current market conditions,’ a spokesperson for the Frankfurt-based institution said.
The switch in central bank policy has raised the spectre of ‘fragmentation’ in the eurozone, where the borrowing costs for more indebted members rise faster than for others.
In London, Whitbread rose 3.0% after the Premier Inn hotel chain-owner said trading has been ahead of expectations.
Whitbread said it plans to invest around £20 million to £30 million in labour, refurbishments and IT in its current financial year given a ‘tight’ jobs market and its focus on maintaining a market leading position. ‘However, our high levels of occupancy and continued strong sales performance mean we remain confident in our continued margin recovery in the UK,’ it said.
For its first quarter ended June 2, total sales were up 22% on their pre-pandemic level and up 11% on a like-for-like basis from pre-pandemic, meaning financial year 2020. UK total sales were 18% above pre-pandemic times.
‘The strength of Premier Inn's recovery in the UK continues to be ahead of expectations with a particularly strong Q1 performance that is well ahead of pre-pandemic levels, and we continue to significantly outperform the market,’ said Chief Executive Alison Brittain.
Germany, where Whitbread's open hotel estate now stands at 40, also performed well, with total like-for-like sales up 12% from pre-pandemic.
‘This impressive Q1 performance, together with improved visibility into Q2, gives us increased confidence in delivering a strong first half and remaining ahead of the market for the rest of the year,’ said Brittain.
BP and Shell were towards the bottom of the FTSE 100, down 1.7% and 1.2% respectively, as oil prices gave back some recent gains. Brent oil was trading at $121.56 a barrel, down from $124.93 late Tuesday.
BP revealed Wednesday it is taking just shy of a 41% stake in an Australian energy project being billed as one of the world's largest renewable power stations.
The UK energy firm said it would operate the $36 billion ‘Asian Renewable Energy Hub’, an array of solar and wind facilities sprawled over 6,500 square kilometres of Australia's sparsely populated west coast.
Antofagasta fell 0.7%. The miner said repairs to a concentrate pipeline at Los Pelambres, Chile, have started. The pipeline is expected to resume operations by the end of the month.
‘Total expenditure to repair the pipeline and bring it back to normal operations is not expected to be material,’ said Antofagasta, though it cautioned that full-year copper production is expected to be at the bottom end of its original 660,000 to 690,000 guidance range.
WH Smith rallied 5.1% as revenue topped pre-pandemic levels. For the 15 weeks to June 11, total revenue was just above its pre-pandemic level for the first time, driven by the Travel arm, which saw sales at 123% of 2019 levels. The Travel rebound was led by North America, where sales were 111% of 2019, while they were 104% in the UK and only 88% in the Rest of the World region.
Meanwhile, High Street operations saw revenue at just 79% of 2019 levels so far in the company's third quarter, worsening from the second quarter outturn of 84%. ‘This includes the impact from the cyber incident on Funky Pigeon. We saw a good performance from our Platinum Jubilee ranges, which resonated well with customers, and our focus on front-of-store mega deals is delivering good results,’ WH Smith noted.
Motorpoint shares dropped 9.2%. The vehicle retailer reported a surge in annual revenue, but flagged an uncertain outlook amid inflationary pressures and supply chain issues.
Revenue for the financial year ended March 31 jumped 83% to £1.32 billion from £721.4 million the year before, which the company chalked up to market share growth and vehicle price inflation. This helped pretax profit more than double to £21.5 million from £9.7 million.
The outlook appears shaky, with Motorpoint noting that rising inflation is putting pressure on consumer spending, something which is likely to reduce overall sales in its markets. Further, supply chain issues will continue to limit new car production, which in turn constrains used-car supply.
Nonetheless, it said: ‘Given the group's proven track record of profitability and proactively responding to market conditions, alongside our capital light model and robust balance sheet, the board is confident in its decision to continue to progress towards its medium term strategic goals.’
Motorpoint did not recommend a dividend, in line with the year before, as it focuses on driving ‘significant growth’.
Aside from the Fed decision, the economic events calendar on Wednesday has eurozone industrial production at 1000 BST and US retail sales at 1330 BST.
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