Stocks prices in London were suffering early Wednesday, but the pound was benefiting, after UK inflation came in higher than expected, rising rather than falling.
The FTSE 100 index opened down 15.66 points, or 0.2%, at 7,519.06. The FTSE 250 was down 95.05 points, or 0.5%, at 18,682.71, and the AIM All-Share was down 0.67 of a point, or 0.1%, at 804.29.
The Cboe UK 100 was down 0.3% at 751.94, the Cboe UK 250 was down 0.6% at 16,261.18, and the Cboe Small Companies was down 0.3% at 16,261.18.
The pound was quoted at $1.2275 at early on Wednesday in London, higher compared to $1.2192 at the close on Tuesday.
The consumer price index rose by 10.4% in February from a year before, accelerating from a 10.1% annual rise in January. Market consensus had expected UK inflation to cool to 9.8% in February, according to FXStreet.
The print remained below the recent peak of 11.1% in October, which was the highest annual inflation rate since 1981, according to the ONS.
Core annual inflation - excluding energy, food, alcohol, and tobacco - picked up to 6.2% in February from 5.8% in January. Markets had expected core inflation to remain unchanged.
Nicholas Hyett, investment analyst at Wealth Club, said the print leaves the Bank of England with ‘unappealing choices’. The UK central bank can ‘ease back on rate rises but risk leaving inflation running higher when households are already struggling, or stay in the inflationary fight and risk further economic crunches.’
The Bank of England will announce its interest rate decision at midday on Thursday. Before that, the latest US Federal Reserve decision is due on Wednesday afternoon, with a 25-basis-point hike also expected. Last week, the European Central Bank raised rates by 50 basis points.
While the Bank of England is under pressure to pause rate hikes, due to the banking industry crisis, the hot inflation reading puts the central bank in an ‘incredibly difficult position’, commented Richard Carter, head of fixed interest research at Quilter Cheviot.
‘The fallout from the failures of Credit Suisse and Silicon Valley Bank only add to the complexity and make a policy mis-step all the more harder to avoid,’ he said. ‘The BoE may not be at the end of its interventions yet, and as has been seen in the US, inflation isn’t a simple thing to tame.’
On the London Stock Exchange, British Land was down 4.9%, making it the worst performer in the FTSE 100 in early morning trade, after Goldman Sachs cut the property investor to ’sell’.
WPP edged up 0.2%, after it announced the acquisition of influencer marketing agency Goat for an undisclosed amount.
Goat creates data-led, end-to-end influencer marketing campaigns, driving brand engagement and integrating targeted paid media, WPP explained. Its clients have included Dell, Meta Platforms, Tesco, and Uber.
In the FTSE 250, Bytes Technologies rose 5.3% after it said it delivered ‘strong’ sales and profit growth in the financial year ended February 28, with gross profit and adjusted operating profit up 20% against the prior year.
The services and software provider said this reflected ‘very strong’ demand from both corporate and public sector clients, despite ‘well-documented’ macroeconomic headwinds.
UK housebuilder Vistry climbed 3.1% despite reporting a drop in annual profit as it lamented more challenging market conditions in the final quarter of 2022, leading the company to slash its final dividend.
Pretax profit fell 23% to £247.5 million in 2022 from £319.5 million in 2021, as cost of sales widened to £2.32 billion from £1.97 billion year-on-year. Revenue climbed 13% to £2.73 billion from £2.40 billion.
Vistry reduced its final dividend by 20% to 32 pence per share from 40p a year before. That cut its total annual payout to 55p from 60p.
Elsewhere in London, shares in XPS Pensions jumped 6.7%, after the company said it now expects revenue for the financial year ending March 31 to be ahead of current consensus.
The pension consultancy said consensus sees revenue between £163 million and £165 million. This would represent growth of 17% to 19% against the year prior.
In European equities on Wednesday, the CAC 40 index in Paris was down 0.2%, while the DAX 40 in Frankfurt was marginally higher.
In Tokyo on Wednesday, the Japanese Nikkei 225 index closed up 1.9%. In China, the Shanghai Composite closed up 0.3%, while the Hang Seng index in Hong Kong closed 1.7% higher. The S&P/ASX 200 in Sydney closed up 0.9%.
The euro stood at $1.0774 early Wednesday, a touch lower against $1.0778 at the London equities close on Tuesday. Against the yen, the dollar was trading at JP¥132.45, higher compared to JP¥132.29.
Currency market attention was on the US central bank’s interest rate decision.
‘Until the recent banking issues emerged, this was expected to result in another rise in interest rates. There had even been speculation that after slowing the pace of its hikes to just 25 basis points in February, the Fed may now pick it up again to 50bp. That picture has changed and a 50bp hike now seems unlikely. Indeed, it is possible that the Fed will choose to make no move at all,’ said analysts at LLoyds Bank.
‘A 25bp hike is perhaps the most likely outcome but the decision seems to be on a knife edge.’
According to the CME FedWatch tool, markets believe there is a 86% chance the Federal Reserve will lift US interest rates by 25 basis points, with the remaining 14% expecting rates to stay at their current level.
The US Federal Reserve will announce the decision at 1800 GMT. A press conference with Chair Jerome Powell follows half an hour later.
The decision comes after a chaotic couple of weeks for the US banking sector, triggered by the failures of Silicon Valley Bank and Signature Bank.
The collapses caused a crisis of confidence, with many customers of similarly sized banks withdrawing their money and depositing it in larger institutions - considered too big for the government not to bail them out if they faced failure.
On Tuesday, Treasury Secretary Janet Yellen told a lenders’ conference that US banking sector is ‘stabilizing’. She said ‘outflows from regional banks have stabilized’ following authorities’ moves to shore up confidence and stem contagion.
New York ended higher on Tuesday, with the Dow Jones Industrial Average up 1.0%, the S&P 500 up 1.3% and the Nasdaq Composite up 1.6%.
Brent oil was quoted at $74.93 a barrel at early in London on Wednesday, up from $74.42 late Tuesday. Gold was quoted at $1,943.87 an ounce against $1,943.19.
Still to come in Wednesday’s economic calendar, the UK house price index is released at 0930 GMT.
Copyright 2023 Alliance News Ltd. All Rights Reserved.
