Markets early Thursday continued to react to hawkish remarks by US Federal Reserve Chair Jerome Powell, as focus in London turned to a Bank of England interest rate decision due at midday.
In early corporate news, J Sainsbury boosted its dividend after a strong interim performance, while RS Group shares fell as it said its chief executive will be taking a leave of absence.
The FTSE 100 index opened down 36.49 points, 0.5%, at 7,107.65. The FTSE 250 was down 145.42 points, 0.8% at 18,072.73 and the AIM All-Share down 3.45 points, 0.4%, at 808.57.
The Cboe UK 100 opened down 0.6% at 710.49, the Cboe UK 250 down 0.8% at 15,516.62, and the Cboe Small Companies down 0.3% at 12,376.59
In European equities on Thursday, the CAC 40 in Paris opened down 1.0%, while the DAX 40 in Frankfurt was down 1.0%.
The Federal Open Market Committee lifted the target range for the federal funds rate to 3.75% to 4.00%, from 3.00% to 3.25% previously. The three-quarter point hike was expected by the market. Wednesday's hike was the US central bank's fourth 75bp rate lift in a row.
Any hopes of a dovish pivot were dashed when Fed Chair Powell said 'incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected'.
'Jerome Powell wouldn't let a rally in the US stock and bond markets develop further because it would be vertically against his goal of slowing inflation in an economy where inflation is not showing signs of abating and the labour market isn't tightening yet,' said Swissquote Bank's Ipek Ozkardeskaya.
Having initially fallen after the rate decision and an apparently dovish accompanying statement, the dollar rebounded on Powell's hawkish outlook.
'The market is as a result now for the first time pricing in rates peaking next spring at slightly above 5%,' said Rupert Thompson, investment strategist at wealth manager Kingswood. 'All this suggests equities are likely to have problems sustaining any gains until we are considerably closer to the end of Fed tightening, which will not be for a few months yet.'
Sterling was quoted at $1.1272 early Thursday, lower than $1.1456 at the London equities close on Wednesday. The euro traded at $0.9767, lower than $0.9865. Against the yen, the dollar was quoted at JP¥148.13, up versus JP¥147.08.
A stronger dollar sent commodities lower. Gold was quoted at $1,625.93 an ounce early Thursday, lower than $1,646.74 on Wednesday. Brent oil was trading at $94.46 a barrel, lower than $96.32.
The stronger dollar now puts pressure on the Bank of England.
At midday, the BoE will announce its interest rate decision, in which it is expected to announce a 75 basis points hike, the same as the US Fed. This would be the largest UK rate hike since 1989.
In the FTSE 100, RS Group plunged 10% at the market open. It said CEO Lindsley Ruth will take a leave of absence with immediate effect 'for personal reasons', and will be replaced by Chief Financial Officer David Egan during the absence. It gave no details on the duration of the absence.
More positively, the industrial and electronic products distributor reported solid interim results. Revenue in the six months to September 30 jumped 21% year-on-year to £1.46 billion from £1.21 billion.
This included £48.7 million from favourable exchange rate movements, and £2.3 million from acquisitions, offset by a £8.0 million hit from reduced trading days.
Pretax profit rose 34% to £182.5 million from £136.1 million.
'Notwithstanding the tougher global economic environment, trading remains in line with our and consensus expectations for the full year,' RS said.
The consensus for the year ending March 31 is revenue of £2.92 billion and adjusted pretax profit of £364.9 million.
Sainsbury's added 2.2%, on encouraging interim results.
In the 28 weeks to September 17, revenue for the supermarket chain grew 4.4% year-on-year to £16.41 billion from £15.72 billion.
Pretax profit, however, dropped by 30% to £376 million from £527 million. It said grocery sales grew 0.2% in its first half overall, and by 3.8% in the second quarter as tough lockdown comparatives eased.
Sainsbury's will pay an interim dividend of 3.9 pence per share, up 22% from 3.2p a year before, and backed its annual underlying pretax profit guidance of £630 million to £690 million. It expects annual retail free cash flow generation of 'at least £500 million'.
BT shed 5.2%. The telecommunications firm said revenue rose by 0.6% to £10.37 billion in the six months to September 30 from £10.31 billion a year before. However, pretax profit dropped 18% to £831 million, from £1.01 billion.
BT upped its cost savings target to £3.0 billion from £2.5 billion by the end of 2025. It kept its interim dividend unchanged at 2.31p per share.
'BT Group remains on the front foot in these turbulent times...Our financial performance is on track...and we remain laser-focused on modernising and simplifying BT Group,' said Chief Executive Philip Jansen.
In the FTSE 250, Lancashire Holdings was 4.3% higher.
In the first nine months of the year, the Bermuda-based insurer said gross written premiums rose 34% year-on-year to $1.3 billion.
It expects a net hit impact between $160 million and $190 million from Hurricane Ian, which is within its expectations for such an event.
'We expect the broader positive conditions to continue into 2023 and our strategy is to take advantage of attractive market opportunities. We believe we could see significant increases in rates and improving terms and conditions due to recent events and the fact that capacity had already been tightened in the wider market,' it said.
Hikma Pharmaceuticals added 3.2%, as it reiterated annual guidance for all three of its businesses. Hikma noted the US generics market is still competitive, but it expects its Generics business to perform in line with previous guidance.
On AIM, Empire Minerals shares jumped 35% on the discovery of a 'large magnetic anomaly' at the Pitfield X copper project in Western Australia.
'The mapping shows extensive copper, silver and other base metals anomalism over a 40 kilometre strike length, giving further confidence in the potential to discover a 'giant' copper mineralised system at Pitfield,' the resource explorer and developer said.
In Asia on Wednesday, the Japanese Nikkei 225 index lost 0.1%. The S&P/ASX 200 in Sydney closed down 1.8%.
The Shanghai Composite closed down 0.2%, while the Hang Seng index in Hong Kong closed down 3.1%.
In the economic calendar, there is a UK services PMI release due at 0930 GMT, ahead of the BoE decision at midday.
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