Large-cap equities in Europe closed lower on Tuesday, as investors cautiously look ahead to expected rate hikes by the Federal Reserve and European Central Bank later this week.
Earlier in the day, the Reserve Bank of Australia unexpectedly lifted rates, dashing hopes it would hold them steady as inflation shows signs of slowing.
The Fed is expected to lift rates by 25 basis points on Wednesday. The ECB may be minded to do the same on Thursday, though another red-hot inflation report on Tuesday may have put a half-point hike on the table.
The FTSE 100 index closed down 97.54 points, or 1.2% at 7,773.03 on Tuesday. The FTSE 250 closed down 110.91 points, or 0.6%, at 19,314.23. The AIM All-Share closed down 1.74 points, or 0.2%, at 828.20.
The Cboe UK 100 closed down 1.2% at 777.42, the Cboe UK 250 closed down 0.3% at 16,996.56, and the Cboe Small Companies closed down 1.1% at 13,610.23.
The pound was quoted at $1.2463 at the London equities close Tuesday, down from $1.2493 at the New York equities close on Monday.
In the FTSE 100, educational publisher Pearson was the worst blue-chip performer, closing 15% lower on Tuesday.
The stock was knocked as shares in online learning service Chegg plunged 49% in New York.
Chegg admitted that artificial intelligence chatbot ChatGPT had affected how many students were signing up to its services. The hit has been so pronounced that the company withdrew its guidance for the full year and warned that second-quarter revenue will be significantly lower than what Wall Street analysts expected.
BP closed 8.8% lower, despite swinging to a profit in the first quarter, declaring a higher dividend and announcing a $1.75 billion share buyback.
The oil major’s underlying replacement cost pretax profit was $13.23 billion in the first quarter, swinging from a loss of $20.40 billion a year earlier. Statutory pretax profit was $12.63 billion, swinging from $16.90 billion loss.
This was in line with total revenue and other income rising by 11% to $56.95 billion from $51.22 billion.
However, earnings dropped from the fourth quarter of 2022. Underlying RC pretax profit fell 31% from $19.15 billion, statutory pretax profit fell 29% from $17.72 billion, and revenue dropped 19% from $70.36 billion.
Housebuilder Persimmon climbed 5.6%, the best performer in the FTSE 100, as mortgage lender Nationwide said there were ‘tentative signs of a recovery’ in UK house prices.
In April, house prices rose 0.5% from the previous month, halting seven consecutive months of decline. The pace of annual decline in house prices slowed to 2.7% in the month, compared to 3.1% annually in March.
Russ Mould, investment director at AJ Bell, said the data would be a ‘tonic’ for a sector that has looked ‘decidedly sickly for some time now.’
Elsewhere in the FTSE 100, HSBC closed up 3.3% after it announced a $2 billion share buyback programme.
In the first quarter of 2023, HSBC said its pretax profit more than tripled to $12.89 billion from $4.14 billion a year before. This was well above market consensus of $8.64 billion.
HSBC also declared its first quarterly dividend since 2019, announcing a payout of $0.10, topping market expectations of $0.08.
In the FTSE 250, Trainline fell 5.1% after it said it has reached an agreement with Rail Delivery Group on a memorandum of understanding to amend its third party retail licence.
Trainline confirmed the terms of the deal include a 0.5% reduction in its base business-to-consumer online sales to 4.5% from 5.0%.
Elsewhere in London, Restaurant Group surged 14% after it reported ‘very encouraging’ trade in the first four months of the year, having delivered around £5 million cost savings on an annualised basis.
Restaurant Group also announced it will accelerate the expansion of Wagamama restaurants, expecting seven to eight openings in its financial 2024, up from previous expectations of five.
In European equities on Tuesday, the CAC 40 in Paris ended down 1.5%, while the DAX 40 in Frankfurt ended 1.2% lower.
A flash estimate from Eurostat showed that annual inflation in the eurozone accelerated slightly in April from March.
The consumer price index rose by 7.0% in April from a year before, picking up pace from a 6.9% annual inflation rate in March.
Food, alcohol and tobacco prices rose at the fastest annual pace, inflating at 13.6% in April compared with 15.5% in March.
‘Headline inflation was slightly up while core inflation was slightly down. This makes April inflation in the eurozone sticky and underlines the need for further rate hikes, albeit at a slower pace and smaller magnitude than before,’ said Carsten Brzeski at ING.
The European Central Bank makes its next interest rate decision on Thursday. A 25 basis point hike is expected from the central bank as a result of stubbornly high inflation in the eurozone.
The euro stood at $1.0986 at the European equities close on Tuesday, higher against $1.0974 at the New York equities close on Monday.
The US Federal Reserve will decide its own interest rate decision on Wednesday, the day before the ECB.
The Fed is also expected to raise interest rates by 25 basis points on Wednesday amid fading stress in the US banking sector.
According to the CME FedWatch tool, a quarter-point hike on Wednesday is overwhelming expected, with market seeing just an 16% chance of rates remaining the same.
At its last meeting in March, the central bank lifted interest rates by 25 basis points in a unanimous decision, taking the federal funds rate range to 4.75% to 5.00%.
Stocks in New York were sharply lower at the London equities close, with the Dow Jones Industrial Average down 1.6%, the S&P 500 index down 1.7%, and the Nasdaq Composite down 1.5%.
Against the yen, the dollar was trading at JP¥136.55 late Tuesday, lower compared to JP¥137.50 late Monday.
Brent oil was quoted at $76.17 a barrel at the London equities close on Tuesday, down from $79.29 at the New York equities close on Monday. Gold was quoted at $2,011.85 an ounce, sharply higher against $1,980.47.
In Wednesday’s UK corporate calendar, there are trading statements from Flutter Entertainment, Barratt Developments and Haleon.
In the economic calendar, the EU will publish its unemployment data at 1000 BST. There will also be two services PMI prints for the US from 1445 BST.
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