Stock markets were higher on Wednesday, but investors were on tenterhooks ahead of three key interest rate announcements this week, starting with the US Federal Reserve.
There was some good news on inflation ahead of the monetary policy decisions, which also include the Bank of England and European Central Bank, as price rises slowed in the eurozone in January.
The FTSE 100 index was up 14.32 points, 0.2%, at 7,786.02 at midday. The FTSE 250 was up 160.60 points, 0.8%, at 20,014.05, and the AIM All-Share was up 5.85 points, 0.7%, at 873.67.
The Cboe UK 100 was up 0.1% at 778.45, the Cboe UK 250 was up 0.9% at 17,474.90, whilst the Cboe Small Companies was down 0.1% at 14,070.56.
Investors are hoping for a dialling back of the pace of interest rate rises, with markets now expecting a 25 basis point hike in US interest rates. Should the Fed raise rates as expected on Wednesday, this would take the federal funds rate range to 4.70% to 4.75%.
The Federal Open Market Committee will conclude its two-day policy meeting on Wednesday and announce its decision at 1900 GMT. This will be followed by a press conference with Fed Chair Jerome Powell at 1930 GMT.
‘The FTSE 100 moved higher on Wednesday morning, with today’s trading session in London sandwiched by strong gains on Wall Street overnight and the US Federal Reserve’s decision on interest rates later,’ says AJ Bell investment director Russ Mould.
‘A lot is riding on the Fed dialling back the pace of rate hikes to 25 basis points and there will also be plenty of attention on the surrounding messaging from Chair Jerome Powell and his colleagues. Helping the market’s mood on Tuesday was data that revealed slowing US wage growth, another signal that inflationary pressures have peaked.
‘Investors clearly hope we are getting closer to the point at which the Fed pivots away from rate rises and that it does so before too much economic pain has been inflicted.’
In the US on Tuesday, Wall Street ended higher, with the Dow Jones Industrial Average ending up 1.1%, the S&P 500 up 1.5% and the Nasdaq Composite up 1.7%.
New York stocks were called higher ahead of the Fed’s decision, which is made during US market hours. The Dow Jones Industrial Average was called up 1.1%, the S&P 500 index up 1.5%, and the Nasdaq Composite up 1.7%.
On Tuesday, figures from the Bureau of Labor Statistics on Tuesday showed that US wages and salaries increased in the final quarter of 2022.
According to the US Bureau of Labor Statistics, wages and salaries increased 1.0% in the three-month period ended December compared to September 2022. Wages and salaries increased 5.1% for the 12-month period ended December 31.
The ECB and the BoE also hold their rate-setting meetings this week, with decisions due on Thursday. Both are expected to hike by 50 basis points.
In European equities on Wednesday, the CAC 40 in Paris and the DAX 40 in Frankfurt were both down 0.1%.
There was some positive news for the eurozone, and the ECB, on Wednesday as a flash estimate from Eurostat showed that consumer price inflation slowed in January.
In January, the eurozone annual inflation is estimated at 8.5% last month, down from 9.2% in December. A year earlier, the inflation rate for January was 5.1%.
On a monthly basis, consumer prices in the eurozone fell by 0.4% in January.
The figures, however, do not include German inputs as they have been postponed.
‘All in all, the data looks decent as a jump in core inflation has been avoided but uncertainty remains without final German figures. For the ECB, the muddied picture of inflation is annoying, but don’t expect it to throw it off course for tomorrow. The jump in core inflation in some key countries will be enough for the central bank to confirm its current hawkish stance and add another 50 basis points to policy rates,’ remarked ING Senior Economist Bert Colijn.
Eurostat also said the eurozone unemployment rate for December was 6.6%. This is stable compared with November 2022 and down from 7.0% in December 2021.
Meanwhile, the downturn in the eurozone’s manufacturing sector eased somewhat in January, according to survey results, as cost pressures faded.
The S&P Global eurozone manufacturing purchasing managers’ index rose to a five-month high of 48.8 in January from 47.8 in December.
At below the 50.0 no change mark, the reading shows the sector is still in contraction, though the pace has eased slightly.
The situation is ‘considerably brighter’ than a few months ago, according to Chris Williamson, chief business economist at S&P Global Market Intelligence.
‘Not only has the rate of output decline moderated now for three consecutive months, but business optimism about the year ahead has also surged higher over the past three months,’ he said.
In the UK, the PMI from S&P Global showed the manufacturing sector continued to contract in January but input inflation eased.
The seasonally adjusted S&P Global-CIPS manufacturing PMI edged up to 47.0 points in January from December’s 31-month low of 45.3 and above the flash estimate of 46.7.
This marks the sixth consecutive month of contraction in UK manufacturing.
S&P noted that average input costs eased to a two-month low in January, however there was a slight uptick in selling price inflation.
Looking ahead, S&P said that manufacturers’ confidence is reviving from recent lows, hitting a nine-month high. However, it noted that the mood continues to be darkened by concerns over price inflation and the possibility of recession.
The pound was quoted at $1.2327 at midday on Wednesday in London, down compared to $1.2375 at the equities close on Tuesday. The euro stood at $1.0895, higher than $1.0861. Against the yen, the dollar was trading at JP¥129.84, down compared to JP¥130.17.
In the FTSE 100, Ladbrokes- owner Entain gained 2.0%, making it one of the best performers of the morning.
The London-based gaming and sports betting firm lifted its outlook following a World Cup boost.
Entain said it expects earnings before interest, tax, depreciation and amortisation for 2022 to be in the range of £985 million to £995 million. It had previously guided for a range of £925 million to £975 million.
At best, the new guidance represents a 13% rise from 2021’s Ebitda of £881.7 million.
For the fourth quarter of 2022, net gaming revenue rose 11% year-on-year and 7% at constant currency. Entain reported ‘record’ online net gaming revenue. It rose 12% year-on-year, reflecting a ‘successful men’s World Cup, partly offset by weather disruptions to sporting fixtures’, Entain explained.
Looking ahead, Entain said it has started 2023 with ‘good momentum’ across the business.
Telecommunications firm Vodafone was one of the worst FTSE 100 performers at midday.
It shed around 2.1%, after its CEO said ‘we can do better’ as it reported that growth slowed in the third-quarter.
AJ Bell’s Mould said: ‘The telco’s third-quarter update reveals a further slowdown in organic revenue growth and although the company is sticking to its previously downgraded earnings and cashflow targets, the shares trade no higher now than they did in December 1997.’
On an organic basis, service revenue rose 1.8% on-year during the quarter ended December 31. It had risen 2.5% yearly in the second quarter.
On a reported basis, service revenue was 1.3% lower on-year at €9.52 billion from €9.65 billion. Total revenue amounted to €11.64 billion, down 0.4% from €11.68 billion a year earlier, but up 2.7% on an organic basis.
‘Although we’re continuing to target our financial guidance for the year, the recent decline in revenue in Europe shows we can do better. We need to do more for our customers by delivering quality connectivity in an easy way. We’ve already taken action, including simplifying our structure to give local markets full autonomy and accountability to make the best commercial decisions for their customers,’ Chief Executive Margherita Della Valle said.
Della Valle became interim chief executive at the start of the year, replacing Nick Read who departed after just over four years in the top job.
Vodafone backed its annual guidance, expecting adjusted Ebitda after leases between €15.0 billion and €15.2 billion. At best, that would be around the €15.21 billion achieved in financial 2022.
In the FTSE 250 index, London-based commercial property investor UK Commercial Property REIT lost 4.2%.
In the quarter to December 31, the company’s net asset value fells by 22% to 79.7 pence per share from 101.5p at September 30. NAV total return was negative 21%, compared to negative 7.9% a quarter ago.
However, the company reported a 12% rise in earnings per share to 0.82 pence as at December 31, up from 0.73p on September 30. It also declared a dividend of 0.85 pence per share for the quarter, up from 0.75p a year prior.
Brent oil was quoted at $85.42 a barrel at midday in London on Wednesday up from $85.27 late Tuesday. An OPEC meeting is scheduled for Wednesday.
Gold was quoted at $1,929.43 an ounce up against $1,927.04.
In addition to the Fed’s interest rate announcement, the economic calendar on Wednesday has a US manufacturing PMI and labour turnover survey.
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