Interest rate policy remained front of mind for stock markets on Thursday at midday, despite the quarterly earnings season moving into full flow, and raised expectations for further hikes was putting a damper on large-cap indices.
Minutes from the European Central Bank’s most recent meeting are on Thursday. These may give a clue about the trajectory of eurozone interest rates. A series of central bankers also are scheduled to give addresses.
Blue-chip shares in Paris and Frankfurt struggled ahead of the release, as poor quarterly results from Tesla shook the automotive sector.
The London market was more mixed at midday. The FTSE 100 index was down 17.57 points, 0.2%, at 7,881.20. But the FTSE 250 was up 19.11 points, 0.1%, at 19,219.96, and the AIM All-Share index was 1.11 points higher, or 0.1%, at 830.33.
The Cboe UK 100 index was down 0.2% at 788.50, though the Cboe UK 250 was up 0.2% at 16,843.10, and the Cboe Small Companies was down 0.3% at 13,182.84.
Sterling was quoted at $1.2441, up from $1.2424 at the London equities close on Wednesday. The euro traded at $1.0969, edging up from $1.0958. Against the yen, the dollar was quoted at JP¥134.58, down against JP¥134.69.
‘Today’s market attention is likely to be dominated by central bank speakers. The Bank of England’s [Silvana] Tenreyro will speak as a panellist at a conference on the return of inflation. She is a dovish [Monetary Policy Committee] member who voted not to raise interest rates at the last meeting (the majority voted for a 25bp rise). There are also several ECB speakers including remarks from President [Christine Lagarde] and executive board member [Isabel Schnabel], as markets assess by how much the ECB will likely raise interest rates at the next policy meeting in May.
On Wednesday, ECB Chief Economist Philip Lane said that ’it will be appropriate to raise rates further‘ if the ’baseline scenario‘ underlying the ECB’s most recent forecasts in March holds.
In March, the ECB lifted rates by 50 basis points. It has hiked rates by 3.5% since July last year.
Also due to speak on Thursday are US Federal Reserve Governor Christopher Waller and Fed Cleveland President Loretta Mester, both at 1700 BST. Fed Atlanta President Raphael Bostic and Fed Philadelphia President Patrick Harker follow in the US evening.
The next Fed interest rate announcement is on May 3.
Numbers on Wednesday, which showed UK inflation remained above 10% last month, also kept the spotlight on the Bank of England.
AJ Bell analyst Laith Khalaf commented: ’Inflation in the UK remains above 10%, according to the latest reading of the consumer price index, a fact which has confounded markets and led to interest rate expectations spiking. The market is now anticipating three interest rate rises this year, which would take the Bank of England’s base rate to 5%. Before the release of the latest inflation data, the expectation was we would only see one more interest rate hike, possibly two. So there has been a considerable shift in sentiment.‘
Interest rate worries hurt the London-listed retail sector. JD Sports and Asos both lost 0.6% and WH Smith traded 2.5% lower.
WH Smith fell despite reporting a first-half profit rise, as its fortunes were bolstered by its Travel arm.
The company posted pretax profit of £45 million in the six months that ended February 28, up 32% from £34 million a year before. Revenue in the half-year totalled £859 million, up 41% from £608 million.
Strong momentum across its global Travel business, with a significant recovery in passenger numbers and strong average transaction value growth, was responsible for the revenue rise, WH Smith said.
WH Smith was among the worst FTSE 250 performers at midday, and it was largely only a host of stocks going ex-dividend that saw deeper share price falls.
Housebuilder Vistry fell 4.3%, molten metal flow engineering firm Vesuvius lost 3.9% and power generation firm Drax lost 2.7%. All three are trading for the first day without rights to the latest payout.
Among large-caps in London, it was the mining sector which was the laggard. Anglo American fell by 2.4%, Rio Tinto by 1.5% and Antofagasta by 3.4%.
Anto also was ex-dividend, while Rio shares struggled despite the company reporting best-ever first-quarter shipments from its key Pilbara iron ore operation in Western Australia.
Rio said shipments from the asset amounted to 82.5 million tonnes in the first quarter of 2023, up 15% from 71.5 million tonnes a year ago.
Consumer healthcare firm Haleon added 2.5%. It reported organic revenue grew 9.9% annually in its first quarter. Most of this growth stemmed from prices hikes. Haleon now expects annual revenue at the upper end of guidance of 4% to 6% growth.
Elsewhere in London, luxury goods firm Mulberry rose 6.7%. It expects to report a yearly revenue rise, with the luxury goods company’s sales boosted by an ’improving environment in China‘.
Mulberry said trading for the financial year that ended April 1 was in line with expectations. Revenue is ’slightly ahead‘ of the £152.4 million achieved in financial 2022. It noted that underlying profit, as expected, was weighted to the second half.
Mulberry, famed for its handbags, said it ’maintained‘ its gross margin. It put this down to its focus on full price sales.
In mainland Europe, the CAC 40 stock index in Paris was down 0.5%, while the DAX 40 in Frankfurt was down 0.8%. Both benchmarks were scuppered by share price falls for automotive firms.
In Paris, Renault fell 7.3%, while Fiat and Peugeot owner Stellantis lost 5.1%. In Frankfurt, BMW fell 3.1% and automotive parts maker Continental lost 4.3%.
Shares in carmakers were rocked by poorly-received quarterly results from New York-listed Tesla late Wednesday. Tesla was down 6.8% in pre-market dealings on Thursday.
The electric vehicle maker posted total revenue in the quarter of $23.33 billion, up 24% from $18.76 billion a year prior. But operating income decreased to $2.66 billion in the quarter from $3.60 billion a year ago.
Profit was knocked by reduced selling prices, higher raw material, commodity, logistics and warranty costs, and lower credit revenue.
Stocks in New York were called to open lower. The Dow Jones Industrial Average was called down 0.5%, the S&P 500 down 0.8% and the tech-heavy Nasdaq Composite down 1.0%.
Back in Frankfurt, laboratory equipment maker Sartorius tumbled 9.8%.
It said first quarter revenue was €903 million, down 13% on a constant currency basis from a year ago. Sartorius said this was an ’expected temporary decline‘. Net profit in the first quarter was €116 million, down 31% from €167 million in 2022.
Looking ahead, the firm noted that whilst its outlook remains unchanged, uncertainties remain high due to the global political and economic climate.
Brent oil was trading at $81.85 a barrel early Thursday afternoon in London, falling from $83.68 late on Wednesday and back towards the $80 mark, having topped $86 in the wake of the output cut by Opec+ announced earlier this month. Gold was quoted at $2,002.73 an ounce, up from $1,993.72.
After the ECB minutes, Thursday’s economic diary has the weekly US jobless claims report at 1330 BST and a eurozone consumer confidence reading at 1500 BST.
By Eric Cunha, Alliance News news editor
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