Shares in London ended mixed on Wednesday, while shares in New York were lower ahead of central bank interest decisions in the UK and US.
A red-hot UK inflation report has made life tricky for the Bank of England, which is balancing price pressure and banking sector turmoil. The Federal Reserve is expected to lift interest rates shortly, though it faces a similar dilemma as the BoE.
The dollar was mixed ahead of the Federal Reserve interest rate decision, while the hotter-than-expected UK inflation print gave support to the pound.
The pound was quoted at $1.2228 at the London equities close Wednesday, up from $1.2192 at the close on Tuesday. The euro stood at $1.0702 at the European equities close Wednesday, up against $1.0723 at the same time on Tuesday. Against the yen, the dollar was trading at JP¥132.67, higher compared to JP¥131.47 late Tuesday.
The FTSE 100 index closed up 30.62 points, 0.4%, at 7,566.84. But the FTSE 250 ended down 21.31 points, 0.1%, at 18,757.79, and the AIM All-Share closed 0.81 of a point lower, or 0.1%, at 804.15
The Cboe UK 100 ended up 0.4% at 757.10, the Cboe UK 250 closed down 0.3% at 16,312.76, and the Cboe Small Companies fell 0.2% at 13,325.06.
In European equities on Tuesday, markets made steady progress. The CAC 40 in Paris gained 0.3% and the DAX 40 in Frankfurt rose 0.1%.
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 Office for National Statistics.
On a monthly basis, UK consumer prices rose 1.1%, reversing a 0.6% decline in January. Markets had expected the monthly inflation rate to be just 0.6%.
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.
Berenberg analyst Kallum Pickering said the ‘significant upside surprise complicates the monetary policy decision for the Bank of England tomorrow.’
He called it ‘probably the most finely balanced decision in living memory.’
Following the banking turmoil, Pickering changed his call for rates to be left unchanged from his previous forecast of a 25bp hike. But he felt the inflation data will ‘skew the risks towards a further hike.’
Separate data from the ONS revealed that producer price inflation eased in February, though it still came in higher than market expectations.
Producer input prices rose by 12.7% in February from a year before, slowing from a 14.7% rise in January. Markets had expected PPI inflation to cool by more than that, to 10.8% in February.
There was better news on inflation from the CBI industrial trends survey which found that factory price expectations fell to their lowest since March 2021.
However, the report also showed total orders balance for March worsened to negative 20 from negative 16 in February, worse than forecast hitting its lowest level since February 2021.
Export order books were also seen as below normal, but to a marginally lesser extent than last month.
Ahead of the UK’s monetary policy call, the US Federal Reserve will announce its interest rate decision at 1800 GMT tonight.
According to the CME FedWatch tool, markets believe there is an 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 decision to stick or twist follows the conclusion of the Federal Open Market Committee’s two-day meeting and comes in the face of the worst banking turmoil since the 2008 financial crisis.
Ahead of the news, stocks in New York hovered around opening levels at the London equities close, with the Dow Jones Industrial Average and the S&P 500 down 0.2% and the Nasdaq Composite down 0.1%.
Elsewhere on the central banking front, the European Central Bank has not yet reached the end of its interest rate hikes, according to the head of the German central bank Joachim Nagel.
The ECB’s anti-inflationary action still has some way to go, Germany’s top banker told the British business paper Financial Times in an interview published on Wednesday.
At the same time, Nagel admitted that interest rates were approaching the restrictive range, a level above which they slow down economic activity.
In London, Asia-focused banking stocks led the FTSE 100 risers with HSBC up 2.0% and Standard Chartered rising 1.6%. Other banks fell back after opening higher, with Lloyds down 0.5% and NatWest down 1.0% and Barclays down 0.3%.
British Land remained the FTSE 100’s worst performer, down 6.9%, after Goldman Sachs cut the property developer to ’sell’.
Back in London and Marks & Spencer jumped 3.9% following three ratings upgrades. Goldman Sachs and Exane BNP raised the retailer to ’neutral’, while Citi raised the firm to ’buy’.
Tonic maker Fevertree Drinks confirmed its return to growth strategy will result in increased prices as it battles to mitigate the rising cost of glass. Shares soared 9.4%.
The drinks company maintained its sales guidance range of £390-£405 million, expressing confidence in achieving 13% to 18% year-on-year growth.
It cited ongoing momentum across its ’growth’ regions, particularly in the US, and a return to growth in the UK for the relatively bullish outlook. Fevertree stated it would pass on some cost increases through price adjustments while concentrating on margin improvement initiatives.
Brent oil was quoted at $76.04 a barrel at the London equities close Wednesday, up from $72.31 late Tuesday.
The price of gold rose to $1,948.59 an ounce at the London equities close Wednesday, against $1,943.19 at the close on Tuesday.
In Thursday’s UK corporate calendar, there are full-year results from automotive distributor Inchcape and building materials firm Wickes.
The economic calendar for Thursday sees the UK interest rate decision from the Bank of England at 1200 GMT, EU consumer confidence figures at 1500 GMT and the US unemployment insurance weekly claims report at 1230 GMT.
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