London’s FTSE 100 achieved a minor gain on Wednesday, helped by a weaker pound, while the dollar strengthened as traders bet that the US Federal Reserve will keep interest rates higher for longer.
Hawkish comments from Fed Chair Jerome Powell meant investors now believe the central bank will enact a half-point rate hike this month.
The pound, meanwhile, struggled after a Bank of England policymaker warned on ‘overtightening’.
The pound was quoted at $1.1840 at the London equities close Wednesday, down compared to $1.1861 at the close on Tuesday.
The weaker pound helped lift the FTSE 100, which is stacked with international earners.
The index closed up 10.44 points, 0.1%, at 7,929.92. The FTSE 250, however, ended down 104.64 points, 0.5%, at 19,851.97. The AIM All-Share closed down 0.6%, or 5.33 points, at 854.73.
The Cboe UK 100 ended up 0.2% at 793.98, the Cboe UK 250 closed down 0.6% at 17,389.46, and the Cboe Small Companies ended down 0.6% at 13,999.54.
- Hawkish Powell and US jobs data support dollar -
The euro stood at $1.0553 at the European equities close Wednesday, down against $1.0577 at the same time on Tuesday. Against the yen, the dollar was trading at JP¥137.14, up compared to JP¥136.87 late Tuesday.
The US labour market remained strong last month, figures from payroll processing firm ADP showed, strengthening the case for faster interest rate hikes.
According to ADP, the US private sector added 242,000 jobs in February, topping FXStreet-cited expectations of a rise of 200,000. In January, 119,000 jobs were added, upwardly revised from 106,000.
Goods producers added 52,000 jobs last month, while service providers added 190,000.
‘There is a tradeoff in the labour market right now,’ ADP analyst Nela Richardson said. ‘We’re seeing robust hiring, which is good for the economy and workers, but pay growth is still quite elevated. The modest slowdown in pay increases, on its own, is unlikely to drive down inflation rapidly in the near-term.’
The ADP data is a precursor to the official nonfarms payrolls report due on Friday.
Employment growth is expected to have slowed to 203,000 in February, from 517,000 in January, according to FXStreet cited consensus.
Federal Reserve Chair Jerome Powell on Tuesday said US interest rates will likely peak at a higher level than previously anticipated due to economic data that came in stronger than recent trends suggested. He noted that January figures for employment, consumer spending, manufacturing production and inflation pointed to a partial reversal of earlier softening trends.
‘If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,’ he said.
The Federal Open Market Committee next meets between March 21 and 22.
There is a 78% chance that it lifts rates by 50 basis points, according to the CME FedWatch Tool. That would take the federal funds rate range to 5.00% to 5.25%. A week ago, there was only a 30% chance of a half-point hike this month.
In European equities on Wednesday, the CAC 40 in Paris ended down 0.2%, though the DAX 40 in Frankfurt ended up 0.5%.
Stocks in New York were mixed at the London equities close. The Dow Jones Industrial Average was down 0.3%, while the S&P 500 index was up 0.1% and the Nasdaq Composite up 0.2%.
Further rises in interest rates risk hurting the weakened UK economy and adding unnecessary pain to already stretched households, a Bank of England policymaker has warned.
Swati Dhingra - one of nine members of the bank’s rate-setting committee - said ‘overtightening’ of interest rates poses more of a risk to the economy than home-grown inflation pressures, such as wage rises.
In a speech at the Resolution Foundation think tank, Dhingra said she believes rates should remain on hold at 4% while the flurry of hikes since the end of 2021 filter down to the economy and as inflation begins to ease back.
- Hiscox shines, but L&G and Admiral fall -
In London, Hiscox closed the best blue-chip performer at close, up 4.3%.
The insurer reported its highest underwriting profit since 2015 but a steep drop in annual profit, as its chair, Robert Childs, announced his retirement.
The Bermuda-based company reported pretax profit of $44 million, down sharply from $190.8 million in 2021. Underwriting profit totalled $269.5 million, up from $215.6 million in 2021.
Hiscox suffered an investment loss of $187.3 million compared to a profit of $51.2 million a year earlier, as a result of ‘unrealised mark-to-market losses in our bond portfolio which are expected to unwind as the bonds mature’, it said.
In contrast, insurance peers Legal & General and Admiral sat near the bottom of the FTSE 100, down 1.6% and 4.1%, respectively.
L&G dropped despite reporting a solid increase in annual profit and a record solvency II ratio in 2022.
The life insurance and pension provider reported pretax profit of £2.66 billion, up 7% from £2.49 billion in 2021. Operating profit climbed 12% to £1.26 billion from £1.15 billion.
L&G said it achieved a record Solvency II coverage ratio of 236%, up sharply from 187% in 2021. At March 3, L&G estimates its coverage ratio was 240%.
Meanwhile, Admiral said it delivered ‘resilient’ results in 2022, against a backdrop of high inflation, but reported a steep fall in annual profit.
The home and motor insurer reported a pretax profit of £469.0 million last year, down 39% from £769.0 million in 2021.
Jefferies said Admiral’s pretax profit was 5% below market consensus, with the miss driven by the International Insurance business. This was due to low market premiums in Italy and Spain and high auto claims in the US.
The company’s return on equity was 35%, compared to 56% in 2021. Its solvency ratio, post dividend, was 180%, down from 195%.
In the FTSE 250, Hill & Smith, meanwhile, ended down 6.1%.
In 2022, the infrastructure construction company said pretax profit increased by 62% to £69.3 million from £42.8 million in 2021. Revenue totalled £732.1 million, a record figure and up sharply from £625.2 million.
Executive Chair Alan Giddins noted 2022 was a year of ‘significant progress,’ particularly for its US business, which now represents 64% of the company’s operating profit.
On AIM, Time Finance jumped 16%.
The finance provider to small and medium-sized businesses said that in the nine months to February 28, revenue was up 28% to £20.0 million from £15.6 million year-on-year. The company said that revenue has been driven primarily by growth in both the Invoice Finance division and the ’Hard Asset’ subset of the Asset division.
Pretax profit in the period has nearly tripled to £3.0 million from £1.1 million.
The company added that this trading momentum has given the boar further confidence that full-year trading will now be ahead of the latest market expectations, with pretax profit for the full year now expected to be at least £3.6 million.
Financial 2023 market expectations are currently revenue of £25.7 million and pretax profit of £3.2 million. In financial 2022, Time Finance reported revenue of £23.6 million and pretax profit of £1.1 million.
- Postal strikes hurting musicMagpie -
musicMagpie lost 16%. The Stockport, England-based used-technology reseller said its pretax loss in the year that ended November 30 was £1.5 million, narrowing markedly from £14.8 million a year earlier.
Revenue edged down 0.2% to £145.3 million from £145.6 million.
The company said it has had to ‘navigate through the challenges of the well-publicised postal strikes’ at the start of its new financial year. It also noted ‘the tough consumer environment and continuing macroeconomic uncertainty’.
Gold was quoted at $1,818.62 an ounce at the London equities close Wednesday, largely flat against $1,818.73 at the close on Tuesday.
In Thursday’s UK corporate calendar, there are full-year results from insurer Aviva and investment manager M&G. There will also be a trading statement from DS Smith.
The economic calendar for Thursday has the latest US unemployment insurance weekly claims report. President Joe Biden will also announce his budget for fiscal year 2024 at 2130 GMT.
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