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LONDON MARKET CLOSE: FTSE 100 lower as interest rate decisions loom

9th Jun 2023 17:03

(Alliance News) - Stocks in London ended largely in the red on Friday as investors look ahead to a busy two weeks of central bank interest rate decisions with trepidation.

"This week's surprise rate hikes by the [Reserve Bank of Austraia] and [the Bank of Canada] are unlikely to be replicated at next week's [US Federal Reserve], [Eurpoean Central Bank] and [Bank of Japan] monetary meetings...Nonetheless, US inflation data may add some volatility to the mix," said Axel Rudolph, senior market analyst at IG.

The FTSE 100 index closed down 37.38 points, or 0.5% at 7,562.36 on Friday, ending the week down 0.6%.

The FTSE 250 ended down 15.89 points, or 0.1%, at 19,091.66 and ended the week 0.3% lower. The AIM All-Share closed up 0.44 of a point, or 0.1%, at 793.34, and closed the week 0.2% higher.

The Cboe UK 100 ended down 0.5% at 754.18, the Cboe UK 250 closed down 0.3% at 16,640.47, and the Cboe Small Companies ended down 0.5% at 13,219.06.

The US Federal Reserve will announce its next interest rate decision on Wednesday next week.

Markets see a 72% chance of the central bank holding US interest rates steady, with the balance expecting another 25 basis point hike. A US inflation print on Tuesday, however, may add some volatility to these expectations.

According to FXStreet-cited consensus, the annual inflation rate is expected to cool to 4.2% in May from 4.9% in April. Francesco Pesole at ING said the inflation reading was a "risk event" with the potential to "tilt the balance to a hike".

The European Central Bank announces its interest rate decision the day after the Fed, with markets widely expecting another 25 basis point lift from the Frankfurt-based central bank amid stubbornly high inflation in the eurozone.

The Bank of Japan will reveal its decision the same day as the ECB, though Japan's central bank is expected to keep to the status quo.

The Bank of England then will take centre stage a week later.

The decisions will follow on from two surprise rate raises from the Bank of Canada and the Reserve Bank of Australia on Tuesday and Wednesday this week. The moves by the RBA and the BoC had ignited worries amongst markets that other - even more important - central banks may follow suit.

Amid the pre-decision jitters, the dollar was largely stronger.

The pound was quoted at USD1.2577 at the London equities close on Friday, up from USD1.2541 at the close on Thursday. Meanwhile, the euro stood at USD1.0750, lower against USD1.0774. Against the yen, the dollar was trading at JPY139.33, higher compared to JPY139.05 late Thursday.

In London, Croda International was the worst blue-chip performer on Friday, finishing 16% lower after it gave a profit warning as it struggles with customer destocking.

Croda provides chemicals for the personal care, fragrances, pharmaceutical and crop care sectors. Sales volumes in its Consumer Care arm were down by a double-digit percentage year-on-year for the five months ended May 31.

With customer destocking set to continue in its consumer-focused division, Croda now predicts full-year pretax profit of GBP370 million to GBP400 million, down as much as 52% from GBP780.0 million in 2022.

Russ Mould, investment director at AJ Bell, said that Croda nonetheless remains a "quality business" with a "decent" amount of credit in the bank. However, he warned that the company needs to make sure it "communicates better with the market" to avoid the sort of "profit shock" it has served up on Friday.

In the FTSE 250, Network International climbed 5.6% to 383.28 pence.

The Middle East and Africa-focused payments provider said it agreed to a takeover from entities backed by Toronto-based private equity firm Brookfield Asset Management.

Brookfield will pay 400 pence per Network International share, a 64% premium to Network International's 243.6p share price at the close of play on April 12, the day before the firm first received buyout interest.

The takeover offer gives Network International an equity valuation of GBP2.2 billion. It requires approval from 75% of voting shareholders at a court meeting and at a general meeting.

Network International expects the court meeting and the general meeting to be in July or early August, and for the takeover to become effective in the final quarter of 2023.

Elsewhere in London, Alfa Financial Software closed 0.5% lower at 173.69p.

The software provider confirmed that it received a number of unsoliciated non-binding takeover proposals from Stockholm-based investor EQT.

Alfa said that the latest proposal was for 208p per share in cash, with shareholders having the option to elect for a partial unlisted share alternative offer. This represents a 19% premium to its closing price of 174.50p on Thursday, being the last business day before the announcement.

On AIM, Itsarm surged 77% after it said that a winding-up petition will be heard on July 26, following the announcement on Monday of its proposed compulsory liquidation.

Itarm - formerly In The Style Group PLC - has been a cash shell since March after selling its only operating subsidiary In The Style Fashion Ltd for GBP1.2 million.

The decision for compulsory liquidation followed 62% of shareholders voting in favour of voluntary liquidation on May 26, lower than the undefined required majority for the resolution to pass.

On Monday, Itsarm said that creditors of the company would "suffer detriment if the company was not placed into a formal insolvency procedure immediately."

In European equities on Friday, the CAC 40 in Paris ended down 0.1%, while the DAX 40 in Frankfurt ended 0.3% lower.

Stocks in New York were higher at the London equities close, with the Dow Jones Industrial Average up 0.1%, the S&P 500 index up 0.2%, and the Nasdaq Composite up 0.3%.

The S&P 500 index added 0.6% to 4,293.93 points on Thursday, taking it 20% above its October 12 closing number of 3,577.03, meeting the accepted definition of a bull market.

The likes of Tesla, Advanced Micro Devices and Facebook-owner Meta Platforms have made sizeable year-to-date gains in 2023, helping propel the S&P despite worries about the global economy.

Brent oil was quoted at USD76.12 a barrel at the London equities close on Friday, down from USD76.28 late Thursday. Gold was quoted at USD1,961.75 an ounce, lower against USD1,966.33.

Aside from a slew of eagerly awaited rate decision, the economic calendar next week has a US inflation print on Tuesday, UK GDP estimates on Wednesday, and an EU inflation print on Friday.

By Heather Rydings, Alliance News senior economics reporter

Comments and questions to [email protected]

Copyright 2023 Alliance News Ltd. All Rights Reserved.

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