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LONDON MARKET CLOSE: FTSE pulls back from record high on rate worries

6th Feb 2023 16:57

(Alliance News) - Equities in Europe closed lower on Monday, while the dollar continued to make headway, as last week's red-hot US jobs report and simmering global tensions hit investor sentiment.

The FTSE 100 index ended down 65.09 points, or 0.8%, at 7,836.71. The blue-chip index had hit an all-time high of 7,906.58 points on Friday.

The FTSE 250 closed down 184.04 points, or 0.9%, at 20,409.38, and the AIM All-Share lost 6.00 points, or 0.7%, at 883.79.

The Cboe UK 100 ended down 0.8% at 783.38, the Cboe UK 250 also lost 0.8% at 17,791.84, and the Cboe Small Companies shed 0.5% to 14,140.87.

In European equities on Monday, the CAC 40 in Paris plunged 1.3%, while the DAX 40 in Frankfurt ended down 0.8%.

The pound was quoted at USD1.2026 at late Monday in London, lower compared to USD1.2093 at the equities close on Friday. The euro stood at USD1.0737, down from USD1.0844. Against the yen, the dollar was trading at JPY132.80, sharply higher compared to JPY130.94.

The dollar was on the front foot as traders digest last week's hotter-than-expected US jobs report.

US employment growth was well ahead of expectations last month, according to figures on Friday. Nonfarm payrolls rose by 517,000 in January, almost double the 260,000 in December. January's number was well-ahead of market consensus of 185,000.

The jobs data put the Federal Reserve back under the spotlight. The central bank on Wednesday slowed the pace of its rate hikes, lifting the federal funds rate range by 25 basis points to 4.50% to 4.75%.

The Fed had hiked by 50bp in December, and enacted 75bp lifts in the four meetings prior.

Analysts at ING said the employment report "hurts the Fed pause/pivot story", which has boosted equities recently.

Adding to worries about rate hikes on Monday, Bank of England policymaker Catherine Mann said that interest rates in the UK will likely need to rise further despite early signs of a "turning point" in the battle against sky-high inflation.

In a speech at the Lamfalussy Lectures Conference in Budapest, Hungary, Mann said: "Uncertainty around turning points should not motivate a wait-and-see approach, as the consequences of under tightening far outweigh, in my opinion, the alternative.

"We need to stay the course, and in my view, the next step in bank rate is still more likely to be another hike than a cut or hold."

The Bank of England lifted interest rates by another 50 basis points on Thursday last week. The rate lift took the benchmark bank rate to 4.00% from 3.50%. It was the decision expected by market consensus.

Also souring the mood was increasing tensions between the US and China.

The US on Saturday shot a suspected Chinese spy balloon that floated over the country for days. China voiced anger on Sunday at the shooting down of the balloon, which it insists was an unmanned weather surveillance aircraft that had veered off course, the AFP reported.

In London, shares in Asia-focused insurer Prudential and financial services firm Standard Chartered fell 4.8% and 0.7%.

Elsewhere in London, IOG plunged 40%. The North Sea-focused gas and infrastructure operator said its plans to improve the flow rate at the A2 well in Southwark gas field in the UK southern North Sea have not worked.

IOG said the remediation of its A2 well managed to reduce water production by isolating certain zones. However, the perforations have failed to bring about the expected improvement in gas rates, which have been limited to 2.5 million standard cubic feet per day. The firm will now suspend the A2 well, and consider alternative longer-term remediation strategies and cycled production.

Plus500 added 3.0%. The company said it has obtained a licence from the Dubai Financial Services Authority to trade in the United Arab Emirates. The approval in the "significant and high growth market" of the UAE offers a major opportunity for Plus500, the company said.

Shares in New York were lower at the time of the closing bell in London. The Dow Jones Industrial Average lost 0.2%, the S&P 500 fell 0.4% and the Nasdaq Composite shed 0.5%.

US gold miner Newmont confirmed it has proposed to acquire Australian peer Newcrest Mining in an all-share transaction. The Denver, Colorado-based company offered to buy Melbourne-based Newcrest on the basis of 0.380 Newmont share for each Newcrest share. The combined company would be 70% owned by Newmont shareholders and 30% by Newcrest shareholders.

Newcrest, which bills itself as the largest gold miner listed on the Australian Securities Exchange and one of the largest in the world, confirmed the approach. It said the current proposal is an improvement on a previous offer from Newmont of 0.363 Newmont share for each Newcrest share.

Newcrest shares rose 9.3% to AUD24.53 in Sydney on Monday, giving the company a market capitalisation of AUD21.92 billion, about USD15.06 billion. Newmont was down 4.2% in New York, giving it a market value of USD37.92 billion.

"Newmont's lunge for Newcrest will be seen by sceptics as another attempt to manufacture growth and momentum where little or none exists, since gold output grows only slowly and right now all-in sustained costs are rising quickly, in no small part due to surging energy and staff costs, trends which rather dent gold miners' perceived status as a hedge against inflation," AJ Bell analyst Russ Mould commented.

"Gold bugs, however, will argue that the proposed Newmont-Newcrest deal is simply further evidence that gold company executives see value that the stock market is overlooking."

Brent oil was quoted at USD79.90 a barrel at the time of the London equities close on Monday, down from USD81.44 late Friday. Gold was quoted at USD1,868.01 an ounce, higher against USD1,867.11.

Tuesday's economic calendar has an interest rate decision from the Reserve Bank of Australia overnight. The latest Halifax UK house price index is released at 0700 GMT.

The local corporate calendar has annual results from oil major BP and a trading statement from energy company SSE.

By Eric Cunha, Alliance News news editor

Comments and questions to [email protected]

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