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LONDON MARKET CLOSE: Muted trade in Europe ahead of central banks

27th Jan 2023 16:57

(Alliance News) - London's FTSE 100 ended off session highs on Friday, despite a key US inflationary reading fading and data suggesting the world's largest economy may be able to achieve a soft-landing.

Stock market traders in Europe showed signs of nerves ahead of a busy week of central banking decisions, with the policy meetings for the Bank of England, European Central Bank and US Federal Reserve on the horizon.

All three are expected to lift rates, though traders expect the Fed to slow the pace of its hikes.

The FTSE 100 index closed up 4.04 points, 0.1%, at 7,765.15 on Friday. The FTSE 250 closed up 119.88 points, 0.6%, at 20,035.39, and the AIM All-Share closed up 3.83 points, 0.4%, at 869.24.

For the week, the FTSE 100 added 0.2%, the FTSE 250 surged 2.4% and the AIM All-Share rose 2.0%.

The Cboe UK 100 closed a touch lower at 775.79, the Cboe UK 250 added 0.4% at 17,427.11, and the Cboe Small Companies closed down 0.1% at 14,157.60.

In European equities on Friday, the CAC 40 index in Paris closed marginally higher, and the DAX 40 in Frankfurt ended up 0.1%.

The pound was quoted at USD1.2383 late Friday in London, up from USD1.2363 at the equities close on Thursday. The euro stood at USD1.0857, down slightly from USD1.0862. Against the yen, the dollar was trading at JPY129.87, lower compared to JPY130.40.

Ahead of the Fed's interest rate decision on Wednesday, numbers showed a key US inflationary reading fell year-on-year in December.

According to the US Bureau of Economic Analysis, the core personal consumption expenditures index, which excludes food and energy, increased by 4.4% in December, slowing from 4.7% in November.

Core PCE is the Federal Reserve's preferred inflationary gauge.

The wider personal consumption expenditures index increased by 5.0%, slowing from 5.5% the previous month.

The US Federal Reserve will announce its next interest rate decision on Wednesday. Markets overwhelmingly expect a 25 basis point hike from the central bank, according to the CME FedWatch tool.

At its last meeting in December, the Fed increased rates by 50 basis points.

"The recent decline in inflation has increased the probability of a further reduction in the size of the Fed's rate hikes to 25 bps in February, from 50 bps in December," analysts at Rabobank commented.

"We continue to think that based on the fading momentum of inflation, the [Federal Open Market Committee] is likely to stop at a 4.75-5.00% target range and pause for the remainder of the year."

The Bank of England is expected to maintain the pace of its rate hikes at 50 basis point, according to consensus cited by FXStreet. The ECB is also forecast to hike by half a point again.

In New York, the Dow Jones Industrial Average was marginally lower, the S&P 500 was slightly higher and the Nasdaq Composite climbed 0.4%.

"The early year enthusiasm appears to have given way to a little bit of caution as we look to next week's trifecta of central bank meetings, and what sort of outlook is painted by the Federal Reserve, ECB and Bank of England, and more importantly how many more rate hikes can we expect to see after next week," CMC Markets analyst Michael Hewson commented.

Stocks in New York struggled despite a University of Michigan survey suggesting consumer morale picked up at the start of this year. Housing market stress is also fading, figures suggest, as pending home sales increased at the end of December.

In New York, Chevron shares fell 3.9%. The oil major's fourth quarter outturn improved, though its adjusted earnings per share fell short of more lofty Wall Street estimates.

Chevron's fourth quarter adjusted EPS jumped 60% on-year to USD4.09 from USD2.56. It was down on CNN cited consensus of USD4.33, however.

A grim outlook for chipmaker Intel sent its stock 8.0% lower.

The Santa Clara, California-based CPU and semiconductor manufacturer reported net revenue of USD14.04 billion in the fourth quarter to December 30, down 32% from USD20.53 billion a year before.

"UK-based investors may look at Intel's weak fourth quarter in 2022 and stink-bomb guidance for the first quarter of 2023 and just shrug, in the view that Intel's dreadful share price performance means this is not really news, and it is nothing to do with them anyway – but they just might be wrong," AJ Bell analyst Russ Mould commented.

"Stock markets are rising as they believe inflation will ease, there will only be a mild recession and interest rates will be able to gently slide lower, but Intel's warning of weak PC demand, sagging server volumes and an inventory bulge challenges that oh-so-cosy consensus."

In London, Sainsbury's added 5.5%, closing as the best FTSE 100 performer.

Bestway Group said it has bought or agreed to buy 80.8 million shares in the grocer, a 3.5% stake.

Bestway is a London-based conglomerate, with operations across the UK, Pakistan and the Middle East. It was first established as a chain of convenience stores in 1963, but now has interests across the wholesale, pharmacy, real estate, cement and banking sectors.

Bestway said it may look to make further purchases in the future, though it confirmed that it is not considering a takeover offer.

Rolls-Royce gave back 2.9%, the worst large-cap performer, after its new chief executive, Tufan Erginbilgic, warned staff on the future of the engineering group.

According to the Financial Times, Erginbilgic, in a global address broadcast to employees, emphasised the importance of changing the way the firm operates, or risk investors losing patience. "Every investment we make, we destroy value. We underperform every key competitor out there."

Erginbilgic also described the company's performance as "unsustainable".

Elsewhere in London, Superdry plunged 18% as it posted a swing to an interim loss amid an underperformance from its Wholesale segment.

In the six months ended October 29, the clothing retailer swung to a pretax loss of GBP17.7 million from a profit of GBP4.0 million a year before.

Superdry said it now expects to be broadly breakeven in financial 2023 at the adjusted pretax level. Previously, the firm had expected adjusted pretax profit between GBP10 million to GBP20 million.

Brent oil was quoted at USD86.78 a barrel at the time of the London equities close on Friday, lower compared to USD87.35 late Thursday. Gold was quoted at USD1,930.80 an ounce, up against USD1,925,42.

Monday's local corporate calendar has a trading statement from computer services company Computacenter and annual results from filtration, laboratory and environmental company Porvair. Dublin-listed budget carrier Ryanair posts third-quarter results.

The local economic calendar has a eurozone economic sentiment indicator at 1000 GMT. The week picks up pace with a eurozone gross domestic product reading on Tuesday and inflation data from the single currency area on Wednesday.

The Fed announces its interest rate decision on Wednesday, before the BoE and ECB on Thursday. There are a host of services PMIs, including from the UK, eurozone, US and China, on Friday.

By Eric Cunha, Alliance News news editor

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