18th Jan 2023 16:57
(Alliance News) - The FTSE 100 struggled on Wednesday, underperforming continental peers as its roster of international earners succumbed to a stronger pound.
The FTSE 100's difficulty defied a largely stronger day for peers in Europe, though markets in New York struggled. Though there were more signs that US inflationary pressure is ebbing, paving the way for a slowdown in rate hikes by the Federal Reserve, a weaker US retail sales reading soured the mood in New York.
The FTSE 100 index closed down 20.33 points, or 0.3%, at 7,830.70. The FTSE 250 ended down 57.14 points, or 0.3%, at 19,890.90, though the AIM All-Share edged up 0.91 of a point, or 0.1%, at 859.10.
The Cboe UK 100 closed down 0.2% at 783.25, the Cboe UK 250 fell 0.1% to 17,386.08, and the Cboe Small Companies closed down 0.4% at 13,977.37.
Wednesday's economic calendar was inflation-heavy. The UK's annual inflation rate ebbed to 10.5%, in December from 10.7% in November, the Office for National Statistics said. Consensus had expected 10.6% inflation last month, according to FXStreet.
Core inflation, which excludes energy, food, alcohol, and tobacco, remained unchanged at 6.3%.
While in the US, producer prices fell in December from the month before and their annual rise slowed, according to the latest report from the US Bureau of Labor Statistics on Wednesday.
The producer price index for final demand declined by 0.5% on a seasonally adjusted basis in December from November. In November prices had risen by 0.2% from October.
Market consensus, as cited by FXStreet, had expected total final demand prices to fall by 0.1% month-on-month.
Annually, the index for total final demand prices increased 6.2% in December, following a 7.3% annual rise the previous month. Excluding food and energy, prices rose 5.5%.
Numbers also suggested consumers are tightening purse strings, strengthening the case for the Fed to pivot from its hardline monetary policy.
The US Census Bureau said advance estimates for US retail and food services sales were USD677.1 billion in December, down 1.1% from November.
The data followed Japan's central bank leaving its ultra-easy monetary policy unchanged on Wednesday, bucking heavy speculation that it could again tweak a key lever.
Bank of Japan officials shocked the market last month by adjusting one of its policy tools, widening the band in which it allows rates for 10-year government bonds to move.
However, on Wednesday, policymakers left the yield curve control range intact and said it would continue with "large-scale" purchases of government bonds to support the parameters.
What the data and BoJ policy announcement meant for the foreign exchange space was a largely weaker dollar. The yen perked up after plunging in the wake of the BoJ decision.
The pound was quoted at USD1.2366 late Wednesday in London, higher compared to USD1.2278 on Tuesday.
The euro stood at USD1.0820, higher against USD1.0804. Against the yen, the dollar was trading at JPY128.49, up a yen from JPY128.18 late Tuesday. The yen recovered after the dollar traded as high as JPY131.56 earlier on Wednesday.
In European equities on Wednesday, the CAC 40 in Paris ended up 0.1%, though the DAX 40 in Frankfurt closed marginally lower.
In New York, the Dow Jones Industrial Average lost 1.0%, the S&P 500 tumbled 0.7% and the Nasdaq Composite declined 0.6%.
"Markets are quite happy to see inflation weaken, but the sight of weaker US retail sales is certainly not music to their ears. With earnings season only just hitting its stride, such weakness in economic data bodes poorly for corporate results, at least in coming quarters. In addition, comments from Fed member Bullard suggest that we haven't quite seen the death of the 50bps rate hike, and that it might be better to err on the side of caution," IG analyst Chris Beauchamp commented.
St Louis Fed President James Bullard said US monetary policymakers should get the key interest rate to above 5% as quickly as possible. Only then should the Fed pause hikes, Reuters reported.
At an event on Wednesday, Bullard said: "Why not go to where we're supposed to go?...Why stall?"
Bullard said the Fed's decisions to turbocharge rate hikes, by enacting lifts of 75 and 50 basis points has been a success and should continue for now.
In London, international earners weighed on the FTSE 100 amid the stronger pound. Brewer Diageo lost 2.6%, while Dunhill and Lucky Strike cigarettes maker British American Tobacco fell 1.9%.
On the up, however, Burberry climbed 3.3%. The luxury fashion house said comparable store sales grew by 1% in its third quarter ended December 31, despite significant lockdown disruption in China and the reopening of the nation.
Comparable sales growth outside of China was 11%. Europe in particular continued to perform well, Burberry said, driven by strong trading over the festive period, with leather goods delivering another quarter of double-digit growth.
There was some more cheer for the UK retail sector, continuing what has been a largely promising slate of post-Christmas updates.
Currys surged 11%, though it reported a fall in like-for-like sales in its "peak" period, the 10 weeks to January 7.
The electronics retailer said its core UK & Ireland sales region was its best performer. There, like-for-like sales fell by 5%, with better-than-forecast profit due to margin increases and cost savings.
At the other end of the FTSE 250, TI Fluid Systems dropped 14% as it reported disruption in China.
For 2022, the company expects revenue at around EUR3.26 billion, representing growth of 10% compared to 2021. However, the automotive fluid storage, carrying, delivery, and thermal management systems manufacturer reported some hurt in China.
It said there was a negative impact of sales there stemming from the government's Covid-19 policy at the time, which caused unexpected production shutdowns.
Elsewhere in London, Just Eat Takeaway climbed 4.1%. The online food delivery market place reported it swung to positive earnings on an adjusted basis in the second half of last year, and for 2022 as a whole, as it focuses on achieving profitability.
Just Eat said the performance was driven by improved revenue per order, reduced delivery costs per order, and lowered overheads.
On AIM, IOG tumbled 54%. The North Sea-focused gas and infrastructure operator said that the clean-up phase for the Southwark A2 well has taken longer than planned. Gas rates from A2 to-date have also been lower than expected, IOG cautioned.
Brent oil was quoted at USD87.16 a barrel at the time of the London equities close on Wednesday, up from USD85.56 late Tuesday. Gold was quoted at USD1,908.93 an ounce, lower against USD1,912.88.
Thursday's economic calendar has the latest US initial jobless claims reading at 1330 GMT. There are speeches from Fed Boston President Susan Collins and Fed New York President John Williams.
Thursday's local corporate calendar has trading statements retail investment platform AJ Bell, home furnishings retailer Dunelm and accounting software firm Sage.
By Eric Cunha, Alliance News news editor
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