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LONDON MARKET CLOSE: Stocks down on hawkish BoE interest rates hold

1st Feb 2024 17:03

(Alliance News) - Stock prices in London closed down on Thursday after the Bank of England left interest rates on hold in a split decision that was hawkish on expectations of rate cuts.

The FTSE 100 index closed down 8.41 points, 0.1%, at 7,622.16. The FTSE 250 ended down 226.79 points, 1.2%, at 19,131.16, and the AIM All-Share closed down 2.05 points, 0.3%, at 752.70.

The Cboe UK 100 ended down 0.3% at 761.66, the Cboe UK 250 closed down 1.4% at 16,594.23, and the Cboe Small Companies ended down 0.7% at 14,666.83.

At its February meeting, the BoE kept its bank rate at 5.25%. It is the fourth successive hold, following one in September, which ended a streak of 14 consecutive hikes since December 2021, and two more in November and December. The BoE had rapidly increased bank rate from a Covid-19-induced low of 0.10%.

It was a split outcome, with six Monetary Policy Committee members, Governor Andrew Bailey included, favouring the hold. Two would have preferred rates to have been lifted by 25 basis points, they were Jonathan Haskel and Catherine Mann. One member, Swati Dhingra, preferred to reduce bank rate by 25 basis points, to 5%.

"Since the MPC's previous meeting, global GDP growth has remained subdued, although activity continues to be stronger in the United States. Inflationary pressures are abating across the euro area and United States. Wholesale energy prices have fallen significantly. Material risks remain from developments in the Middle East and from disruption to shipping through the Red Sea," the central bank said.

Sterling was quoted at USD1.2708 at the London equities close on Thursday, lower than USD1.2715 on Wednesday. Before the decision, the pound was trading at USD1.2635.

"With plenty of the economic impact of previous interest rate rises still to be felt, it's no surprise the bank [policymakers] are sitting on their hands, and that might be the pattern we have to get used to for some time. The market is getting excited about rate cuts though, pricing four in this year. In the last few months monetary conditions have eased as a result of expectations of looser policy, so the bank probably wants to put a floor under optimistic speculation which might undermine its battle to tame inflation," said AJ Bell analyst Laith Khalaf.

"Let's not forget the backdrop to this meeting was an inflation reading which actually went up, and a previous vote where three members of the monetary policy committee wanted to hike rates to 5.5%. That has now dropped to two, but still shows that some hawkishness is still in the air at the Bank of England."

The BoE's interest rate decision follows the US Federal Reserve's on Wednesday.

At the conclusion of its two-day meeting, the Federal Open Market Committee unanimously voted not to raise the fed funds rate, for the fourth meeting in a row. The key rate is targeted in a range between 5.25%-5.50%, the highest in nearly 23 years.

Speaking after the vote, Powell said a rate cut in March, is not the "most likely case."

"I don't think it's likely that the committee will reach a level of confidence by the time of the March meeting, to identify that March is the time to do that," Powell told reporters at a press conference.

According to the CME FedWatch Tool, there is a 36% chance the central bank lowers the federal funds rate range in March from the current 5.25% to 5.50%. A cut was once the most likely outcome for the March meeting.

The euro stood at USD1.0851 at the London market close Thursday, higher against USD1.0846 on Wednesday. Against the yen, the dollar was trading at JPY146.13, lower compared to JPY146.29.

Meanwhile on Thursday, the US manufacturing sector had two mixed data reads for January, with one showing a return to growth, and another suggesting it remained in decline.

The sector saw its "strongest" improvement in January since September 2022, according to S&P Global.

The latest S&P Global manufacturing PMI rose to 50.7 points in January, from 47.9 in November and better than the FXStreet-cited consensus of 50.3.

Rising above the 50.0 mark, which separates growth from decline, the latest reading suggests the manufacturing sector returned to growth last month.

By the Institute for Supply Management measure, the sector continued to contract, but at a slower rate.

The ISM's manufacturing purchasing managers index rose to 49.1 points in January, from 47.4 in December According to FXStreet, the figure was expected to be lower at 47.0.

However, the latest reading suggests the decline in the manufacturing sector continued last month.

US initial jobless claims picked up at a faster pace than expected in the most recent week. According to the US Department of Labor, new jobless claims 224,000 in the week to January 27, rising from 215,000 a week prior. The prior week's reading was upwardly revised from 214,000.

The latest reading topped the FXStreet cited consensus of 212,000.

Continuing jobless claims for the week to January 20 totalled 1.898 million, an increase of 70,000 from a week earlier.

Stocks in New York were higher at the London equities close, with the DJIA 0.2%, while the S&P 500 index and the Nasdaq Composite were both up 0.4%.

In the FTSE 100, Shell rose 2.4%.

The London-based oil major said pretax profit plunged to USD1.64 billion in the fourth quarter of 2023 from USD16.44 billion a year prior. Total revenue declined 21% to USD80.13 billion from USD101.20 billion.

In all of 2023, pretax profit fell nearly 50% to USD32.63 billion from USD64.82 billion in 2022, while total revenue dropped 16% to USD323.18 billion from USD386.20 billion.

Shell said the worsened results in 2023 "reflected lower realised oil and gas prices, lower volumes, and lower refining margins, partly offset by higher liquefied natural gas trading and optimisation margins, and higher Marketing margins."

Shell also announced it has completed its USD3.5 billion share buyback and will now launch a new share buyback programme of the same size.

BP rose 0.7%, in a positive read across.

Meanwhile, 3i lost 0.5%.

The London-based investment manager said that its net asset value per share increased 7.8% to 2,034 pence at its December 31 third-quarter end, from 1,886p at September 30. It registered a total return of 18% for the first three quarters, after a negative GBP151 million foreign exchange impact, or 16p per share.

3i Chief Executive Officer Simon Borrows said: "Macroeconomic conditions and global uncertainty are likely to continue to have an impact on selected names within the portfolio but we feel our unrelenting focus on good capital allocation means that 3i is well set for a strong return for the group for this financial year."

In the FTSE 250, AG Barr gained 1.1%, after it announced Euan Sutherland as its next chief executive officer, while also reporting a 26% rise in revenue in its just-completed financial year.

The Glasgow, Scotland-based maker of soft drinks such as Irn-Bru, Rubicon and Funkin said Sutherland will start on May 1. He stepped down as CEO of Saga PLC earlier this week, having led the provider of travel and insurance services to people aged 50 and over for exactly four years.

Prior to Saga, Sutherland was CEO of clothing retailer Superdry PLC.

At AG Barr, Sutherland will replace Roger White, whose departure set for the end of April was announced back in August.

The company on Thursday also provided a trading update, saying revenue in the 52 weeks that ended the past Sunday was about GBP400 million, up 26% from GBP317.6 million the year before. Revenue got a lift from the acquisition of Boost Drinks Holdings Ltd for GBP20 million back in December 2022. On a like-for-like basis, revenue was up 7.6%.

Adjusted pretax profit is expected to be GBP49.5 million in financial 2024, up 14% from GBP43.5 million in financial 2023. Barr said this is slightly ahead of market expectations.

Among London's small-caps, Superdry closed up 7.7% amid news of AG Barr appointing its former CEO.

Rank Group closed up 7.2%.

The casino owner operating in the UK, Spain and India said it was optimistic about its prospects for the year ahead, after swinging to profit over the first half.

For the six months ended December 31, the casino owner - which has operations in the UK, Spain and India swung to pretax profit of GBP8.8 million, following a GBP102.9 million loss a year prior.

Net gaming revenue was GBP363.6 million, up 7.3% from GBP338.9 million the previous year.

Looking forward, Rank Group maintained that while the economic environment remains challenging, it is "positive" about the future, and expects like-for-like annual operating profit to meet expectations.

In European equities on Thursday the CAC 40 in Paris ended down 0.9%, while the DAX 40 in Frankfurt ended down 0.4%.

Brent oil was quoted at USD81.21 a barrel at the London equities close on Thursday, up slightly from USD81.03 late Wednesday. Gold was quoted at USD2,061.02 an ounce, up against USD2,050.57.

In Friday's UK corporate calendar, YouGov posts a trading statement. The economic calendar has unemployment data for the US.

By Greg Rosenvinge, Alliance News senior reporter

Comments and questions to [email protected]

Copyright 2024 Alliance News Ltd. All Rights Reserved.

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