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LONDON MARKET MIDDAY: Banking crisis fears calm; Fed decision looms

21st Mar 2023 11:57

(Alliance News) - Stock prices in London were higher at midday on Tuesday, with banking stocks continuing to lead the rise in the FTSE 100 as market fears of a banking crisis subsided.

"The clouds are parting and glimpses of blue sky are giving hope to investors after a chaotic few weeks. With no new troubles in the banking sector for the past 24 hours, markets are hoping that's a sign the crisis could have peaked," said Russ Mould, investment director at AJ Bell.

The FTSE 100 index was up 97.80 points, or 1.3%, at 7,502.08. The FTSE 250 was up 288.32 points, or 1.6%, at 18,784.45, and the AIM All-Share was up 6.12 points, or 0.8%, at 803.34.

The Cboe UK 100 was up 1.4% at 750.74, the Cboe UK 250 was up 1.7% at 16,351.77, and the Cboe Small Companies was 1.4% at 13,139.39.

In London, NatWest was up 5.7%, while Barclays, Standard Chartered, and Lloyds were up 4.3%, 3.9% and 4.0%, respectively.

European banking peers were also higher. UBS rose 4.2% in Zurich, BNP Paribas added 3.8% in Paris, and Deutsche Bank climbed 4.1% in Frankfurt.

In European equities more broadly on Tuesday, the CAC 40 in Paris was up 1.5%, while the DAX 40 in Frankfurt was up 1.6%.

"The key question is whether this is the calm before the storm. The Federal Reserve's next interest rate decision tomorrow still has the potential to kick up a fuss if the market thinks it is being too aggressive with rate rises. Investors' nerves are already frail, and it wouldn't take much to disturb the peace on the markets seen today," Mould continued.

The US central bank will announce its next interest rate decision at 1800 GMT on Wednesday. According to the CME FedWatch tool, markets believe there is a 78% chance the Federal Reserve will lift US interest rates by 25 basis points on Wednesday, with the remaining 22% expecting rates to stay at their current level.

Earlier this month, before the recent banking industry turmoil, which began with the collapse of Silicon Valley Bank, a 50-point hike was considered possible.

Ricardo Evangelista, senior analyst at ActivTrades, said that tomorrow's decision will be a "momentous" one for the global financial system and the economy, and will also likely determine the short-to-medium term direction for the US dollar.

At midday on Tuesday, the dollar was largely stronger.

The pound was quoted at USD1.2253 at midday on Tuesday in London, lower compared to USD1.2270 at the close on Monday. The euro stood at USD1.0779, higher against USD1.0723. Against the yen, the dollar was trading at JPY132.20, higher compared to JPY131.47.

Stocks in New York were called higher, with the Dow Jones Industrial Average called up 0.9%, the S&P 500 index up 0.8%, and the Nasdaq Composite up 0.6%.

In the FTSE 100, J Sainsbury rose 3.9% after Exane BNP raised the grocer to 'outperform', with a price target of 300 pence. The stock is currently trading at 261.30p.

Kingfisher fell 1.2% after it reported a sharp drop in profit in its most recently ended financial year, though the DIY retailer said the performance was in-line with its expectations and guidance against a strong comparator year.

In the financial year that ended January 31, the B&Q-owner reported a pretax profit of GBP611 million, down 39% from GBP1.0 billion the year prior.

This reflected lower operating profit and the impact of impairments following significant increases in discount rates and revised future projections, the London-based company explained.

Sales slipped 0.9% year-on-year to GBP13.06 billion from GBP13.18 billion. Group like-for-like sales fell 2.1%. This is compared to an expected fall of 2.0%, according to company-compiled consensus.

Richard Hunter, head of markets at interactive investor, said that Kingfisher is "without doubt" a "leaner and meaner machine" after its "enforced and accelerated" transformation plan following the pandemic but said the latest numbers show some signs of faltering growth.

"A question for investors is whether to compare Kingfisher's performance against pre-pandemic levels, where there has been significant progress, or against the strong comparatives of last year, where there has not."

In the FTSE 250, SThree edged up 0.4% as it reported its net fees grew in the first quarter of its financial year, in line with its expectations.

In a trading update for the three months that ended February 28, the London-based staffing firm said net fees were GBP102.6 million, up 9.4% from GBP93.8 million a year earlier, or 4% on a constant currency basis.

In SThree's three largest markets - representing 73% of net fees - it said growth of 7% and 4% on a constant currency basis was achieved in Germany and the Netherlands, respectively.

Elsewhere in London, Luceco plunged 8.8% after it said revenue and profit were down compared with 2021's "record benchmark".

The wiring accessories, electric vehicle chargers, LED lighting and portable power products supplier reported revenue of GBP206.3 million in 2022, down 9.6 from GBP228.2 million in 2021.

The company said the decrease reflected a normalisation of performance after a record year in 2021, with a slowdown in residential RMI construction demand and a temporary headwind from destocking by distributors.

Pretax profit was GBP11.7 million, falling 65% from GBP33.3 million the year prior, while basic earnings per share also dropped 60% to 7.1 pence, from 17.6p in 2021.

On AIM, Manx Financial surged 26% as it reported a record set of annual results in 2022 despite a "negative" economic environment, with higher interest rates and higher inflation.

The financial services firm posted net interest income of GBP24.3 million for 2022, up 35% from GBP18.0 million in 2021. Its pretax profit jumped by 71% to GBP5.2 million from GBP3.0 million, as operating income rose to GBP26.1 million from GBP20.0 million a year earlier.

Brent oil was quoted at USD74.23 a barrel at midday in London on Tuesday, up from USD72.31 late Monday. Gold was quoted at USD1,966.78 an ounce, lower against USD1,977.65.

Still to come in Tuesday's economic calendar, the US Johnson Redbook retail sales index is published at 1255 GMT.

By Heather Rydings, Alliance News senior economics reporter

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