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LONDON MARKET MIDDAY: Pound under pressure after BoE hike

3rd Aug 2023 12:17

(Alliance News) - European equities went into Thursday afternoon on the back foot, extending losses suffered on Wednesday following a US credit rating cut from Fitch, while the pound struggled to make headway after the Bank of England raised rates by 25 basis points, as expected.

The pound traded at USD1.2631 after the BoE decision, down from USD1.2659 beforehand, and USD1.2707 late Wednesday.

The FTSE 100 index was down 45.55 points, 0.6%, at 7,516.08. The FTSE 250 was up 53.25 points, or 0.3%, at 18,866.13, and the AIM All-Share was up 1.25 points, 0.2%, at 759.34.

The Cboe UK 100 was down 0.5% at 749.23, the Cboe UK 250 was up 0.2% at 16525.25, and the Cboe Small Companies was up 0.2% at 13,762.29.

The BoE lifted UK interest rates by 25 basis points to 5.25% from 5.00% previously. The move was supported by most of the monetary policy committee, though two preferred a 50 basis point hike.

The BoE said: "CPI inflation remains well above the 2% target. It is expected to fall significantly further, to around 5% by the end of the year, accounted for by lower energy, and to a lesser degree, food and core goods price inflation. Services price inflation, however, is projected to remain elevated at close to its current rate in the near term.

"In the MPC's August most likely, or modal, projection conditioned on market interest rates, CPI inflation returns to the 2% target by 2025 Q2. It then falls below the target in the medium term, as an increasing degree of economic slack reduces domestic inflationary pressures, alongside declining external cost pressures."

At the BoE's last meeting in June, it raised UK interest rates by 50 basis points. It had dug deep into its arsenal with a half-point hike after a hotter-than-expected May UK inflation reading.

At this meeting, however, the bank considered June's cooler-than-expected inflation print. According to data from the Office for National Statistics last month, consumer prices rose by 7.9% in June, easing from an 8.7% jump in May.

In European equities on Thursday, both the CAC 40 in Paris and the DAX 40 in Frankfurt were down 0.7%.

The euro stood at USD1.0922 around midday London time on Thursday, down against USD1.0940 at the European equities close on Wednesday. Against the yen, the dollar was trading at JPY143.04, lower compared to JPY143.32.

In the FTSE 100, Rolls-Royce was up 3.2%, after it posted a good set of interim results.

In the six months to June 30, the London-based maker of power and propulsion systems swung to a pretax profit of GBP1.42 billion from a loss of GBP1.75 billion a year prior, as financing costs were cut to GBP313 million from GBP2.27 billion a year prior.

Revenue rose by 34% to GBP7.52 billion from GBP5.60 billion the year before, driven by higher large engine deliveries, contractual improvements and increased large engine shop visits, Rolls-Royce said.

Looking ahead, Rolls-Royce raised its full-year guidance for underlying operating profit to between GBP1.2 billion and GBP1.4 billion, up from GBP652 million in 2022. It had previously guided for GBP800 million to GBP1.0 billion.

Next was up 0.2%.

The Leicester-based clothing and homewares retailer said full-price sales in the second quarter ended July 29 were up 6.9% on last year, with online sales up 10% against the year prior and retail sales up 2.2%.

Next noted that its end-of-season sale had gone well, with clearance rates ahead of expectations and adding around GBP4 million to the company's pretax profit.

Wealth Club analyst Charlie Huggins considered how much longer this "excellent" performance from Next can continue.

"So far, 2023 has not been anywhere near as bad as expected for the UK consumer, and this has benefitted Next and its peers. The big question is - how much longer can this last? Recent signs that inflation is moderating offers hope for the economy, but the longer interest rates stay above 5% the greater the likely squeeze on disposable incomes," he cautioned.

BT Group, Reckitt Benckiser and Lloyds Banking were trading lower, as the stocks went ex-dividend, meaning new buyers do not qualify for the latest payout. The blue-chip companies were down 4.8%, 2.5% and 1.8%, respectively.

In the FTSE 250, Helios Towers jumped 8.9%.

The independent telecommunications infrastructure company said in the six months to June 30, its pretax loss narrowed to USD39.4 million from USD122.2 million a year prior.

Helios attributed this to a 74% increase in operating profit to USD69.3 million, as well as a gain on the fair value of derivative instruments of USD900,000, as opposed to a loss in 2022, which was "partially offset by an increase in cost of sales, administrative expenditure and finance costs."

Revenue grew by 32% to USD350.2 million from USD265.4 million the year before, driven by tenancy growth as well as a contribution of USD38.7 million from acquisitions in Malawi and Oman which were completed in 2022.

Chief Executive Officer Tom Greenwood said: "I am delighted with the company's performance in the first half of the year, which included delivering record organic tenancies and continuing improvements in customer delivery."

On London's AIM, Devolver Digital lost 28%.

The Austin, Texas-based digital publisher and developer of indie video games said its performance in the first half of 2023 was negatively impacted by delays to new title releases, a reduction in revenue from subscription deals and a lower contribution from its back-catalogue.

As a result, it now expects normalised adjusted earnings before interest, tax, depreciation and amortization to be negative in the half. For the full-year, normalised adjusted Ebitda is expected to be "at least" break-even.

Stocks in New York were called lower. Both the Dow Jones Industrial Average and the S&P 500 are called down 0.2%, while the Nasdaq Composite is called down 0.3%.

Brent oil was quoted at USD83.12 a barrel at midday in London on Thursday, up from USD83.09 late Wednesday. Gold was quoted at USD1,935.89 an ounce against USD1,934.77.

Still to come on Thursday's economic calendar, there is the latest US jobless claims reading at 1330 BST. There is also a US PMI reading at 1445 BST

By Sophie Rose, Alliance News reporter

Comments and questions to [email protected]

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