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LONDON MARKET MIDDAY: Powell comments continue to sour mood

9th Mar 2023 12:19

(Alliance News) - Stock prices in London were firmly lower at midday on Thursday, as a slew of disappointing corporate earnings weighed on already fragile markets, still reeling from hawkish comments from US Federal Reserve Chair Jerome Powell.

The FTSE 100 index was down 42.01 points, or 0.5%, at 7,887.91. The FTSE 250 was down 217.69 points, or 1.1% at 19,634.28, and the AIM All-Share was down 5.98 points, or 0.7%, at 848.75.

The Cboe UK 100 was down 0.6% at 789.60, the Cboe UK 250 was down 1.1% at 17,214.53, and the Cboe Small Companies was down 0.6% at 13,820.20.

On Tuesday, Fed Chair Jerome Powell warned that US interest rates will likely peak at a higher level than was previously anticipated due to January data that came in stronger than recent trends expected.

During his second day of testimony on Wednesday, Powell reiterated that the Fed would be prepared to increase the pace of rate hikes if needed but clarified that "no decision has been made".

Nonetheless, Russ Mould, investment director at AJ Bell, said his comments "shattered" the market's "comfortable illusion at the start of the year that rates were about to pivot and a soft landing for the US economy could be engineered".

According to the CME FedWatch tool, markets think there is a 76% chance that the US central bank will lift rates by 50 basis points at its March meeting, with just a 24% chance of a smaller 25 basis point hike again.

A week ago, so before Powell's testimony, there was a 68% chance of a 25 basis point lift.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said investors will now be watching the US weekly jobless claims report, out at 1330 GMT on Thursday, and "pray[ing]" that the numbers don't "surprise to the upside".

After that, focus turns to the US jobs report on Friday afternoon.

Stocks in New York were called largely lower. The Dow Jones Industrial Average is seen opening flat, while the S&P 500 index is seen opening down 0.2%, and the Nasdaq Composite is called 0.5% lower.

The pound was quoted at USD1.1894 at midday on Thursday in London, higher compared to USD1.1859 at the close on Wednesday.

In London, Endeavour Mining was one of the worst blue-chip performer at midday, dropping 3.7%.

The gold miner reported a steep fall in annual profit for 2022, amid lower gold sales and higher operating costs.

In 2022, Endeavour's pretax profit fell to USD145 million from USD448 million the previous year. This sharply missed UBS analyst forecasts of a rise to USD610 million.

Also putting pressure on the FTSE 100, miners Rio Tinto, Antofagasta and Glencore lost 4.1%, 2.7% and 2.3%, respectively.

Spirax-Sarco fell 3.8%.

The thermal energy management and pumping company reported revenue of GBP1.61 billion, up 20% from GBP1.34 billion in 2021, driven by volume growth and price increases to protect margins.

However, the company said pretax profit was GBP308.1 million, down 2.0% from GBP314.5 million a year ago.

Chief Executive Officer Nicholas Anderson said: "We remain confident in our ability to self-generate growth and protect margins, while navigating the uncertainties ahead. In 2023, we anticipate mid-single-digit growth over 2022 group pro-forma sales, with mid-to-high single digit growth in Steam Specialties and Electric Thermal Solutions, as well as Watson-Marlow sales slightly below 2022."

Ladbrokes owber Entain lost 3.4% after it announced a lower profit in 2022, despite revenue growth.

The gambling firm reported a pretax profit of GBP102.9 million, down sharply from GBP393.2 million in 2021. Revenue rose 12% to GBP4.30 billion from GBP3.83 billion.

Entain noted that share based payment charges were GBP6.9 million higher than last year, while underlying depreciation and amortisation was 6.9% higher, at GBP238.1 million from GBP222.8 million a year ago. The firm's operating costs stretched by 18% to GBP1.12 billion from GBP952.7 million.

In addition, Entain booked a joint venture loss of GBP194.1 million, including a GBP193.9 million loss relating to BetMGM, in-line with expectations.

At the other end of the FTSE 100, Aviva climbed 3.0% to become the best performer at midday. The insurer announced a GBP300 million share buyback.

In 2022, Aviva swung to an IFRS loss of GBP1.14 billion from a profit of GBP2.04 billion the year prior. Meanwhile, its adjusted operating profit from continuing operations rose to GBP2.21 billion from GBP1.63 billion.

The company's solvency II return on equity was 16.4%, up from 10.7% last year, while its solvency II shareholder cover ratio was 212%, down from 244%.

Looking forward, Aviva said the "positive momentum" seen in 2022 has continued, reinforcing its confidence in its financial targets in 2023.

In the FTSE 250, Domino's Pizza Group fell 6.2% as it reported a drop in annual profit.

In the financial year that ended December 25, the company's pretax profit dropped to GBP98.9 million from GBP109.7 million the previous year.

Elsewhere in London, Alpha Financial Markets Consulting jumped 7.5%, after it said it was "delighted" with its continuing strong performance and now expects to report full-year results "significantly" ahead of current market expectations, which it did not specify.

On AIM, WANdisco requested its shares be suspended from trading on AIM while it conducts an investigation into its true financial position.

The company explained that, following investigations by its chief financial officer and chief executive officer, it has discovered "significant, sophisticated and potentially fraudulent irregularities" with regard to received purchase orders and related revenue and bookings, as represented by one senior sales employee.

Consequently, WANdisco said the irregularities will "significantly impact" its cash position and lead to "material uncertainty" regarding its overall financial position.

The firm now expects that financial 2022 revenue could be as low as USD9 million, and not USD24 million as previously expected. In addition, the company said it has "no confidence" in its announced financial 2022 bookings expectations.

Only on Monday, WANdisco had said it was in the early stages of exploring an additional listing in the US, but said it remains committed to its listing on London's AIM.

In European equities on Thursday, the CAC 40 in Paris and the DAX 40 in Frankfurt were both down 0.3%.

The euro stood at USD1.0575 midday on Thursday, higher against USD1.0553 at the London equities close on Wednesday. Against the yen, the dollar was trading at JPY136.22, lower compared to JPY137.14.

Brent oil was quoted at USD82.71 a barrel at midday in London on Thursday, up from USD82.60 late Wednesday. Gold was quoted at USD1,819.52 an ounce, up slightly frpm USD1,818.62.

By Heather Rydings, Alliance News senior economics reporter

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