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LONDON MARKET MIDDAY: Stocks down, pound below USD1.19 on US rate view

8th Mar 2023 12:07

(Alliance News) - Stock prices in London were lower at midday on Wednesday, with investors still reeling from surprisingly hawkish comments by US Federal Reserve Chair Jerome Powell on Tuesday.

The central bank chief signalled that the central bank may pick up the pace of interest rate rises at its next policy meeting.

"It was the news investors didn't want to hear, but deep down had a sneaky suspicion would come. Hawkish comments yesterday from Federal Reserve chairman Jay Powell made it perfectly clear that US interest rates would keep going up, potentially faster and harder than markets had previously priced in," said Russ Mould, investment director at AJ Bell.

The Federal Open Market Committee next meets on March 21 and 22.

The FTSE 100 index was marginally lower, down just 3.74 points at 7,915.74. The FTSE 250 was down 115.80 points, or 0.6%, at 19,840.81, and the AIM All-Share was down 3.75 points, or 0.4%, at 856.31.

The Cboe UK 100 was flat at 792.42, the Cboe UK 250 was up 0.7% at 17,367.43, and the Cboe Small Companies was down 0.1% at 13,877.97.

Fed Chair Powell said US interest rates will likely peak at a higher level than previously anticipated due to economic data that came in stronger than recent trends suggested. He noted that January figures for employment, consumer spending, manufacturing production and inflation pointed to a partial reversal of earlier softening trends.

At 1315 GMT on Wednesday, the ADP US national employment report will be published. Analysts at Lloyds Bank said the report will attract attention as a "potential signpost" to Friday's official jobs numbers, the nonfarm payrolls report for February, which will be released at 1330 GMT.

"We look for an increase of 200,000 for the ADP measure of private payrolls which, if replicated in Friday's official figures, would suggest the labour market remains tight, adding to speculation of a larger Fed hike later this month," Lloyds Bank said.

According to the CME FedWatch tool, market participants now expect a 71% change of a 50-basis-point hike at the next FOMC meeting. On Tuesday, before Powell's testimony, markets thought there was a 72% chance of a smaller 25-basis-point lift.

The dollar remained strong on the back of the raised US interest rate expectations. The pound was quoted at USD1.1834 at midday on Wednesday in London, lower than USD1.1861 at the equities close on Tuesday.

The euro stood at USD1.0539, down from USD1.0577. Against the yen, the dollar was trading at JPY137.32, higher compared to JPY136.87.

Stocks in New York were called higher on Wednesday. The Dow Jones Industrial Average was called up 0.2%, the S&P 500 index up 0.2%, and the Nasdaq Composite up 0.3%. They had closed down 1.3%, 1.5% and 1.3% respectively on Tuesday, following Powell's commentary.

The Fed chair continues his testimony to the US Congress on Wednesday, moving to the House of Representatives to address the House Financial Services Committee starting at 10 am local time, or 1500 GMT.

In London, Hiscox remained the best blue-chip performer at midday, up 4.0%.

The insurer reported its highest underwriting profit since 2015 but a steep drop in annual profit, as its chair, Robert Childs, announced his retirement.

The Bermuda-based company reported pretax profit of USD44 million, down sharply from USD190.8 million in 2021. Underwriting profit totalled USD269.5 million, up from USD215.6 million in 2021.

Hiscox suffered an investment loss of USD187.3 million compared to a profit of USD51.2 million a year earlier, as a result of "unrealised mark-to-market losses in our bond portfolio which are expected to unwind as the bonds mature", it said.

In contrast, insurance peers Legal & General and Admiral sat near the bottom of the FTSE 100, down 2.0% and 0.9%, respectively.

L&G dropped despite reporting a solid increase in annual profit and a record solvency II ratio in 2022.

The life insurance and pension provider reported pretax profit of GBP2.66 billion, up 7% from GBP2.49 billion in 2021. Operating profit climbed 12% to GBP1.26 billion from GBP1.15 billion.

L&G said it achieved a record Solvency II coverage ratio of 236%, up sharply from 187% in 2021. At March 3, L&G estimates its coverage ratio was 240%.

Meanwhile, Admiral said it delivered "resilient" results in 2022, against a backdrop of high inflation, but reported a steep fall in annual profit.

The home and motor insurer reported a pretax profit of GBP469.0 million last year, down 39% from GBP769.0 million in 2021.

Jefferies said Admiral's pretax profit was 5% below market consensus, with the miss driven by the International Insurance business. This was due to low market premiums in Italy and Spain and high auto claims in the US.

The company's return on equity was 35%, compared to 56% in 2021. Its solvency ratio, post dividend, was 180%, down from 195%.

In the FTSE 250, Hill & Smith was the worst performer, down 4.5%, despite posting record annual revenue on the back of strength in its US business.

In 2022, the infrastructure construction company said pretax profit increased by 62% to GBP69.3 million from GBP42.8 million in 2021. Revenue totalled GBP732.1 million, a record figure and up sharply from GBP625.2 million.

Executive Chair Alan Giddins noted 2022 was a year of "significant progress," particularly for its US business which now represents 64% of the company's operating profit.

Elsewhere in London, Restaurant Group plunged 13% after said it will close about 35 "potentially loss-making locations" in its Leisure business over the next two years, as it reported a wider loss in 2022, amid a "challenging" year for the casual dining sector.

The Leisure business includes restaurant chains Frankie & Benny's and Chiquito, but not recent acquisition Wagamama.

Restaurant Group's pretax loss on an IFRS 16 basis was GBP86.8 million in the financial year that ended January 1, widening significantly from GBP35.2 million the year prior. Sales rose to GBP883.0 million from GBP636.6 million.

More positively, the company said its trading performance in the first eight weeks of 2023 has been "very encouraging."

On AIM, Redx Pharma dived 17% after the clinical-stage biotechnology company said the overall efficacy results of its RXC004 Porcupine 2 phase two clinical trial programme were not sufficient to support the further development of RXC004 as a monotherapy in advanced biliary tract cancer patients.

In European equities on Wednesday, the CAC 40 in Paris was flat, while the DAX 40 in Frankfurt was up 0.4%.

Economic growth in the eurozone stalled in the final quarter of 2022.

According to a second estimate from Eurostat, the eurozone economy registered no growth at all in the fourth quarter from the quarter before. Gross domestic product had grown by 0.4% in the third quarter.

The figure was down from previous estimates which said the fourth quarter saw 0.1% growth.

Looking ahead, Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics, said he thinks the eurozone is set for two years of "very weak growth," with a recession "still more likely than not".

"All in all, the GDP data released today reinforce our view that the eurozone economy will perform much worse than consensus forecasts suggest this year," he said.

Brent oil was quoted at USD83.29 a barrel at midday in London on Wednesday, down from USD83.83 late Tuesday. Gold was quoted at USD1,816.04 an ounce, lower against USD1,818.73.

By Heather Rydings, Alliance News senior economics reporter

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