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LONDON MARKET OPEN: Oil majors, miners fall but retailers outperform

21st Sep 2023 09:02

(Alliance News) - Stock prices in London opened in the red on Thursday, as sentiment took a hit from the prospect of another interest rate hike from the Federal Reserve, as investors awaited news from the Bank of England at midday.

The FTSE 100 index opened down 32.20 points, 0.4%, at 7,699.45. The FTSE 250 was down 83.59 points, 0.5%, at 18,628.78, and the AIM All-Share was down 3.16 points, 0.4%, at 743.54.

The Cboe UK 100 was down 0.4% at 767.88, the Cboe UK 250 was down 0.4% at 16,275.67, and the Cboe Small Companies was up 0.1% at 13,451.48.

In European equities on Thursday, the CAC 40 in Paris was down 1.3%, while the DAX 40 in Frankfurt was down 0.9%.

Investors are looking ahead to the interest rate decision from the Bank of England, to be announced at 1200 BST on Thursday. According to FXStreet-cited market consensus, the BoE is still expected to enact a 25 basis point hike. However, after Wednesday's unexpected cooling in headline inflation, the prospect of a pause to rate hikes has grown.

A quarter-point hike will take the benchmark bank rate to 5.50% from 5.25%. It will lift UK interest rates to their highest level in roughly 16 years and it will be Threadneedle Street's 15th successive hike. In a bid to keep a lid on rampant inflation, the BoE has lifted rates by a total of 515 basis points so far in this hiking cycle.

Swissquote Bank senior analyst Ipek Ozkardeskaya believes the BoE is unlikely to pause rates, pointing to the recent rises in energy costs, and core inflation of 6.2% remaining over three times the bank's 2% target.

"In summary, the BoE is not there yet. And if sterling continues to fall – which is the most plausible outcome if the BoE softens its policy stance more than necessary today, inflation in Britain will become harder to contain," she predicted.

Sterling was quoted at USD1.2324 early Thursday, lower than USD1.2396 at the London equities close on Wednesday.

In the meantime, investors are dissecting the latest rhetoric from the Fed.

The Fed decided to hold the federal funds rate between 5.25-5.5%, a 22-year high. Despite pausing rates, the accompanying rhetoric was hawkish, with Fed Chair Jerome Powell refusing to rule out further interest rate rises.

Projections released in the Fed's dot-plot showed the likelihood of one more increase this year, then two reductions in 2024, two fewer than were indicated during the last update in June. Powell said going into 2024, "the time will come at some point, and I'm not saying when," to cut interest rates.

Members of the Federal Open Markets Committee have revised up their economic growth expectations for this year, with gross domestic product now expected to rise by 2.1%. That was more than double the June estimate, supporting hopes that the world's largest economy is not heading into recession. The 2024 GDP outlook was lifted to 1.5%, from 1.1%.

The euro traded at USD1.0634, down from USD1.0718. Against the yen, the dollar was quoted at JPY148.31, up versus JPY147.64.

Commodity prices also head south. Gold was quoted at USD1,928.65 an ounce early Thursday, lower than USD1,945.43 on Wednesday. Brent oil was trading at USD92.40 a barrel, lower than USD94.40.

Shares in oil majors BP and Shell 1.2% and 0.9% respectively, as miners also came under selling pressure with Anglo American down 1.6% and Fresnillo down 1.7%.

It was a better day for FTSE 100 retailers, however.

JD Sports was the top performer, up 6.7%.

The sportswear seller said on track for its full year, with interim growth being driven by its premium Sports Fashion business. In the 26 weeks to July 29, revenue rose 8.3% year-on-year to GBP4.78 billion from GBP4.42 billion, while pretax profit jumped 26% to GBP375.2 million from GBP298.3 million. The clothing retailer raised its interim dividend to 30p from 0.13p. It expects annual pretax profit before adjusted items to be in line with current market consensus expectations of GBP1.04 billion.

Next also rose 1.5%, as it increased profit and sales guidance for its full year. It now expects full price sales in the second half to see 2.0% annual growth, compared to its previous guidance of 0.5%. This would take full-year growth to 2.6%.

"Successfully keeping full-priced sales front and centre to avoid discounts is one of the reasons Next can boast some of the best margins in the sector," noted Aarin Chiekrie, equity analyst at Hargreaves Lansdown.

It also raised full-year guidance for pretax profit to GBP875 million from GBP845 million previously, which would be up 0.5% from the prior year. Sales in the six months to July rose 5.4% year-on-year to GBP2.64 billion from GBP2.50 billion, as pretax profit rose 4.8% to GBP419.8 million from GBP400.6 million.

In the FTSE 250, SSP dropped 6.6%. The travel food and beverage outlet operator said trading momentum was strong, and expects an improved annual performance. However, it noted some foreign exchange headwinds, given the recent strength of sterling.

IG Group fell 5.4% as the stock went ex-dividend.

On the economic side, new data revealed UK public sector net borrowing, excluding public sector banks, reached GBP11.6 billion in August, which was 43% higher than the GBP8.1 billion in August a year before.

In the fiscal year to date, borrowing stands at GBP69.6 billion, which is GBP19.3 billion more than the same period last year. However, it was GBP11.4 billion less than the Office for Budget Responsibility's forecasts of GBP81.0 billion.

Though some will hope the shortfall will give the government some wiggle room for potential tax cuts, Chancellor Jeremy Hunt has strongly indicated otherwise in recent remarks.

On Wednesday, Hunt warned that there will be no pre-election "borrowing binge", despite saying the government's plan to tackle the cost-of-living crisis is working following a surprise fall in inflation to 6.7% in August, down from 6.8% in July.

Such a move would "simply keep interest rates higher for longer", he said, dealing a blow to Conservatives demanding tax cuts.

In the US on Wednesday, stocks on Wall Street ended in the red, with the Dow Jones Industrial Average down 0.2%, the S&P 500 down 0.9% and the Nasdaq Composite down 1.5%

The downbeat mood extended into Asian stock markets on Thursday, as the Nikkei 225 index in Tokyo closed down 1.4%. In China, the Shanghai Composite fell 0.8%, while the Hang Seng index in Hong Kong was down 1.4% in late dealings. The S&P/ASX 200 in Sydney closed down 1.4%.

By Elizabeth Winter, Alliance News senior markets reporter

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