LONDON MARKET MIDDAY: Stocks lower as US Fed signals 2023 rate hike

(Alliance News) - Stock prices in London remained lower at midday on Thursday and the dollar was ...

Alliance News 17 June, 2021 | 12:11PM
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(Alliance News) - Stock prices in London remained lower at midday on Thursday and the dollar was higher following a hawkish pivot from the US Federal Reserve, while the IPO market in London was given a welcome boost by money transfer firm Wise.

The FTSE 100 index was down 31.73 points, or 0.4%, at 7,153.76. The mid-cap FTSE 250 index was down 109.64 points, or 0.5%, at 22,507.90. The AIM All-Share index was down 6.55 points, or 0.5%, at 1,237.94.

The Cboe UK 100 index was down 0.5% at 712.90. The Cboe 250 was down 0.4% at 20,272.72, and the Cboe Small Companies was flat at 15,334.50.

In mainland Europe, the CAC 40 in Paris was down 0.2%, while the DAX 30 in Frankfurt was down 0.1%.

IG Group's Chris Beauchamp said: "Given the relatively sharp changes in last night's Fed statement it is perhaps surprising that headline indices have not suffered more, but in the case of the FTSE 100 and other European markets weakness in their respective currencies will be doing quite a bit to limit the damage.

"For US investors, while the prospect of rate hikes might be a touch unnerving the main thing is that the committee remains optimistic about the US economic recovery, which after all is the main reason to think earnings and stock prices will keep climbing from here."

US stock market futures were pointed lower ahead of jobless claims figures at 1330 BST. The Dow Jones Industrial Average was called down 0.3%, the S&P 500 down 0.4%, and the Nasdaq Composite down 0.5%.

The Fed turned hawkish as policymakers eyed rising inflation, as a majority of the members its policy setting committee predicted a rate hike in 2023.

The Federal Open Market Committee left its benchmark rate unchanged in the range of 0.00% to 0.25%, as widely expected, and recommitted to "maintain an accommodative stance of monetary policy". The Fed also left its quantitative easing programme unchanged.

Fed officials appear to have grown more hawkish since their last meeting in April, with 11 of the 18 committee members expecting at least two rate hikes in 2023 and 7 expecting one as soon as next year, according to updated quarterly economic projections released after the discussions closed.

Looking ahead, the Fed expects US GDP growth of 7.0% in 2021, up from its 6.5% prediction in March, with 2022's target unchanged at 3.3%, while GDP growth in 2023 is now tipped at 2.4%, up from 2.2% in March.

In addition, Switzerland's central bank upped both its inflation and gross domestic product forecasts, and added that it is ready to "intervene" on currency markets amid a "highly valued" Swiss franc.

The Swiss National Bank left its policy rate at minus 0.75%. The key interest rate has been in negative territory since 2015. The SNB said it is still ready to "intervene in the foreign exchange market as necessary, while taking the overall currency situation into consideration".

The Swiss central bank upped its inflation forecast for this year and 2022, noting higher prices for oil products and tourism services, as well as supply chain bottlenecks.

In the FTSE 100, British Airways-parent International Consolidated Airlines was the best performer, up 3.2%, amid optimism over the return of global travel.

Midcap budget airline easyJet was up 3.8%, while Irish carrier Ryanair was up 3.7%.

Vaccines could play a role in opening up international travel for British holidaymakers, under plans being considered by the UK government. Officials are looking at proposals that could allow Britons who have had both coronavirus vaccine doses to avoid having to quarantine when returning from countries on the amber list, according to a report in the Daily Telegraph.

A government spokeswoman confirmed that work has begun to "consider the role of vaccinations" for inbound travel following the continued success of the jab's rollout. This could mean the return of holidays to popular summer hotspots such as Spain, Portugal, France and Italy, which are all currently on the UK's amber list.

People arriving from the limited number of holiday destinations on the green list are not required to self-isolate, while amber arrivals must quarantine at home for 10 days.

Whitbread was up 2.6%. The Premier Inn owner was upbeat over its prospects as lockdown restrictions ease.

Total UK accommodation sales were down 61% in the first quarter, the 13 weeks to May 27, compared to the same period in financial 2020, the 13 weeks to May 30, 2019, with the period being the last similarly timed period before the onset of the Covid-19 crisis. Food & Beverage total sales were down 86%, reflecting the UK government's lockdown restrictions that were in place for most of the quarter.

Whitbread said total first quarter sales were down 70% from two years earlier and like-for-like sales were down 71%. Whitbread said that, since May 17, trading has been strong, with high levels of demand in tourist locations, driven by the anticipated bounce in leisure demand post reopening, and also by the period including May half-term school holidays.

Looking ahead, Whitbread said outlook and guidance is unchanged from what was provided at the full-year results in April, despite the four-week delay in the UK government's Step 4 of lockdown easing, announced on Monday.

Whitbread expects leisure demand in coastal and other tourist locations to remain very strong throughout the summer, while the full recovery of leisure demand is dependent on the final release of lockdown, and the return of unrestricted events.

Banks were higher after the Fed pointed to faster-than-expected interest rate hikes. HSBC, NatWest, Standard Chartered, Barclays and Lloyds Banking were up 2.5%, 2.3%, 2.9%, 2.4% and 2.0% respectively. Banks generally benefit from higher interest rates as it improves their net lending margin.

Major US banks JPMorgan Chase, Goldman Sachs and Citigroup were up all up 0.4% in pre-market trade in New York, while Bank of America was up 0.7%.

At the other end of the large-caps, 3i Group was 3.3% lower after the stock went ex-dividend meaning new buyers no longer qualify for the latest payout.

Gold miners Polymetal International and Fresnillo were down 2.6% and 1.8% respectively tracking spot gold prices lower. The precious metal was trading at its lowest levels in over a month, priced at USD1,800.80 an ounce, down from USD1,857.40.

"Fed officials revising the timetable for interest rate hikes has brought a taper tantrum for the gold price. For investors, the opportunity cost of holding non-interest bearing assets have increased and gold has become less attractive asset for them for now," said AvaTrade analyst Naeem Aslam.

In the FTSE 250, Dr Martens the worst performer, down 7.7%, after the boot maker reported a fall in pretax profit, as it released its first set of earnings since floating in London.

For the financial year that ended March 31, revenue was up 15% to GBP773 million from GBP672.2 million the year before, but pretax profit declined 52% to GBP35.7 million from GBP74.8 million.

Looking ahead, Dr Martens said the guidance set out at the IPO in February remains unchanged, for both financial 2022 and over the medium-term. In financial 2022 it expects high-teens revenue growth, as it laps the Covid-19 hit experienced in financial 2021.

From financial 2023 and over the medium-term Dr Martens anticipates mid-teens revenue growth. In addition, the company said it expects to begin paying a dividend in financial 2022.

Elsewhere, fintech firm Wise unveiled plans for a Main Market float, in what it noted would be the first direct listing for a technology company in London.

Wise, which has recently been rebranded from TransferWise, provides money transfer services.

It argued that a direct listing is a "fairer, cheaper and more transparent way for Wise to broaden its ownership" than a traditional IPO.

"Wise has been profitable since 2017. This growth strategy is self-funded by the organic generation of capital and cash which is reinvested back into our products and infrastructure, marketing, and the further lowering of prices for customers," the company said, adding that it has "no plans to raise primary capital".

No details around timing or price of a potential listing were provided. Earlier this week, Sky News reported that the payments app was looking at a value of up to GBP9 billion.

The announcement, combined with a string of smaller plans for initial public offerings revealed early Thursday, came after shares in online furniture retailer Made.com fell by as much as 8% on Wednesday before recovering to end down 1.5%, as they began conditional trading on the London Main Market.

Made.com shares were up 0.9% at 198.74p on Thursday at midday.

The dollar was higher against major counterparts in the wake of the Fed's rate decision.

The pound was quoted at USD1.3943 at midday on Thursday in London, down sharply from USD1.4103 at the London equities close Wednesday. Sterling fell below the USD1.40 level for the first time since early May.

The euro stood at USD1.1937, sharply lower from USD1.2117. Against the yen, the dollar was trading at JPY110.76, up from JPY109.94.

On the economic front, eurozone annual inflation came in largely in line with market estimates, according to data from Eurostat.

Consumer price inflation in the eurozone quickened to 2.0% in May, from 1.6% in April. The figure confirmed earlier estimates and was in line with market forecasts, cited by FXStreet. Eurostat noted that a year earlier, the inflation rate was 0.6%.

On a monthly basis, consumer prices were 0.3% higher in May.

Brent oil was quoted at USD74.34 a barrel at midday, down from USD74.88 late Wednesday.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

Copyright 2021 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Rating
Made.com Group PLC When Issue 156.00 GBX -2.01 -
3i Ord 1,279.50 GBX -0.54
Barclays PLC 174.50 GBX -0.98
HSBC Holdings PLC 397.45 GBX -0.89
Dr. Martens PLC Ordinary Shares 433.00 GBX -1.59 -
Fresnillo PLC 818.20 GBX -0.29 -
Lloyds Banking Group PLC 45.64 GBX -1.22
Standard Chartered PLC 432.00 GBX -1.10
International Consolidated Airlines Group SA 168.10 GBX -7.45
Polymetal International PLC 1,563.00 GBX 0.35 -
Whitbread PLC 3,046.00 GBX -2.43 -
NatWest Group PLC 202.40 GBX -1.22
Goldman Sachs Group Inc 374.88 USD -0.71
Citigroup Inc 67.62 USD -1.00
JPMorgan Chase & Co 151.78 USD -0.80
Bank of America Corp 38.36 USD -0.83

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