London close: Stocks mixed as BoE hikes rate to 1pc

Thu 05 May 2022

LONDON (SHARECAST) - (Sharecast News) - London stocks closed in a mixed state on Thursday, with the pound still in the red against its major trading pairs, after the Bank of England hiked interest rates to the highest level in 13 years.
The FTSE 100 ended the session up 0.13% at 7,503.27, while the FTSE 250 closed down 0.64% at 20,089.96.

Sterling was last down 2.36% against the dollar at $1.2333, and 1.22% weaker on the euro at €1.1749.

"The Bank has pushed interest rates up to 1% to combat inflation, the highest level since the financial crisis," said AJ Bell head of investment analysis Laith Khalaf.

"Three members of the committee wanted to go further, with a hike to 1.25%, which would mirror the US Federal Reserve's 50 basis point increase delivered yesterday.

"The currency and bond markets were underwhelmed by the residual dovishness of the Bank of England, with the pound falling on the back of the decision, and bond yields slipping back too."

Khalaf said that showed how hawkish the market was expecting central banks to be.

"Policymakers are now being judged not only on delivering rate hikes, but the size of these increases too."

Indeed, the Bank of England hiked interest rates to 1% at lunchtime - the highest level in 13 years - as it looked to tackle surging inflation.

The Monetary Policy Committee lifted the key Bank Rate from 0.75% in what was the fourth consecutive rate rise, with six of the nine members voting for a 25-basis point increase, while Jonathan Haskel, Catherine Mann and Michael Saunders were in favour of a 50-basis point hike.

It came as the Bank warned that inflation would hit 10% later this year, and was likely to take around two years to return to its 2% target.

Consumer price inflation was expected to have reached 9% in April after the energy price cap was lifted, and then peak slightly above 10% in the last quarter of the year after the price cap rises again in October.

The BoE also cut its GDP forecast for next year to a 0.25% contraction from a previous forecast for 1.25% growth.

"Withdrawing the pacifier of cheap money was never going to be easy, particularly with the economy at crawling place but the Bank of England has clearly judged that leaving rates low will do more harm than good even though it is set to tip the UK into a downturn," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

"The last time rates were at 1% was in February 2009 as the repercussions of the global financial crisis were taking hold, and Lily Allen was at number 1 in the UK music charts with her aptly named track The Fear.

"Right now that mood music is back with policymakers at the Bank of England clearly sharing fears that unless action is taken now to lower demand in the economy, inflation will spiral out of control, which could cause even more pain for the economy."

On the economic front, a closely-watched survey showed growth in the UK service sector slowing last month as cost pressures built.

The S&P Global/CIPS UK services PMI business activity index was 58.9 in April, ahead of both consensus and the flash estimate, of 58.3.

It was, however, down on March's 62.6 and the softest rise in activity since January.

Respondents said they had benefited from the removal of Covid-19 restrictions and greater demand for international travel during the month.

But strong inflationary pressures and the war in Ukraine limited the pace of expansion, with new business growth slowing sharply and business confidence slumping to a year-and-a-half low.

Input costs rose to the greatest extent since July 1996, with significant rises in energy, fuel and wages.

"The twin headwinds of the cost of living crisis and the war in Ukraine started to bite on the UK service sector during April," said Andrew Harker, economics director at S&P Global.

"Worryingly, companies seem to be expecting impacts to be prolonged.

"Indeed, cost pressures show little sign of abating, with inflation even accelerating in April to the strongest in almost 26 years of data collection."

Across the pond, new unemployment claims rose to 200,000 in the seven days ended 30 April, according to the Department of Labor, up from a revised print of 181,000 in the previous week for the highest reading since mid-February.

On a non-seasonally adjusted basis, initial claims slipped 7,164 week-on-week to 196,962, with marked declines in California and Ohio.

The four-week moving average, which aims to strip out week-to-week volatility, came to 1.41m - down 3,250 from the previous week's revised print.

In equity markets, Endeavour Mining jumped 4.17% after it reported a strong start to the year, with both production and all-in sustaining costs well positioned to meet full-year guidance.

Paper and packaging group Mondi rose 4.29% after reporting a strong first-quarter performance late on Wednesday and announcing plans to sell its Russian assets.

Shell gushed 3.06% higher after it posted record first-quarter profits driven by surging oil and gas prices which have been inflated by the Ukraine war.

Biotechnology outfit PureTech Health shot up 5.47% after announcing a $50m share buyback programme, while Melrose Industries managed gains of 0.52% after a well-received trading statement.

Gambling software development company Playtech rose 0.78% after it said adjusted EBITDA for the first three months of the year topped €100m and pointed to some progress in takeover talks with investor group TTB.

Housebuilder Barratt Developments was ahead 0.76% after saying it was on track to meet its expectations as it highlighted strong demand.

Online ticket distributor Trainline surged 9.28% after its annual pre-tax losses narrowed, as travellers returned to rail travel after the lifting of Covid restrictions.

Morgan Advanced Materials gained 5.67% after it backed its full-year guidance as it posted a rise in first-quarter revenues.

In the first three months of the year, group revenue was up 10.9% on an organic constant-currency basis, compared to the same period last year.

Specialist engineering group IMI rose 1.56% after it reported a jump in first-quarter revenues amid strong order book growth.

In the period from 1 January to the end of March, group revenues rose 9% compared to the same period a year earlier, while margins "also slightly improved".

Mobile telecoms infrastructure operator Helios Towers was up 3.54% after it reported strong revenue and earnings growth in its first quarter, and reiterated full-year guidance.

On the downside, Hikma Pharmaceuticals tumbled 9.01% after it cut guidance for its generics business, citing a delay to the launch of a narcolepsy treatment.

Elsewhere, Virgin Money UK tumbled 10.03%, Domino's Pizza Group lost 7.16% and Hiscox was off 8.55%, all after updates of their own.

Banks were also under pressure, with NatWest Group down 4.45% and Lloyds Banking Group 3.56% lower.

"Banking stocks are under pressure on concerns over the economic outlook in the UK after the Bank of England's gloomy economic forecasts," said CMC Markets analyst Michael Hewson.

Online grocer and warehousing technology developer Ocado was off 6.93%, despite an upgrade to 'hold' at HSBC.

Market Movers

FTSE 100 (UKX) 7,503.27 0.13%
FTSE 250 (MCX) 20,089.96 -0.64%
techMARK (TASX) 4,367.37 -0.20%

FTSE 100 - Risers

Aveva Group (AVV) 2,294.00p 4.89%
Mondi (MNDI) 1,566.50p 4.29%
Endeavour Mining (EDV) 2,022.00p 4.17%
Shell (SHEL) 2,293.00p 3.06%
Avast (AVST) 523.20p 2.91%
SEGRO (SGRO) 1,187.50p 2.15%
Severn Trent (SVT) 3,096.00p 2.14%
United Utilities Group (UU.) 1,132.50p 2.03%
Airtel Africa (AAF) 148.00p 1.93%
Associated British Foods (ABF) 1,600.00p 1.88%

FTSE 100 - Fallers

Hikma Pharmaceuticals (HIK) 1,685.50p -9.01%
Ocado Group (OCDO) 830.00p -6.93%
Admiral Group (ADM) 2,321.00p -6.90%
ITV (ITV) 71.14p -5.02%
Antofagasta (ANTO) 1,446.50p -4.77%
NATWEST GROUP PLC ORD 100P (NWG) 210.20p -4.45%
Lloyds Banking Group (LLOY) 44.03p -3.56%
Entain (ENT) 1,405.50p -3.40%
RS Group (RS1) 999.00p -3.01%
Prudential (PRU) 957.20p -3.00%

FTSE 250 - Risers

Trainline (TRN) 303.70p 9.28%
Morgan Advanced Materials (MGAM) 289.00p 5.67%
PureTech Health (PRTC) 177.40p 5.47%
LondonMetric Property (LMP) 253.60p 4.97%
XP Power Ltd. (DI) (XPP) 3,160.00p 4.12%
Tullow Oil (TLW) 56.85p 3.84%
Helios Towers (HTWS) 113.80p 3.54%
Unite Group (UTG) 1,082.00p 3.24%
Sirius Real Estate Ltd. (SRE) 116.00p 3.02%
Darktrace (DARK) 435.10p 2.70%

FTSE 250 - Fallers

Virgin Money UK (VMUK) 159.70p -10.03%
Hiscox Limited (DI) (HSX) 875.00p -8.55%
Lancashire Holdings Limited (LRE) 390.60p -7.88%
Domino's Pizza Group (DOM) 311.20p -7.16%
Aston Martin Lagonda Global Holdings (AML) 845.80p -6.29%
Mitchells & Butlers (MAB) 214.20p -6.13%
TI Fluid Systems (TIFS) 159.20p -6.02%
Hochschild Mining (HOC) 108.00p -5.10%
Watches of Switzerland Group (WOSG) 908.00p -5.02%
TP Icap Group (TCAP) 122.40p -4.82%
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