Central banks were dominating market attention early Thursday, with policymakers proving willing to continue hiking interest rates despite worries about the health of the banking sector.
After the Federal Reserve raised US rates by 25 basis points on Wednesday, the Swiss National Bank early Thursday followed the European Central Bank in hiking by 50 points. Norges Bank, the Norwegian central bank, announced a 25-point hike on Thursday morning.
The Bank of England follows at midday, with a 25-point hike in UK rates expected.
The FTSE 100 index opened down 34.78 points, or 0.5%, at 7,532.06. The FTSE 250 was down 30.23 points, or 0.2%, at 18,727.56, and the AIM All-Share was down 0.41 of a point, or 0.1%, at 803.74.
The Cboe UK 100 was down 0.6% at 752.75, the Cboe UK 250 was down 0.2% at 16,274.14, and the Cboe Small Companies was down 0.6% at 13,158.09.
The Fed raised US interest rates by a quarter of a percentage point on Wednesday, resisting the urge to pause hikes in the face of banking sector turmoil.
The central bank’s rate hike took the federal funds rate range to 4.75% to 5.00%. The Federal Open Market Committee vote was unanimous.
In the policy statement, the Fed said ‘some additional policy firming may be appropriate’. The market interpreted that as more dovish than the Fed’s previous guidance, where it said ‘the committee anticipates that ongoing increases in the target range will be appropriate’.
Fed Chair Jerome Powell, in his subsequent press conference, moved to calm banking sector fears.
Ipek Ozakardeskaya, senior analyst at Swissquote Bank, said, for equity traders, the combination of a 25bp hike, ‘the hint of another 25bp, and the risk of credit tightening was too much to cheer.’
Wall Street ended lower following the announcement, with the Dow Jones Industrial Average down 1.6%, the S&P 500 down 1.7% and the Nasdaq Composite down 1.6%.
In the wake of the interest rate decision and policy statement, US Treasuries rallied and the dollar lost ground. The euro stood at $1.0894 early on Thursday, higher against $1.0702 at the London equities close on Wednesday. Against the yen, the dollar was trading at JP¥131.09, lower compared to JP¥132.67.
‘Investors focused on signs in the Fed’s statement that the rate tightening cycle is coming to an end, reinforced by Jay Powell’s acknowledgement that the fallout from the collapse of Silicon Valley Bank will tighten credit conditions,’ commented Davy Research. ‘Markets ignored Powell’s assertion that the Fed does not see rates being cut this year.’
The pound was buying $1.2314 early Thursday, up from $1.2228 late Wednesday.
The Bank of England will announce its own interest rate decision at midday in London, following on from the Fed, the European Central Bank and Swiss National Bank. The ECB announced a 50 basis point hike last week.
The SNB followed that more aggressive European move with a 50-point hike of its own early Thursday, despite the banking sector turmoil that forced the Swiss central bank to broker a takeover of Credit Suisse by UBS this past weekend.
‘The ECB and Fed rate hikes mean that the chances of the Bank of England following suit with a 25bp move today are quite high, even more so following the surprisingly high inflation readings published yesterday,’ said Francesco Pesole at ING.
The UK consumer price index rose by 10.4% in February from a year before, accelerating from a 10.1% annual rise in January. Market consensus had expected UK inflation to cool to 9.8% in February, according to FXStreet.
ING’s Pesole said: ‘The division within the BoE’s Monetary Policy Committee may be nothing but exacerbated by the recent market turmoil, the risk is that markets may receive very little guidance on future policy paths. Ultimately, the pound may rapidly default to being driven by external factors: primarily the banking situation and global risk sentiment.’
In London, Informa lost 2.4% after Morgan Stanley cut the publishing and exhibitions firm to ’equal-weight’, with a price target of 730 pence. The stock is currently trading at 676.00p.
Pearson slipped 1.9% after it completed the acquisition of Personnel Decisions Research Institutes, a workforce assessment services provider.
Pearson said the acquisition will further expand its portfolio and accelerate its strategy to ‘capture new market opportunities and grow its presence with large employers.’
PDRI will now operate under the brand name PDRI by Pearson and will join Pearson’s Assessment & Qualifications division. The acquisition was originally announced in December for an enterprise value of $190 million.
In the FTSE 250, Energean climbed 6.5% after it swung to an annual profit in 2022 and said it has made a positive start to the new year.
The Mediterranean-focused gas exploration and production company swung to a pretax profit of $107.0 million in 2022 from a loss of $90.7 million the year prior. Revenue in the year jumped to $737.1 million from £497.0 million.
The company’s average working interest production inched up 0.5% to 41,200 barrels of oil equivalent per day from 41,000. Production guidance for 2023 was confirmed at 131,000 to 158,000 barrels of oil equivalent per day.
Inchcape dropped 7.0% despite saying it delivered ‘another great set of results’ for 2022, noting robust customer demand following a prolonged period of supply shortages, which drove growth in both revenue and profit.
Pretax profit jumped to £399.7 million in 2022 from £181.3 million in 2021, while revenue from continuing operations climbed 18% to £8.13 billion from £6.90 billion.
Looking forward, Inchape said it expects that new vehicle supply will continue to improve throughout 2023, and support a normalisation of order books. It added that trading to date in 2023 was been in-line with its expectations.
Elsewhere in London, Cenkos Securities and finnCap have agreed on an all-share merger. The announcement confirmed a Sky News report earlier Thursday.
Cenkos and finnCap shareholders each will own about half of the enlarged company. Cenkos shareholders will receive 3.19 finnCap shares for each Cenkos share, valued at 37.13 pence per share.
Cenkos shares were up 3.6% at 40.40p, while finnCap shares were up 1.1% to 11.75p on Thursday morning.
The combined group will have more than 210 clients. It will be led by the existing chief executives of Cenkos and finnCap and by Cenkos Chair Lisa Gordon. The two companies said they expect to achieve significant cost savings from the combination and also see new revenue opportunities.
In other corporate news, Lloyd’s of London it reported an ‘outstanding underwriting result’ in 2022 but still fell into loss due to a net loss on investment.
The insurance marketplace swung to a pretax loss of £800 million from a profit of £2.3 billion in 2021.
This was due to a net investment loss of £3.1 billion, swung from a £900 million profit.
More positively, underwriting profit rose by 53% to £2.6 million from £1.7 billion on a 19% rise in gross written premiums to £46.7 billion from £39.2 billion.
In European equities on Thursday, the CAC 40 in Paris and the DAX 40 in Frankfurt were both down 0.1%.
In Tokyo on Thursday, the Nikkei 225 index closed down 0.2%. In China, the Shanghai Composite closed up 0.6%, while the Hang Seng index in Hong Kong closed up 2.3%. The S&P/ASX 200 in Sydney closed down 0.7%.
Brent oil was quoted at $76.50 a barrel at early in London on Thursday, up from $76.04 late Wednesday. Gold was quoted at $1,975.84 an ounce, higher against $1,948.59.
Still to come in Thursday’s economic calendar, the US weekly unemployment insurance claims report is released at 1230 GMT.
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