The FTSE 100 was the worst hit in a tepid day for European equities on Wednesday, with the mining sector weighing on the blue-chip index amid less-than-stellar annual results from Rio Tinto and US interest rate worries.

The FTSE 100 index ended down 47.12 points, or 0.6%, at 7,930.63. The FTSE 250 closed down 170.56 points, or 0.8%, at 19,688.98. The AIM All-Share ended down 9.88 points, or 1.2%, at 852.28.

The Cboe UK 100 ended down 0.7% at 793.35, the Cboe UK 250 dropped 0.9% to 17,166.30. The Cboe Small Companies fell 0.8% to 13,936.84.

‘A bucket of cold water was poured on the market last week when two Federal Reserve members indicated they would support a 50 basis-point hike in the next US interest rate decision. In essence, a larger hike than some expected, and a signal that the Fed would be nowhere near the end of its rate hike cycle, let alone the prospect of seeing rates come down later in the year,’ AJ Bell analyst Russ Mould commented.

Minutes from the Fed’s last meeting, which concluded on February 1, are reported at 1900 GMT.

While equity market traders will be hoping there are not any hawkish surprises, data since that meeting may make the minutes somewhat out of date.

Since that last meeting, several Fed officials in recent speeches have offered a hawkish stance. When the Fed meets next month, most expect it to raise rates by 25 basis points, though the prospect of a stronger half-point hikes increases every time US data comes in hot.

According to the CME FedWatch Tool, the US central bank is odds on to enact another three 25 basis point rate hikes, taking the federal funds rate range to 5.25% from 5.50%. It currently stands at 4.50% from 4.75%.

Ahead of the minutes, stocks in New York were largely higher at the time of the closing bell in London. The Dow Jones Industrial Average and Nasdaq Composite were up 0.1%, while the S&P 500 was flat.

The dollar was largely firmer. The pound was quoted at $1.2066 late Wednesday in London, lower compared to $1.2121 at the close on Tuesday.

The euro stood at $1.0629, lower against $1.0673 late Tuesday. Against the yen, the dollar was trading at JP¥134.67, down slightly compared to JP¥134.74.

In London, mining shares ended lower.

‘The risk-off mentality explains why miners were among the biggest fallers. An assumption that rates could continue to rise theoretically raises the risk of more damage to the economy, and commodity producers’ fortunes are highly sensitive to economic activity,’ AJ Bell’s Mould commented.

Rio Tinto dropped 3.6%.

The miner, which has numerous assets worldwide, reported pretax profit of $18.66 billion, down 39% from $30.83 billion a year prior.

Revenue decreased to $55.55 billion, 12% lower than $63.50 billion in 2021, but marginally above JPMorgan analyst expectations of $52.49 billion. It reported a steep drop in annual profit due to falling prices for iron ore.

Anglo American shares closed down 2.2%. It reports annual earnings on Thursday. Its revenue for 2022 is forecast to be $36.88 billion, according to company compiled consensus, down from $41.55 billion in 2021.

Lloyds Banking shares recovered from an intraday low, ending 0.6% higher. Its net interest income rose 49% to £13.96 billion in 2022 from £9.37 billion in 2021. It noted this was ‘supported by higher interest rates and solid business volumes’.

Pretax profit, however, was little changed at £6.93 billion, compared to £6.90 billion.

The bank proposed a final dividend of 1.60 pence, bring the total to 2.40p, in line with market expectations and up 20% from 2.00p in 2021. Lloyds also announced the launch of a £2.0 billion share buyback.

Its outlook was less-than-stellar, however. Lloyds expects a banking net interest margin of 305 basis points for 2023. Though this would be a rise from the 2.94% achieved for the whole of 2022, it would be down on the 3.22% Lloyds reported for the fourth-quarter alone.

Elsewhere in London, Cineworld dropped 10%. It is yet to receive any full takeover offers, the Financial Times reported on Wednesday, as the cinema chain’s bankruptcy hearings in the US continue.

A lawyer representing Cineworld told a Texas court that it has contacted a ‘broad universe’ of about 40 possible suitors, the FT reported.

While the company has received a number of bids for its operations outside of the US and UK, a firm offer for the full business was not forthcoming.

The FT reported that the lawyer said no bid has come ‘anywhere near’ the $6 billion of secured indebtedness on the struggling cinema chain’s balance sheet.

In European equities on Wednesday, the CAC 40 in Paris lost 0.1%, while the DAX 40 in Frankfurt closed marginally higher.

In Paris, Danone shares ended 4.5% higher. It rounded off 2022 with a fourth-quarter sales hike, and it predicts a margin improvement in 2023.

The Paris-based firm, which operates brands such as Actimel and Volvic, said net sales surged 12% to €7.01 billion in the final quarter of 2022, from €6.24 billion a year earlier.

Annual sales amounted to €27.66 billion, a 14% rise from €24.28 billion in 2021. On a like-for-like basis, sales were 7.8% higher.

Net income weakened 49% however, to €1.02 billion from €1.99 billion. Its operating margin weakened to 7.7% from 9.3% as the company faced rampant inflationary pressures in 2022. Its recurring operating margin dropped to 12.2% from 13.7%.

It put the margin fall to ‘the strong negative impact of input-cost inflation’. It expects a ‘moderate improvement in recurring operating margin’ for 2023, however.

Gold was quoted at $1,835.00 an ounce at the time of the London equities close on Wednesday, down from $1,837.01 late Tuesday. Brent oil was quoted at $81.16 a barrel, down from $82.73.

Thursday’s economic calendar has a eurozone inflation reading at 1000 GMT, before the latest US jobless claims data at 1330 GMT.

The local corporate calendar has annual results from defence contractor BAE Systems, jet engine maker Rolls-Royce and advertising company WPP.

Financial markets in Tokyo are closed on Thursday for the Emperor’s Birthday holiday.

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Issue Date: 22 Feb 2023