A rising pound was holding back the FTSE 100 index at midday on Thursday, as hawkish comments from a Bank of England official contrasted with a dovish set of US Fed meeting minutes.
The FTSE 100 index was up 11.40 points, 0.2%, at 7,476.64. The FTSE 250 was up 77.35 points, 0.4%, at 19,577.85, and the AIM All-Share was up 4.29 points, 0.5%, at 844.59.
The Cboe UK 100 was marginally higher at 747.87. The Cboe UK 250 was up 0.5% at 16,941.16, and the Cboe Small Companies was up 0.4% at 13,013.96.
A top BoE official has vowed to vote to respond ‘forcefully’ to tackle inflation, should price pressures persist.
Speaking at the Bank of England Watchers’ Conference on Thursday, Dave Ramsden, the bank’s deputy governor for Markets & Banking, said he expects further increases in bank rate will be needed to return inflation to the bank’s 2% target.
On a more positive note, Ramsden noted that the UK government’s energy price guarantee has added more certainty to the outlook for energy prices.
‘Government policy more broadly is on a more stable and predictable footing,’ he continued, following the replacement of Liz Truss and Kwasi Kwarteng with Rishi Sunak and Jeremy Hunt as prime minister and chancellor, respectively.
However, the deputy governor also noted that labour market conditions remain tight, and services inflation has hit 30-year highs. This is contributing more to overall inflation, he maintained.
‘I am not yet confident that domestically generated inflationary pressures from increased costs and firms’ pricing pressures are starting to ease,’ Ramsden said, concluding: ‘If the outlook suggests more persistent inflationary pressures, then I will continue to vote to respond forcefully.’
The hawkish rhetoric gave the pound boost against the dollar.
Sterling climbed to $1.2116 at midday in London on Thursday, higher than $1.2062 at the London equities close on Wednesday. It had been quoted at $1.2074 earlier in the day.
The British currency was also helped by a weaker dollar, after Wednesday’s dovish meeting minutes from the US Federal Reserve.
‘A substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate,’ the minutes of the most recent Fed policy meeting read.
‘While there’s no suggestion the Fed will stop hiking interest rates anytime soon, the messaging at least allows markets to start to look forward to that point,’ commented AJ Bell’s Russ Mould.
The euro traded at $1.0404, higher than $1.0362 late Wednesday. Against the yen, the dollar was quoted at JP¥138.26, down from JP¥139.64.
A weaker dollar boosted the price of gold. It was quoted at $1,758.05 an ounce on Thursday, up sharply from $1,743.02 on Wednesday. Brent oil was trading at $84.67 a barrel, flat from $84.66.
In European equities on Thursday, the CAC 40 in Paris was up 0.6%, while the DAX 40 in Frankfurt was up 0.9%.
In Germany, businesses are feeling less pessimistic about future prospects, according to the latest Ifo survey, but they are less satisfied about the state of current business than last month. The latest Ifo business climate index rose to 86.3 points in November, from 84.5 in October. The less forward-looking current situation tracker, however, fell to 93.1 points this month from 94.2 in October.
‘The recession could prove less severe than many had expected,’ Ifo said.
Commented Katharina Koenz, senior economist at Oxford Economics: ‘Although a recession over the winter remains inevitable, today’s reading provides hopes that the German economy may weather the storm better than expected.’
US markets will be closed for the Thanksgiving holiday. Wall Street will hold a shortened trading day on Friday.
In the FTSE 100, retailer Kingfisher shed 1.6%.
The DIY products seller said sales in the three months that ended October 31 were up 0.6% year-on-year to £3.26 billion, and it saw continued gains in market share during the period.
‘While the market backdrop remains challenging, DIY sales continue to be supported by new industry trends such as more working from home and a clear step-up in customer investment in energy saving and efficiency,’ Kingfisher said.
However, the B&Q owner said it expects annual adjusted pretax profit of between £730 million to £760 million, which is down from a previous estimate of around £770 million. It also will be below the financial 2022 and 2021 figures of £949 million and £786 million, respectively.
The fourth quarter has started well, Kingfisher said, with like-for-like sales in the three weeks to November 18 up 2.8% year-on-year.
‘Kingfisher continues to grab market share and while it remains buffeted by higher energy costs and increased wages, it has laid the foundations to get through the current consumer downturn,’ said AJ Bell’s Mould.
In the FTSE 250, Dr Martens fell 21%.
The bootmaker warned of pressure on profit margins, as well as slower-than-expected growth in its direct-to-consumer arm, due to a weaker consumer environment.
‘Growth in the lucrative direct-to-consumer sales channel is slipping and that matters because building out this part of the business is a key thread of the strategy,’ said Mould.
Dr Martens expects its annual earnings before interest, tax, depreciation and amortisation margin to be 100 to 250 basis points lower than the previous year, due to investments as well as the appreciation of the dollar, which dilutes the margin.
However, the footwear company recorded strong revenue growth in the six months to September 30, as this rose 13% year-on-year to £418.6 million, compared to £369.9 million. Pretax profit declined by 5% to £57.9 million from £61.3 million, which it said was mostly due to higher depreciation and amortisation costs following investment in new stores and IT systems.
Dr Martens declared an increased interim dividend of 1.56 pence per share, up 28% from 1.22p.
‘Hopes that a hefty increase in the dividend would keep the market sweet have proved forlorn, though one item which is hitting profitability, but which should earn Dr Martens a bit of credit, is the investment in the business,’ Mould added.
discover IE fell 11% after Numis cut the electronics firm’s stock to ’hold’ from ’add’.
On AIM, Jet2 added 5.7%.
Jet2 said revenue in the half year ended September 30 leapt to £3.57 billion from £429.6 million the year before, which had been blighted by pandemic-related travel restrictions.
Jet2 swung to a pretax profit of £450.7 million from a loss of £205.8 million, and reinstated a dividend of 3.0 pence.
Due to the broader disruption in the aviation sector in the mid-summer, Jet2 paid out delay and compensation costs in excess of £50.0 million.
It warned that margins may come under pressure, due to input cost pressures from fuel, carbon, a stronger dollar, wage increases and investment. However, Jet2 said it is presently on track to exceed market expectations for profit before foreign exchange revaluation and taxation for its year ending March 31.
‘Against [a difficult] backdrop Jet2 has done remarkably well, with profits well ahead of pre-Covid days thanks to pent-up demand for travel, greater capacity to fly customers abroad and a greater percentage of sales coming from higher margin package holding customers. It has also needed to run fewer promotions which has saved a few quid on marketing costs and helped to avoid big margin dilution,’ AJ Bell’s Mould commented.
United Oil & Gas plunged 22%.
The oil and gas firm updated on its ASH-4 well in the Abu Sennan License in Eygpt. While the well had encouraging initial flow rates, UOG says: ‘Over recent days the rates from the well have sharply declined, suggesting that the well is connected to a smaller volume of oil than had been expected pre-drill.’
It has reduced the choke size to manage the reservoir and production rates, which will likely stabilise within a few days, but production will be at a lower rate than expected.
‘This is clearly a disappointing update for shareholders...which comes so soon after its investor presentation and positive operations update last week, highlighting the impact of the ASH-4 underperformance,’ SP Angel Energy noted.
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