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LONDON MARKET MIDDAY: Mood sour as UK inflation accelerates further

Wed, 22nd Jun 2022 11:58

(Alliance News) - Recession worries were back to the fore on Wednesday after a couple days of respite for equities investors, with markets awaiting remarks from the head of the US central bank and mulling the implications of an acceleration in UK inflation.

The FTSE 100 index was down 101.56 points, or 1.4%, at 7,050.49 midday Wednesday.

The mid-cap FTSE 250 index was down 280.95 points, or 1.5%, at 18,668.10. The AIM All-Share index was down 9.97 points, or 1.1%, at 888.43.

The Cboe UK 100 index was down 1.4% at 702.80. The Cboe 250 was down 1.6% at 16,394.56, and the Cboe Small Companies down 0.8% at 13,619.18.

In mainland Europe, the CAC 40 in Paris was down 1.7%, while the DAX 40 in Frankfurt was down 2.0%.

After a strong start to the week, European stocks snapped their winning streak, as focus turned once again to inflation, central banks, and recession risks.

"Investors will need to see compelling evidence that inflation is cooling before we see a turnaround in market sentiment, in our view," said UBS.

Traders may be waiting some months longer to see peak inflation in the UK, after data early Wednesday showed annual consumer price growth accelerated to 9.1% in May from 9.0% in April.

This was in line with market consensus, according to FXStreet.

It was the highest 12-month inflation rate in the National Statistic series, which began in January 1997, the Office for National Statistics said. Indicative modelled consumer price index inflation estimates suggest that it would last have been higher around 1982, the ONS said.

With energy prices set for another sharp rise in the autumn after regulator Ofgem's review of household rates and the Bank of England recently warning inflation will breach the 11% threshold in October, prices are expected to remain elevated in the short-term.

The pound was quoted at USD1.2255 Wednesday, down from USD1.2276 at the London equities close on Tuesday despite the uptick in inflation.

"Sterling slipped to a near one-week low against the US dollar this morning, as ongoing concerns over the UK's cost of living crisis continued to damp sentiment towards the currency," said Matthew Ryan, head of strategy at Ebury.

The euro traded at USD1.0493 on Wednesday in London, lower than USD1.0568 late Tuesday. Against the yen, the dollar was quoted at JPY136.32, up versus JPY136.18.

Gold was quoted at USD1,828.67 an ounce, down from USD1,839.99 on Tuesday.

Stocks in New York were on course for a lower open as well. The Dow Jones was pointed down 1.2%, the S&P 6500 down 1.4% and the Nasdaq Composite down 1.6%.

Weighing on the FTSE 100 was Berkeley, down 6.6% despite reporting a higher annual profit, citing its stable operating model in an uncertain period.

The Surrey-based housebuilder said pretax profit for the financial year that ended April 30 rose 6.4% to GBP551.5 million from GBP518.1 million, with revenue up 6.6% to GBP2.35 billion from GBP2.20 billion.

Berkeley has seen a "stable" start to the new financial year, it said, with enquiries, visitor numbers and reservations in line with the end of the 2022 financial year.

The results from Berkeley came as data showed the average UK house price was GBP31,000 higher in April than a year earlier. Across the UK, the typical property value in April stood at GBP281,000 in April, which was 12% higher than a year earlier.

Some property professionals pointed to more recent figures indicating a softening in the UK housing market. They also highlighted a nervousness about taking on debt when it is unclear when the living costs surge will start to level out.

Shell and BP fell 3.9% and 3.4% respectively as oil prices fell. Brent oil was trading at USD109.71 a barrel, dropping from USD114.71 late Tuesday amid concern about global energy demand.

JD Sports rose 4.8% as it released its delayed annual results which showed the athleisure retailer booked a record performance in its recently ended financial year but warned that further growth would be held back by global volatility.

For the year ended January 29, the FTSE 100 listed firm doubled pretax profit to GBP654.7 million from GBP324.0 million the year prior. Pretax profit before exceptional items more than doubled to GBP947.2 million from GBP421.3 million.

The record profit came on revenue that grew 39% to GBP8.56 billion from GBP6.17 billion.

NatWest shares were up 3.8% after the UK government said it will continue to sell down its stake in the bank for another year.

The trading plan unveiled last July will be extended for a further 12-month term and will now terminate no later than August 11, 2023.

Since the plan was established, the UK Treasury has sold 703.5 million shares for GBP1.6 billion, it said. This implies an average sale price per share of around 227p, well below the 502p paid to bail out NatWest, then Royal Bank of Scotland Group, in 2008.

In addition, Jefferies upgraded NatWest to Buy from Hold.

In the FTSE 250, Micro Focus dropped 18% as it narrowed its half-year loss, though posted a fall in revenue and reduced its dividend.

For the year ended April 30, sales slid 8.7% to USD1.27 billion from USD1.39 billion a year before.

Its pretax loss narrowed to USD42.9 million from USD280.0 million on reduced costs, but adjusted earnings before interest, tax, depreciation and amortisation fell 12% to USD449 million from a constant-currency year-earlier figure of USD510.7 million.

As a result, Micro Focus cut its interim dividend to 8 cents per share from 8.8 cents.

By Lucy Heming; lucyheming@alliancenews.com

Copyright 2022 Alliance News Limited. All Rights Reserved.

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