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(Alliance News) - European equities made little headway at Wednesday's market open, but avoided the more pronounced declines seen in the US and Asia.
The FTSE 100 index opened up 5.5 points, 0.1%, at 7,395.16. The FTSE 250 was up 31.86 points, 0.2%, at 18,691.61, and the AIM All-Share was down 0.58 of a point, 0.1%, at 749.35.
The Cboe UK 100 was slightly higher at 737.10, the Cboe UK 250 was up 0.2% at 16,436.48, and the Cboe Small Companies was down 0.1% at 13,586.03.
In European equities on Wednesday, the CAC 40 in Paris was marginally higher, while the DAX 40 in Frankfurt was edging into the red.
UK inflation was confirmed to have slowed sharply to 6.8% on an annual basis in July from 7.9% in June. This was thanks to lower gas and electricity prices. However, core inflation proved stubborn, coming in at 6.9%, unchanged from the prior month.
Following the higher-than-expected wage inflation figures on Tuesday, the sticky core inflation reading suggests inflation is becoming more entrenched in the economy.
Sterling was quoted at USD1.2735 early Wednesday, higher than USD1.2733 at the London equities close on Tuesday. It had strengthened from around USD1.2705 shortly before the inflation data. This suggests the market believes the Bank of England is more likely to hike rates, in light of the stubborn core CPI figure.
"The prospect of more interest rate rises will take the edge off any relief people who have had to remortgage feel at rising wages. With renters and homeowners facing their monthly costs rising by hundreds of pounds, a small real-term rise in salaries is unlikely to prove much solace," said Susannah Streeter, head of money & markets at Hargreaves Lansdown.
In the FTSE 100, insurers were topping in the index following positive interim results.
Admiral jumped 6.2%. In the first half of 2023, insurance revenue climbed 14% to GBP1.61 billion from GBP1.41 billion a year before. Turnover rose 21% to GBP2.24 billion from GBP1.85 billion. Pretax profit increased to GBP233.9 million from GBP224.6 million. Despite the improved performance, Admiral cut its interim dividend to 51.0 pence per share from 60.0p the year before.
Aviva was up 2.1%, after reporting its interim IFRS post-tax profit was GBP377 million, compared to a loss of GBP198 million a year before. General insurance gross written premiums rose 12% to GBP5.27 billion from GBP4.69 billion. The company declared an interim dividend of 11.1 pence per share, up 7.8% from 10.3p a year before.
Direct Line rose 6.2% in the FTSE 250 in a positive read-across.
Elsewhere in the midcaps, Essentra was up 3.1%, as it hailed pricing actions and "disciplined cost management", as it swung to pretax profit in the first half despite seeing sales fall.
For the six months ended June 30, the Oxford-based components company reported revenue of GBP166.3 million, down 5.5% from GBP175.9 million a year prior. Meanwhile, pretax profit was GBP10.3 million, swung from a loss of GBP10.7 million.
Essentra told investors that pricing actions at the start of the year, combined with disciplined cost management initiatives, have supported margin performance. It said these partly offset sales volume decline in the period, and would continue to benefit the business in the second half of the year.
The dollar was slightly stronger against the euro and the yen, following some hawkish rhetoric from a member of the Fed's interest rate-setting committee.
The euro traded at USD1.0923, lower than USD1.0926. Against the yen, the dollar was quoted at JPY145.48, edging up versus JPY145.40.
US inflation may finally be moving in the right direction, but the Federal Reserve shouldn't declare victory just yet, according to Minneapolis Fed President Neel Kashkari. "I'm not ready to say that we're done, but I'm seeing positive signs," Kashkari told a conference in the city.
There will be further insight into the thinking behind the Fed's most recent interest rate decision with the publication of its meeting minutes later in the day.
The prospect of further interest rate hikes sent equities lower. In the US on Tuesday, Wall Street ended lower, with the Dow Jones Industrial Average down 1.0%, the S&P 500 down 1.2% and the Nasdaq Composite down 1.1%.
In addition, sentiment took a hit following a warning from a Fitch Ratings analyst.
Wolfe cut his assessment of the industry's health in June, a move that went largely unnoticed because it didn't trigger downgrades on any particular bank. But another one-notch downgrade of the industry's score, to A+ from AA-, would force Fitch to reevaluate ratings on each of the more than 70 US banks it covers, Wolfe told CNBC.
Speaking to CNBC, Fitch's Chris Wolfe said that the agency could be forced into lowering multiple bank ratings.
JPMorgan shed 2.6%, Wells Fargo fell 2.3%, and Citigroup closed down 2.0%.
In Asia on Wednesday, the Nikkei 225 index in Tokyo closed down 1.5%. The S&P/ASX 200 in Sydney closed down 1.5%.
In China, the Shanghai Composite closed down 0.8%, while the Hang Seng index in Hong Kong was down 1.4% in late dealings.
Figures released Wednesday by China's National Bureau of Statistics showed new home prices declined for a second month in July in a further indication of the problems facing the deeply-indebted property sector and the wider economy. The data comes on top of a raft of weaker-than-expected figures on Tuesday showing slowing growth in retail sales and industrial production.
"It's fresh evidence that the attempts to prop up the real estate sector by the People’s Bank of China with cuts to key loan rates are barely scratching the surface of the deep problems," commented HL's Streeter.
Several banks slashed their growth forecasts for China following the data, with JPMorgan Chase cutting its estimate for 2023 to 4.8%, well below an earlier forecast in May of 6.4%, Bloomberg reported. Barclays also cut its estimate to 4.5%.
Oil prices continued to soften amid the weaker demand outlook from China. Brent was trading at USD84.64 a barrel early Wednesday, lower than USD84.79 on Tuesday.
Gold was quoted at USD1,904.15 an ounce, lower than USD1,907.15.
Still to come in Wednesday's economic calendar, there's eurozone gross domestic product data at 1000 BST. Minutes from the Federal Reserve's most recent meeting are released at 1900 BST.
By Elizabeth Winter, Alliance News senior markets reporter
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