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(Alliance News) - Stock prices in London were lower at midday on Tuesday, as investors await three key interest rate decisions in the next two days, whilst also digesting a warning about the UK economy.
The two-day US Federal Open Market Committee policy meeting begins on Tuesday. The Federal Reserve will announce its latest interest rate decision on Wednesday. The Bank of England and the European Central Bank will follow with policy decisions on Thursday.
"This week's US central bank decision on interest rates is incredibly important to the future direction of stock markets. Investors have been feeling quite relaxed of late, with a risk-on mentality when it comes to bidding up equities. Increasingly a lot of people have become confident that US rates are close to their peak in this part of the cycle, hence a strong run for many markets since late 2022," said Russ Mould, investment director at AJ Bell.
The FTSE 100 index was down 74.36 points, 1.0%, at 7,710.51. The FTSE 250 was down 194.59 points, 1.0%, at 19,742.61, and the AIM All-Share was down 5.58 points, 0.6%, at 863.58.
The Cboe UK 100 was down 1.0% at 770.93, the Cboe UK 250 down 1.0% at 17,243.81, and the Cboe Small Companies down 0.2% at 14,095.17.
The International Monetary Fund warned that the UK's economy will shrink this year, meaning the UK will see the worst performance of all advanced nations.
In its latest World Economic Outlook update, the IMF downgraded its UK gross domestic product forecast once again, predicting a contraction of 0.6% against the 0.3% growth pencilled in last October as Britain looks set to suffer more than most from soaring inflation and higher interest rates.
But it nudged up its outlook for UK growth in 2024 to 0.9% from the 0.6% expansion previously forecast.
Among the other G7 nations, the IMF's 2023 GDP predictions show growth of 1.4% in the US, 0.1% in Germany, 0.7% in France, 0.6% in Italy, 1.8% in Japan and 1.5% in Canada.
With inflation partly to blame for the UK's economic woes, more gloomy data came early Tuesday, as a survey showed grocery price inflation spiked to a record high this month.
According to the latest Kantar survey, UK grocery price inflation roared to 16.7% in the four weeks to January 22, potentially adding GBP788 to yearly shopping bills. The inflation figure was the hottest on record, Kantar said.
For the full 12 weeks of the survey ending January 22, grocery inflation accelerated to 14.8% from 14.2% in the 12 weeks to Christmas Day.
In European equities early Tuesday afternoon, the CAC 40 in Paris and DAX 40 in Frankfurt both were down 0.7%.
The eurozone recorded slower month-on-month economic growth during the final quarter of 2022, according to Eurostat, but avoided recession.
According to a preliminary flash estimate from Eurostat, GDP rose 0.1% in the eurozone during the fourth quarter from the third. This slowed from quarterly growth of 0.3% in the third quarter.
On an annual basis, GDP rose by 3.5% in the fourth quarter. In the previous quarter, GDP rose by 2.3% annually.
In Germany retail sales dropped sharply during the Christmas period, according to Destatis.
Retail sales in December dropped 5.3% from the previous month. This compared with an upwardly revised monthly fall of 1.9% in November. On an annual basis, they fell 6.4% from December 2021, worsening from a 5.9% annual decline in November.
The pound was quoted at USD1.2309 at midday on Tuesday in London, lower compared to USD1.2375 at the equities close on Monday. The euro stood at USD1.0823, down from USD1.0867. Against the yen, the dollar was trading at JPY130.43, firm against JPY130.35.
In the FTSE 100, British American Tobacco gained 0.3%.
British American Tobaco announced senior management changes and a new regional structure as the cigarette maker streamlined its business as part of its push into 'New Categories' of smoking products.
The London-based maker of Dunhill and Kent cigarettes and of vuse vaping and glo tobacco heating products said the changes follow a strategic review of its regions, business units and global functions as it seeks to accelerate and transform its business.
As part of changes, the number of geographical business regions will be reduced to three from four, and the number of business units will be trimmed to 12 from 16. The new structure will consist of three regions: the US, where Reynolds American is based; Americas & Europe; and Asia Pacific, Middle East & Africa.
BAT will create two new management board roles to ensure clarity of ownership, accountability and focus, it said. Johan Vandermeulen, currently regional director in Europe, will be appointed to the new role of chief transformation officer. Luciano Comin will be appointed to the new role of director of Combustibles, focusing on driving value from combustibles to fuel further investment in New Categories.
Supermarket chain Tesco lost 0.7%, after it announced an overhaul of its stores, threatening around 2,100 jobs.
Tesco will close its remaining counters and hot delis, which offer meat, fish and deli products, from February 26. The space will be "repurposed to better reflect our customers' needs".
"Where we can work with a third-party to offer a counter experience in-store, we will continue to do so," the company added.
Further, Tesco announced about 1,800 new shift-leader roles.
"With the introduction of these new shift leader roles and realignment of management roles, we have taken the difficult decision to reduce the number of lead and team managers in our large stores, impacting around 1,750 colleagues," the company said.
In the FTSE 250, Pets at Home was the best performer, jumping 8.0%.
The pet supplies retailer said consumer-facing revenue in its financial third quarter to January 5 climbed 9% year-on-year, with growth underpinned by a record number of consumers and volume growth. Consumer revenue was up 30% compared to pre-pandemic levels.
Total revenue increased by 8.8% in the quarter to GBP347.5 million from GBP319.4 million a year ago, with like-for-like revenue up 8.3%.
Pets at Home noted a resilient gross margin performance, in line with management expectations.
Looking ahead, the pet supplies retailer now expects pretax profit to be at the upper end of the current market consensus range of between GBP126 million and GBP136 million. Previously, the company had guided pretax profit of around GBP131 million.
Fellow-FTSE 250 constituent AG Barr also said it expects annual profit to beat market expectations, though the drinks maker warned of a margin hit due to inflationary pressure in its new financial year.
The stock was up 4.4% around midday Tuesday.
The Irn-Bru maker added that its plans to comply with new regulatory rules in Scotland on single-use containers are "well-advanced", though it noted consumer behaviour may be impacted.
For the year to January 29, AG Barr expects to report revenue of GBP315 million, up 17% from GBP268.6 million.
"We are pleased to report that the positive sales momentum reported in the first half of 2022/23 continued across the balance of the financial year," the Cumbernauld, Scotland-based company said.
Looking further ahead, AG Barr expects more revenue growth in 2023.
Elsewhere in London, Morses Club surged 51%.
The Nottingham-based doorstep lender said its current facility of GBP25 million remains in place until March 31 and its funders have now agreed to extend the term-out clause to March 2023.
Earlier this month, Morses Club announced it wanted to leave London's AIM market. At the time it said it believes its "most likely" source of future funds will come from private capital.
However, a day later JO Hambro Capital Management sold its entire stake in the company, putting the delisting in doubt.
JO Hambro had owned 8.8 million shares and had committed to support the company's proposed delisting from AIM. This meant shareholder support for the delisting had fallen to just under 45% from 51%. It needs the support of 75% of shareholders.
Morses said a general meeting on the cancellation of its shares and re-listing as a private company will take place on February 3.
Stocks in New York were called to open lower, as investors looked nervously ahead to the Fed interest rate decision, which will be announced on Wednesday during US market hours.
The Dow Jones Industrial Average was called down 0.8%, the S&P 500 index down 1.3%, and the Nasdaq Composite down 2.0%. They closed down 0.8%, 1.3% and 2.0%, respectively on Monday.
"After putting in a very strong start to 2023, markets lost a fair bit of ground yesterday as investors grew a little concerned about the sustainability of the current rally," said Deutsche Bank, noting renewed investor concern about persistent inflation.
Gold was quoted at USD1,902.98 an ounce at midday in London on Tuesday, lower against USD1,923.73 late Monday.
Brent oil was quoted at USD83.39 a barrel, down from USD85.93. An OPEC meeting is scheduled for Wednesday.
Still to come on Tuesday's economic calendar there is a slug of US data, including house price and consumer confidence indices.
By Sophie Rose, Alliance News reporter
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