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(Alliance News) - Stocks in London ended lower on Thursday after the Bank of England came close to delivering an unprecedented half-point interest rate hike as the UK contends with a rampant surge in inflation.
The FTSE 100 index closed down 54.16 points, or 0.7%, to 7,528.84. The FTSE 250 closed down 281.62 points or 1.3%, at 21,967.78, and the AIM All-Share shed 14.49 points, or 1.3%, at 1,090.93.
The Cboe UK 100 ended down 0.8% at 747.42, the Cboe UK 250 closed down 1.2% at 19,691.18, and the Cboe Small Companies ended down 0.7% at 15,379.66.
In European equities, the CAC 40 in Paris stock index ended down 1.5% and the DAX 40 in Frankfurt fell 1.6%.
"It's been a broadly weaker session for European markets as investors absorb the negative reaction to last night's numbers from Facebook owner Meta Platforms, and the unexpectedly hawkish outcome of today's Bank of England decision," said CMC Markets analyst Michael Hewson. "The decision of 4 MPC members to choose to ask for a bigger move suggests that there is increasing concern over the persistence of inflationary pressure."
In the FTSE 100, Compass Group ended the best performer, up 4.0%, after the contract caterer said its revenue grew 39% on an organic basis in the first quarter ended December 31.
"The quarterly improvement was largely driven by new business, continued strong client retention along with some ongoing recovery in the base business. The emergence of the Omicron variant had a limited impact on the group during the period," the company said. First-quarter revenue hit 97% of pre-virus levels.
Shell closed up 1.4% after the oil major hailed a "momentous year" as earnings bounced back from the Covid-19 hit that it took in 2020. Rival BP gained 0.7% in a positive read-across.
For the fourth quarter of 2021, total revenue, so including joint-ventures and interest income, more than doubled annually to USD90.22 billion from USD45.03 billion. Fourth-quarter pretax profit multiplied to USD16.27 billion from USD1.19 billion.
Shell swung to an annual pretax profit of USD29.83 billion from a USD26.97 billion loss in a Covid-damaged 2020. At USD19.29 billion, up sharply from USD4.85 billion, adjusted earnings for the year topped market consensus of USD18.01 billion.
Shell said it will increase the pace of its share buybacks to USD8.5 billion in the first half of 2022, including the remaining USD5.5 billion proceeds from its Permian disposal.
Shell in January vowed to progress its buybacks "at pace". Shell also increased its annual dividend by 37% to USD0.8935 per share, from USD0.6530 in 2020. The company will raise its first quarter dividend to USD0.25 per share from the USD0.24 declared for the fourth quarter of 2021.
At the other end of the large-caps, BT closed down 4.8% after the telecommunications firm posted weaker year-to-date earnings following the conclusion of its third quarter.
The former state monopoly also unveiled a possible joint-venture for its sports broadcasting unit, after "a detailed process to identify the best way to generate investment". BT said it is in exclusive talks with the US's Discovery, which owns Eurosport UK."
BT said revenue in the nine months to December 31 fell 2.4% to USD15.68 billion from USD16.06 billion a year earlier. Pretax profit declined 3.4% to USD1.54 billion from USD1.59 billion.
In the FTSE 250, Playtech ended the top gainer, up 8.3%. The gambling software firm, fresh from having its takeover by Australia's Aristocrat Leisure rejected by shareholders on Wednesday, confirmed that TTB Partners, an affiliate of Gopher Investments, approached Playtech asking for consent to make a possible offer.
Playtech said it granted the release from restrictions under the UK takeover code to allow a bid. Gopher, which is buying Playtech's financial trading arm Finalto, had previously decided against making an offer for the entire company, resulting in the code restrictions on a new approach. Playtech said any offer from TTB would be in cash, but noted there is not certainty an offer will be made.
Sterling rose against the dollar after the Bank of England came close to delivering an unprecedented half-point interest rate hike
The pound was quoted at USD1.3616 at the London equities close, up from USD1.3560 at late Wednesday.
Five of the nine-strong Monetary Policy Committee backed the 25 basis point hike to 0.50%, from 0.25% previously. However, four wanted a more aggressive hike to 0.75% in a bid to quell rampant inflation. Governor Andrew Bailey voted with the majority.
The 25 basis point hike was in line with market expectations. It is the first time since 2004 that the BoE has lifted Bank Rate is successive meetings, having raised it to 0.25% from 0.10% at its last meeting, which was in December.
December's hike was the first since August 2018. The UK central bank had cut the key interest rate twice, both in March 2020, to the record low of 0.10% as the virus pandemic got underway.
The Committee also voted to begin to reduce the stock of UK government bond purchases, financed by the issuance of central bank reserves, by ceasing to reinvest maturing assets.
"We see this as a clear sign of intent that the MPC isn't in a mood to mess about when it comes to raising interest rates this year, with policymakers increasingly concerned with the impact of rising energy costs on UK inflation," Matthew Ryan, market analyst at Ebury commented.
"We see the hawkish vote as vindication of our bullish sterling view. We expect to see a continuation of this aggressive hike cycle at upcoming meetings, which we think should allow the pound to be among the better performing currencies in the G10 this year. Markets have been quick to react, pricing in another 25 basis point hike in March, and sending sterling to a post-Brexit vote high versus the euro," Ryan added.
Large-cap banks were higher after the rate hike. Lloyds closed up 0.8%, Barclays up 0.7% and NatWest up 0.1%.
"The news is positive for the banks who are due to report 2021 earnings in two weeks from February 17," Jefferies analyst Joseph Dickerson said.
"Based on the banks' static disclosures, NWG is the most rate sensitive of the banks and will expect the biggest uplift to 2022 estimates to net interest income at 5.5%. LLOY and HSBC follow next, both with an estimated 2.0% uplift to NII, with BARC less rate sensitive with an estimated 1.6% uplift," the analyst added.
The euro stood at USD1.1425 at the European equities close, up sharply from USD1.1295 late Wednesday, as investors raised bets on a rate hike from the European Central Bank.
The Frankfurt-based central bank kept the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility unchanged at 0.00%, 0.25% and -0.50%, respectively.
Notably, however, President Christine Lagarde said risks to the inflation outlook were tilted to the upside, which investors interpreted as a small glimmer of hope for a potential rate hike.
"Inflation is likely to remain elevated for longer than previously expected but to decline in the course of this year...Compared with our expectations in December, risks to the inflation outlook are tilted to the upside, particularly in the near term," Lagarde told reporters, after the ECB held its interest rates at record lows.
The ECB confirmed it is conducting purchases under its Pandemic Emergency Purchase Programme at a slower pace in the first quarter, before ending the scheme altogether in March. This was a decision it announced in December.
In response to a question about whether a rate hike in 2022 remains highly unlikely in light of recent inflation surprises, Lagarde said she never "makes pledges without conditionalities" and said that it was important to be attentive to that.
Lagarde said the central bank would be data-dependant and reassess the situation when the ECB issues new economic forecasts in March and would not rush into any decisions. Notably however, the ECB chief did not repeat the statement from the previous meeting in December that a rate hike in 2022 is unlikely.
Analysts at ING commented: "Today's ECB meeting marks an important hawkish shift. For some, it even looks like the late revenge of the hawks. In any case, the ECB postponed taking any next steps until the March meeting when a fresh round of macro, and particularly inflation forecasts, will be available. Lagarde opened the door to a speeding up of asset purchase reductions and a rate hike this year.
"Taking all this into consideration and assuming that energy prices do not dive over the next four weeks, we expect the ECB to speed up the reduction of net asset purchases and to bring them to an end in September, allowing the ECB to hike the deposit rate at least once before the end of the year."
Against the yen, the dollar was trading at JPY114.85, up from JPY114.33 late Wednesday.
Stocks in New York were firmly in the red at the London equities close snapping four days of gains as investors digested disappointing tech earnings.
The DJIA was down 0.8%, the S&P 500 index down 1.2% and the Nasdaq Composite down 2.0%.
Shares of Facebook parent Meta Platforms plunged more than 25%, shaving roughly USD200 billion off the firm's value and weighing on the Nasdaq.
The owner of Facebook, WhatsApp and Instagram reported net income of USD39.37 billion in 2021, up 35% from USD29.15 billion a year prior. This came off revenue of USD117.93 billion, up 37% from USD85.97 billion.
Diluted earnings per share for the year rose 36% to USD13.77 from USD10.09. Looking at the fourth quarter of 2021, net income slipped 8.6% to USD10.26 billion from USD11.22 billion a year before.
This came on the back of a 38% increase in costs & expenses of USD21.09 billion from USD15.30 billion.
Its flagship Facebook platform also reported losing roughly one million daily users globally between the last two quarters of 2021 - a tiny number on an app with nearly two billion daily users, but a potentially worrying signal of stagnation.
Further, Meta said the rules imposed by Apple last year on ad targeting had a negative impact on its financial results in the fourth quarter.
Honeywell International was down 5.8% in New York after the Dow member said its sales in the last quarter of 2021 were hindered by supply-related constraints, marring an otherwise positive annual performance.
Brent oil was quoted at USD89.45 a barrel at the equities close, up from USD89.02 at the close Wednesday.
Gold stood at USD1,805.70 an ounce at the London equities close, lower against USD1,808.75 late Wednesday.
The economic events calendar on Friday has UK construction PMI at 0930 GMT and the US jobs report at 1330 GMT.
The UK corporate calendar on Friday has third-quarter results from Airtel Africa and SSP Group.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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