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(Alliance News) - Stock prices in London opened lower on Thursday, as the pound fell against a strengthening dollar, after the Federal Reserve indicated that US interest rates are likely to reach higher levels than previously thought.
In early corporate news, J Sainsbury boosted its dividend after a strong interim performance, while RS Group shares fell as it said its chief executive will be taking a leave of absence.
The FTSE 100 index opened down 36.49 points, 0.5%, at 7,107.65. The FTSE 250 was down 145.42 points, 0.8% at 18,072.73 and the AIM All-Share down 3.45 points, 0.4%, at 808.57.
The Cboe UK 100 opened down 0.6% at 710.49, the Cboe UK 250 down 0.8% at 15,516.62, and the Cboe Small Companies down 0.3% at 12,376.59
In European equities on Thursday, the CAC 40 in Paris opened down 1.0%, while the DAX 40 in Frankfurt was down 1.0%.
The Federal Open Market Committee lifted the target range for the federal funds rate to 3.75% to 4.00%, from 3.00% to 3.25% previously. The three-quarter point hike was expected by the market. Wednesday's hike was the US central bank's fourth 75bp rate lift in a row.
Any hopes of a dovish pivot were dashed when Fed Chair Jerome Powell said "incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected".
"This would seem to suggest that while we can expect to see a 50bps move at the December meeting, the eventual terminal rate could well be much higher than 4.5% and could be as high as 5%," said CMC's Michael Hewson.
Having initially fallen after the rate decision and an apparently dovish accompanying statement, the dollar rebounded on Powell's hawkish outlook.
Sterling was quoted at USD1.1272 early Thursday, lower than USD1.1456 at the London equities close on Wednesday. The euro traded at USD0.9767, lower than USD0.9865. Against the yen, the dollar was quoted at JPY148.13, up versus JPY147.08.
A stronger dollar sent commodities lower. Gold was quoted at USD1,625.93 an ounce early Thursday, lower than USD1,646.74 on Wednesday. Brent oil was trading at USD94.46 a barrel, lower than USD96.32.
The stronger dollar now puts pressure on the Bank of England.
At midday, the BoE will announce its interest rate decision, in which it is expected to announce a 75 basis points hike, the same as the US Fed. This would be the largest UK rate hike since 1989.
"The size of the increase will signal how concerned Bank of England policymakers are about inflation versus a recession as it looks to curtail further price rises without inadvertently causing unnecessary economic pain," said interactive investor's Victoria Scholar.
In the FTSE 100, RS Group plunged 10% at the market open. It said CEO Lindsley Ruth will take a leave of absence with immediate effect "for personal reasons", and will be replaced by Chief Financial Officer David Egan during the absence. It gave no details on the duration of the absence.
More positively, the industrial and electronic products distributor reported solid interim results. Revenue in the six months to September 30 jumped 21% year-on-year to GBP1.46 billion from GBP1.21 billion.
This included GBP48.7 million from favourable exchange rate movements, and GBP2.3 million from acquisitions, offset by a GBP8.0 million hit from reduced trading days.
Pretax profit rose 34% to GBP182.5 million from GBP136.1 million.
"Notwithstanding the tougher global economic environment, trading remains in line with our and consensus expectations for the full year," RS said.
The consensus for the year ending March 31 is revenue of GBP2.92 billion and adjusted pretax profit of GBP364.9 million.
Sainsbury's added 2.2%, on encouraging interim results.
In the 28 weeks to September 17, revenue for the supermarket chain grew 4.4% year-on-year to GBP16.41 billion from GBP15.72 billion.
Pretax profit, however, dropped by 30% to GBP376 million from GBP527 million. It said grocery sales grew 0.2% in its first half overall, and by 3.8% in the second quarter as tough lockdown comparatives eased.
Sainsbury's will pay an interim dividend of 3.9 pence per share, up 22% from 3.2p a year before, and backed its annual underlying pretax profit guidance of GBP630 million to GBP690 million. It expects annual retail free cash flow generation of "at least GBP500 million".
"This is a promising update and, from an investment perspective, the positive momentum needs to be maintained to initiate a change of heart towards Sainsbury. The share price has declined by 33% over the last year as compared to a dip of 1.5% for the wider FTSE100 and Tesco remains the preferred play," said interactive investor's Richard Hunter.
"Even so, if the latest rate of progress can be maintained, it may be that investors could be tempted away from sitting on the fence, where the market consensus of the shares as a hold has been in place for some time.”
BT shed 5.2%. The telecommunications firm said revenue rose by 0.6% to GBP10.37 billion in the six months to September 30 from GBP10.31 billion a year before. However, pretax profit dropped 18% to GBP831 million, from GBP1.01 billion.
BT upped its cost savings target to GBP3.0 billion from GBP2.5 billion by the end of 2025. It kept its interim dividend unchanged at 2.31p per share.
"BT Group remains on the front foot in these turbulent times...Our financial performance is on track...and we remain laser-focused on modernising and simplifying BT Group," said Chief Executive Philip Jansen.
In the FTSE 250, Lancashire Holdings was 4.3% higher.
In the first nine months of the year, the Bermuda-based insurer said gross written premiums rose 34% year-on-year to USD1.3 billion.
It expects a net hit impact between USD160 million and USD190 million from Hurricane Ian, which is within its expectations for such an event.
"We expect the broader positive conditions to continue into 2023 and our strategy is to take advantage of attractive market opportunities. We believe we could see significant increases in rates and improving terms and conditions due to recent events and the fact that capacity had already been tightened in the wider market," it said.
Hikma Pharmaceuticals added 3.2%, as it reiterated annual guidance for all three of its businesses. Hikma noted the US generics market is still competitive, but it expects its Generics business to perform in line with previous guidance.
On AIM, Empire Minerals shares jumped 35% on the discovery of a "large magnetic anomaly" at the Pitfield X copper project in Western Australia.
"The mapping shows extensive copper, silver and other base metals anomalism over a 40 kilometre strike length, giving further confidence in the potential to discover a "giant" copper mineralised system at Pitfield," the resource explorer and developer said.
In Asia on Wednesday, the Japanese Nikkei 225 index lost 0.1%. The S&P/ASX 200 in Sydney closed down 1.8%.
The Shanghai Composite closed down 0.2%, while the Hang Seng index in Hong Kong closed down 3.1%.
In the economic calendar, there is a UK services PMI release due at 0930 GMT, ahead of the BoE decision at midday.
By Elizabeth Winter; elizabethwinter@alliancenews.com
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