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(Correcting the order of Friday's economic events and UK company calendars.)
(Alliance News) - Stocks in London ended mostly lower on Thursday, with the FTSE 100 hindered by an appreciating pound, after the Bank of England said it was prepared for a "modest tightening" in policy over the next two years.
The FTSE 100 index closed down 3.43 points, or 0.1%, at 7,120.43. The FTSE 250 ended up 158.8 points, or 0.7%, at 23,506.11. The AIM All-Share finished down 2.04 points, or 0.2%, at 1,256.84.
The Cboe UK 100 finished down 0.1% at 709.00, the Cboe UK 250 closed up 1.0% at 21,264.40, and the Cboe Small Companies ended up 0.4% at 15,350.50.
In Paris the CAC 40 ended up 0.5%, while the DAX 30 in Frankfurt ended up 0.3%.
"The FTSE 100 proved to be the one negative outlier in an otherwise positive day across European and US markets. The rise in sterling highlights how we are seeing a shift from the expectations that the Bank of England remain dovish despite rising prices," said IG Group's Josh Mahony.
"With the pound gaining ground off the back of today's BoE meeting, it should come as no surprise to see the FTSE 100 lose traction due to the damaging impact a stronger pound has upon international earnings," Mahony added.
The pound was quoted at USD1.3935 at the London equities close, up from USD1.3905 at the close Wednesday, in the wake of the Bank of England's interest rate decision.
The central bank on Thursday predicted the UK annual inflation rate to continue surging this year as pandemic-hit economies reopen, but kept its record-low interest rate and emergency stimulus intact.
The BoE warned, however, that some "modest tightening" of its monetary policy could be necessary in the future as it forecast inflation soaring in the final quarter of the year.
One policymaker - Michael Saunders - voted to cut its GBP895 billion bond-buying quantitative easing programme by GBP45 billion amid fears over the threat of sharp hikes in inflation, but was outvoted by the rest of the nine-strong committee.
Latest economic forecasts from the Bank show it expects inflation, currently at 2.5%, to pick up to 4.0% at the end of 2021. This is double the BoE's target and the highest level of UK inflation since the end of 2011.
The BoE left its interest rate at an all-time UK low of 0.1%. However, the MPC stressed that some tightening of monetary policy is likely to be needed in due course to cool inflation, signalling that action may be on the way over the next two years.
Analysts at FXPro said: "In a commentary to the Decision, the MPC Committee said that despite the transitionary nature of current inflation the rapid recovery of the economy and the removal of the Covid restrictions create suitable conditions for a rate hike in the medium term.
"Such news is rather good for the pound as the Bank of England increasingly opens the door before QE is phased out and moves into a rate hike cycle. However, it is unlikely that the BoE will jump-start ahead of the Federal Reserve."
In the FTSE 100, Rolls-Royce ended the best performer, up 5.9%, after the jet engine maker posted a swing to first half profit and said it is on track to make over GBP1 billion in cash savings this year.
Rolls-Royce said its revenue in the six months to June 30 slipped 9.1% year-on-year to GBP5.16 billion from GBP5.67 billion. It posted a pretax profit of GBP114 million, swinging from last year's hefty GBP5.21 billion loss.
The company's bottom line was helped by a GBP25 million non-cash profit from a revaluation of its hedge book, compared to a GBP2.6 billion revaluation loss a year earlier.
Rolls-Royce highlighted progress in its restructuring plans, with around 8,000 roles cut. The company's aim to cut 9,000 roles and make GBP1.3 billion in run rate savings by the end of 2022 is on track, it added.
Mondi closed up 3.3% after the packaging firm posted virtually flat first-half profit as rising sales volumes and price increases helped cushion the company from persistent economic uncertainty.
The Addlestone, Surrey-based paper and packaging firm said pretax profit for the six months ended June 30 slipped 1.1% to EUR461 million from EUR466 million, with revenue rising by 5.1% to EUR3.63 billion from EUR3.45 billion.
It declared an interim dividend of 20.0 euro cents per share, up 5.3% from 19.00 cents last year.
WPP ended up 3.2% after the ad agency hailed a return to pre-virus trading levels a year ahead of plan.
Revenue for the first half of 2021 rose 9.8% to GBP6.13 billion, while WPP swung to a pretax profit of GBP394 million from a loss of GBP3.18 billion a year ago. Revenue less pass-through costs rose 16% on a like-for-like basis, and the firm noted the second-quarter growth of 19% was its highest on record.
WPP declared an interim dividend of 12.5 pence, up 25% from 10p a year ago. It added that it has GBP350 million in share buybacks planned for the second half after GBP248 million was completed in the first.
At the other end of the large-caps, Glencore ended down 1.4% despite the commodities house swinging to half-year profit, as soaring commodities prices gave the miner and trader ample leeway to boost its cash distribution to shareholders and to buy back shares.
Glencore said pretax profit increased to USD2.01 billion in the six months that ended June 30, recovering from a pretax loss of USD5.18 billion in the same period last year, while revenue leapt 32% to USD93.81 billion from USD70.96 billion.
Glencore said it plans additional shareholder returns worth about USD1.2 billion. This will be comprised an additional USD0.04 a share cash distribution amounting to about USD530 million for payment in September and a USD650 million share buyback to be completed by the release of the full-year results in February next year.
In addition to its base cash distribution of USD1.6 billion, or USD0.12 a share, already declared, the additional amounts increase announced shareholder returns to around USD2.8 billion for the year, Glencore noted.
Lloyds Banking ended down 3.0% after Goldman Sachs cut the bank to Sell from Hold.
In the FTSE 250, Cairn Energy ended the standout performer, up 26%, after the Indian government brought a bill in the Lok Sabha lower house of parliament, to withdraw all retrospective tax demands on Cairn and said it will refund the funds collected to enforce such levies.
At the other end of the midcaps, Hammerson ended down 5.8% after the shopping mall operator reported a decline in revenue but a narrowed loss in the first half of 2021, as it vowed to continue with disposals and invest in core assets.
The FTSE 250-listed firm reported a 13% year-on-year decline in revenue to GBP65.3 million from GBP74.8 million. Its pretax loss narrowed to GBP354.0 million from GBP1.14 billion.
Hammerson provided a strategy update, saying it will focus on prime urban estates, dispose non-core assets and cut debt. As part of the strategy, it plans to cut administrative costs by 15% to 20% by 2023, repurpose underused spaces such as department stores, and develop more leisure, residential and office space.
Frasers Group closed 0.2% lower after the retailer posted a hefty profit fall and confirmed founder Mike Ashley will step down from the chief executive role.
Ashley will move to an executive director role, paving the way for future son-in-law Michael Murray to become the company's new boss. CEO Ashley founded the company in 1982 and still owns 64% of it. He had been executive deputy chair until taking back over as CEO in 2016.
Frasers said it is discussing transitioning the CEO role from Ashley to Murray over the course of the 2022 financial year. It is currently proposed that Murray will assume the role on May 1 next year and that Ashley would step down as CEO but remain on the board as an executive director. Murray is currently the company's "head of elevation", meaning upgrading stores.
Frasers also reported a huge drop in full-year profit, down to GBP8.5 million in the 52 weeks to April 25 from GBP143.5 million the year before. This was on revenue that fell 8.4% to GBP3.63 billion from GBP3.96 billion.
The euro stood at USD1.1768 at the European equities close, down from USD1.1835 late Wednesday. Against the yen, the dollar was trading at JPY109.71, up from JPY109.65 late Wednesday.
Stocks in New York were higher at the London equities close after positive US jobless claims numbers, ahead of the nonfarm payrolls report on Friday.
The DJIA was up 0.5%, the S&P 500 index up 0.4% and the Nasdaq Composite up 0.7%.
US jobless claims fell last week, data from the Department of Labor showed on Thursday.
For the week to July 31, initial jobless claims totalled 385,000, down 14,000 from the prior week's 399,000. This was roughly in line with consensus, which had pencilled in a fall to 384,000, according to FXStreet.
Continuing claims continued to hit post-pandemic lows, at 2.9 million for the week ended July 24, down from 3.3 million for the previous week. This was the lowest level since March 14, 2020, when it was 1.8 million.
The data will be closely analysed ahead of Friday's monthly jobs report, which includes the key nonfarm payrolls figure. This is expected to rise to 870,000 for July from 850,000 in June, while the unemployment rate is tipped to improve to 5.7% from 5.9%.
Brent oil was quoted at USD70.85 a barrel at the equities close, down from USD71.22 at the close Wednesday.
Gold was quoted at USD1,802.55 an ounce at the London equities close, lower against USD1,808.00 late Wednesday.
The economic events calendar on Friday has has UK house price index data from Halifax at 0700 BST and the US jobs report for July at 1330 BST.
The UK corporate calendar on Friday interim results from generic drugmaker Hikma Pharmaceuticals and from London Stock Exchange Group.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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