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(Alliance News) - Stock prices in Europe pushed higher on Thursday, as investors took a hawkish US monetary policy announcement in their stride, while the Bank of England took the initiative with an interest rate hike, sending the pound higher.
The UK central bank's Monetary Policy Committee voted 8-to-1 to raise the key Bank Rate to 0.25% from 0.10%. It kept its target stock of asset purchases unchanged at GBP895 billion.
The European Central Bank announces its own interest rate decision at 1245 GMT.
The pound was quoted at USD1.3343 midday Thursday, jumping above USD1.33 after the BoE announcement and up from USD1.3222 at the London equities close on Wednesday
The FTSE 100 index was up 78.81 points, or 1.0%, at 7,245.56 midday Thursday, tipping downwards immediately after the BoE rate announcement and the jump in the pound, which hurts the dollar earnings of FTSE 100 constituents.
The mid-cap FTSE 250 index was up 347.54 points, or 1.6%, at 22,781.42. The AIM All-Share index was up 7.01 points, 0.6%, at 1,171.12.
The Cboe UK 100 index was up 1.2% at 720.01. The Cboe 250 was 1.4% higher at 20,131.12, while the Cboe Small Companies was up 0.8% at 14,741.25.
In mainland Europe, the CAC 40 stock index in Paris jumped 1.7% on Thursday, while the DAX 40 in Frankfurt surged 1.8%.
On Wednesday, the US Federal Reserve said it will reduce its purchases of Treasury securities by USD20 billion per month and for mortgage-backed securities by USD10 billion, from the current USD120 billion a month that the central bank currently is buying. This sets a pace for the end of its pandemic-era bond purchases in March
Policymakers at the Fed also envisage three interest rate hikes by the end of 2022, with further increases in rates expected in both 2023 and 2024. For now, however, the Federal Open Market Committee decided to keep the target range for the federal funds rate at 0.00% to 0.25%.
Analysts noted market participants appreciated the Fed's clear and concise messaging.
"The overwhelming feeling appears to be that of relief that the Fed's plan for the year is now in the public sphere, giving investors something to work with as they look ahead to the next twelve months. After all, you only raise rates when the economy is improving, so there is still a case to be made for being long equities," IG analyst Chris Beauchamp commented.
Stock prices in New York, after posting solid climbs on Wednesday, were called higher on Thursday. The Dow Jones Industrial Average and the S&P 500 index were called up 0.6%, and the Nasdaq Composite up 0.7%
The euro stood at USD1.1292 on Thursday afternoon, up from USD1.1262 late Wednesday. Against the yen, the dollar was trading at JPY114.17, up from JPY113.80.
Equity markets were in buoyant mood despite data showing private sector growth in Europe has been stifled by the Omicron variant.
The eurozone's private sector growth slowed to a nine-month low in December. The latest IHS Markit composite purchasing managers' index dropped to 53.4 points in December's flash estimate from November's final tally of 55.4. A figure above 50.0 still suggests growth, but it was the lowest reading since March.
The UK's private sector expansion slowed even more considerably in the face of the Covid-19 variant. Growth fell to a 10-month low, according to survey results from IHS Markit. The UK composite purchasing managers' index fell to 53.2 points in December flash estimate from 57.6 in November. Markit said it was the "worst month for the UK economy since February".
The PMI decline was largely due to a stumbling service sector. The flash services PMI fell to 53.2 in December, also a 10-month low, from 58.5 in November. The manufacturing PMI slipped to 57.6 in December from 58.1 in November. The manufacturing figure was the weakest in three months.
"The fall in the composite PMI in December doesn't come as much of a surprise given the surge in cases of the Omicron variant of Covid-19. But it was much bigger than expected, and shows that caution among businesses and consumers is starting to weigh on activity," Capital Economics analyst Adam Hoyes commented.
Brent oil was quoted at USD74.94 a barrel midday Thursday, rising from USD73.30 at the London equities close on Wednesday. Gold stood at USD1,786.43 an ounce, up from USD1,767.04.
On the London Stock Exchange, Domino's Pizza topped the FTSE 250s, rising 24%. It reached a deal with its franchisees to end a long-running dispute and usher in a "new era of collaboration and accelerated growth". The firm said the acrimony "held the company back", and it can now "begin a new era".
Under the terms of the deal, Domino's will make a one-time capital investment of about GBP20 million, spread over three years, to boost digital acceleration. It will also increase marketing investment and develop an improved new store incentive scheme, to encourage new site openings.
The deal runs for an initial three years from January 3.
AJ Bell analyst Russ Mould commented: "One of the strengths of Domino's is its franchise model. This has enabled it to grow rapidly without using lots of capital or taking on big costs. The pandemic has also boosted demand for takeaways, creating a significant market opportunity for the company. However, for several years Domino's has been locked in a battle with its franchisees who effectively refused to open new stores because they felt they were getting a raw deal from the parent company.
"Domino's has now struck a deal with these franchise partners which will see a not inconsiderable investment on its part, boosting marketing spend and improving the digital platform, and in return they will up the pace of openings and agree to participate in national promotions. The market likes the news as, at a stroke, it improves the growth trajectory of the business. However, Domino's relationship with its franchisees remains a vulnerability for the group, which could rear its ugly head at the end of this three-year agreement."
Dunelm added 6.0%. UBS lifted the home furnishings retailer to Buy from Hold.
Elsewhere in the retail space, shares in online-only fast-fashion house boohoo tumbled 15%. It cut annual sales and margins guidance due to Omicron uncertainty and as more product returns hit net sales. boohoo also has seen "continued disruption" hit online deliveries alongside persistent virus-related cost inflation.
However, boohoo said: "It is the view of the board that the factors currently negatively impacting the business are primarily related to the ongoing impact of the pandemic and are, therefore, transient in nature."
In the three months to November 30, net sales increased 10% year-on-year to GBP506.2 million from GBP460.7 million. On a two-year basis, net sales are 53% higher.
For the financial year ending February 28, boohoo now expects net sales growth in the 12% to 14% range, cut from previous guidance of a rise of 20% to 25%.
AIM-listed peer ASOS fell 2.9% in a negative read-across.
British Airways-parent IAG and budget carrier easyJet climbed 3.5% and 4.4% in a decent session for the airline sector, shaking off news of tighter travel curbs.
France will ban non-essential travel to and from the UK from the weekend to slow the spread of the Omicron Covid-19 variant that is causing record numbers of cases on the other side of the Channel, the government in Paris said Thursday.
From midnight Saturday in France, there will be a "requirement to have an essential reason to travel to, or come from, the UK, both for the unvaccinated and vaccinated...People cannot travel for touristic or professional reasons," the government said in a statement.
Elsewhere in the travel sector, Heathrow airport has been given permission to increase charges by more than 50% from January 1. The Civil Aviation Authority on Thursday said the cap on the west London airport's price per passenger next year will be GBP30.19, up from GBP19.60 currently.
Charges are paid by airlines, but are generally passed on to passengers in air fares.
Still to come on Thursday's economic calendar are the latest US jobless claims data at 1330 GMT.
By Eric Cunha; ericcunha@alliancenews.com
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