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(Alliance News) - Tuesday's dead cat bounce didn't live past the morning in Europe, with the FTSE 100 back in the red at midday as investors fret over an upcoming US interest rate decision.
"There is a lot riding on the Federal Reserve's policy update tomorrow. Investors look as if they increasingly fear the central bank will become more aggressive with the pace of interest rates to try to curb inflation, given May's cost of living figures were higher than expected," said Russ Mould, investment director at AJ Bell.
The FTSE 100 index was down 63.80 points, or 0.9%, at 7,142.01 midday Tuesday. The mid-cap FTSE 250 index was down 111.00 points, or 0.6%, at 19,049.21. The AIM All-Share index was down 6.38 points, or 0.7%, at 917.68.
The Cboe UK 100 index was down 0.9% at 711.90. The Cboe 250 was down 0.7% at 16,768.56, and the Cboe Small Companies down 0.2% at 14,228.10.
In mainland Europe, the CAC 40 in Paris was down 1.4%, while the DAX 40 in Frankfurt was down 1.0%.
Europe gave up modest morning gains as market expectations of a 75 basis point rate hike from the Federal Reserve on Wednesday firmed.
The likelihood of a 75 basis point hike is now priced in by 96% of market participants, according to the CME's FedWatch tool. The Fed hasn't carried out a hike of this scale since 1994.
"We acknowledge 75bp is looking increasingly likely and at this stage, it is not to be excluded that investors will continue to push their expectations even higher, and start considering a 100bp hike," ING commented, meaning a full percentage point.
Wall Street is pointed towards tepid gains ahead of the open. The Dow Jones was seen flat and the S&P 500 pointed up 0.1%. The Nasdaq Composite was set to rise 0.4%, after a bruising 4.7% slump for the gauge of technology stocks on Monday.
The euro traded at USD1.0433 on Tuesday, firm versus USD1.0425 late Monday. Against the yen, the dollar rose to JPY134.24 from JPY133.90.
Also in this week's central banking calendar is the Bank of England on Thursday. Ahead of this, data showed the UK unemployment rate unexpectedly rose in April, while wages struggled to keep up with inflation.
The jobless rate rose to 3.8% in the three months to April, up from 3.7% in March and confounding market expectations, according to FXStreet, for an improvement to 3.6%.
At the same time in the UK, average earnings excluding bonuses rose 4.2% on an annual basis, in line with the reading for March and ahead of FXStreet-cited consensus of 4.0%. Including bonuses, wages grew 6.8%, below consensus of 7.6% and softening from 7.0% in March.
After accounting for soaring inflation, average pay including bonuses rose 0.4%, but when stripping bonuses out, pay fell 2.2% in real terms.
Sterling was quoted at USD1.2115 on Tuesday, falling against USD1.2150 at the London equities close on Monday.
Despite Tuesday's mixed data, the BoE is still expected to raise interest rates by 25 basis points, rather than the 50-point step the Fed has already enacted.
In anticipation of higher interest rates both in the UK and the US, banks were the top performers in the FTSE 100 at midday. Standard Chartered was up 2.2%, HSBC up 2.1% and Lloyds up 0.9%.
Precious metals miner Fresnillo rose 2.0% as risk sentiment soured once more. Gold was quoted at USD1,821.50 an ounce on Tuesday, down from USD1,826.77 on Monday, though earlier the yellow metal hit an intraday high of USD1,831.38.
Brent oil was trading at USD123.30 a barrel, up from USD119.33 late Monday.
Towards the bottom of the blue-chips was AstraZeneca, falling 3.5% after UBS downgraded the drugmaker to Neutral from Buy.
Crest Nicholson was at the top of the mid-caps. The housebuilder rallied 7.4% after upgrading its full-year adjusted pretax profit guidance to a range of GBP135 million to GBP140 million - versus just GBP107.2 million the year before - after a strong interim performance.
Half-year revenue increased 12% to GBP364.3 million from GBP324.5 million, reflecting the "underlying strength" of the UK housing market, and adjusted pretax profit jumped to GBP52.5 million from GBP36.1 million.
On a reported basis, Crest swung to a pretax loss of GBP52.5 million from a profit of GBP36.3 million a year before, due to a GBP10.5 million exceptional charge which includes its obligations under the UK government's Building Safety Pledge, which addresses the issue of dangerously flammable cladding.
Peer Bellway rose 3.6% after saying it has seen strong housing sales demand in the period stretching February 1 to June 5. It reported an average of 253 reservations per week, up 5.9% year-on-year, and added that positive pricing momentum continues to offset inflationary pressures.
Elsewhere in London, Go-Ahead shares jumped 14%. Kelsian Group has urged the shareholders of Go-Ahead to take no action on a rival takeover offer, saying it is in talks with Go-Ahead for a cash bid of its own.
Newcastle, England-based peer Go-Ahead on Monday said it had agreed to a takeover offer from Gerrard Investment Bidco, a subsidiary of a consortium consisting of Kinetic Holding Co and Globalvia Inversiones. Kinetic is a bus operator in Australia and New Zealand, while Globalvia is a Madrid-based transport infrastructure firm.
Kelsian is an Adelaide-based ferry, bus, and light rail operator in Australia, Singapore and the UK.
On AIM, Xeros Technology shares more than doubled to 71.95p from Monday's closing price of 32.50p on a "transformational" 10-year deal.
Xeros said it has signed a licensing agreement for XFilter with Hanning Elektro-Werke. Hanning, headquartered in Oerlinghausen, Germany, manufacturers components for the appliance industry.
Xeros said the deal has the "potential to deliver significant revenues from late 2023 onwards". The 10-year non-exclusive agreement will see Hanning manufacture and sell filters using XFilter technology.
The economic events calendar on Tuesday has US producer prices at 1330 BST. In addition, the Fed's two-day monetary policy meeting gets underway.
By Lucy Heming; lucyheming@alliancenews.com
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