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(Alliance News) - Stocks in London look set to end the week on the back foot on Friday, following an as-expected rate hike from the European Central Bank but better-than-expected economic growth in the US.
CMC Markets analyst Michael Hewson said: "With tech performing so poorly, the messaging to markets is confusing many investors, as the sharp slowdown in the fortunes of the tech sector contrasts with the outperformance of more traditional economic bellwethers. The contrast is also outweighing the anticipation that central banks may be looking to slow the pace of their rate hiking cycle."
European Central Bank President Christine Lagarde sounded tough on inflation on Thursday, but a slight 'dovish tweak' to the central bank's monetary policy statement has sent the euro below dollar parity.
The ECB said interest rates would need to be raised "further" - a slight change in language after it previously said rates would need to be hiked over the "next several meetings".
As expected, the Frankfurt-based central bank lifted its key policy rates by 75 basis points on Thursday. This takes the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility to 2.00%, 2.25% and 1.50%, respectively.
The ECB has now hiked by 200 basis points over the past three meetings. Lagarde told reporters the ECB "still has ground to cover".
Turning to Japan's central bank, the Bank of Japan stuck to its ultra-loose monetary policies on Friday, even as the yen comes under pressure from aggressive tightening by the US Federal Reserve and other central banks.
The stark contrast between Japanese and US monetary policy has caused the yen to plummet to 32-year lows against the dollar, prompting the government to intervene to prop up the currency.
In a statement after a two-day policy meeting, the BoJ on Friday said it would keep measures aimed at boosting the world's third-largest economy, including its benchmark rate of minus 0.1%.
But it also raised its inflation forecast for fiscal 2023 to 2.9% from 2.3% in July, driven by higher energy and food prices.
In the US on Thursday, it was a mixed session, with the Nasdaq continuing to feel the affects of a tough tech earnings season.
The US economy grew at a faster pace than expected in the third quarter, according to the latest estimate from the US National Bureau of Economic Research on Thursday, as weekly jobless claims ticked up, but came in lower than anticipated.
Gross domestic product grew by 2.6% annually in the third quarter of 2022, growth coming in higher than FXStreet-cited consensus of 2.4%. The figure shows the US economy is coping with high interest rates better than the market had expected.
US GDP had shrunk at an annual pace of 0.6% in the second quarter.
Separately, the US Department of Labor said Thursday that the number of workers filing for first time unemployment benefits increased last week, though by less than expected.
The combination of better-than-expected economic growth, and lower-than-expected unemployment claims will put pressure on the US Federal Reserve to continue with its large interest rate hikes.
Tech earnings continued, this time numbers from Apple and Amazon were up.
"An ugly week of Big Tech earnings is coming to an end, having wiped out hopes of seeing earnings boost gains across the stock markets," Swissquote analyst Ipek Ozkardeskaya said.
Apple reported a strong fourth-quarter result in a record year, despite noting a challenging and volatile macroeconomic backdrop.
In the three months ended September 24, the California-based iPhone-maker reported net income of USD20.72 billion, up 0.8% from USD20.55 billion the previous year.
"Our record September quarter results continue to demonstrate our ability to execute effectively in spite of a challenging and volatile macroeconomic backdrop," said Luca Maestri, Apple's chief financial officer.
Apple shares rose 0.4% in the after-hours session in New York.
Amazon, however, was not as cheery, as it sunk 13% in after-hours trade.
The e-commerce platform reported a decrease in quarterly net income on foreign exchange headwinds, but noted a rise in sales.
Ozkardeskaya added: "In summary, the US big tech was rather a kill-joy this week, so all eyes are on Big Oil to reverse mood. Exxon Mobil and Chevron will be reporting earnings this Friday, and are expected to announce stunning earnings."
Here is what you need to know ahead of the London market open:
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MARKETS
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FTSE 100: called down 56.49 points, or 0.8%, at 7,017.20
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Hang Seng: down 3.8% at 14,845.44
Nikkei 225: closed down 0.9% at 27,105.20
S&P/ASX 200: closed down 0.9% at 6,785.70
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DJIA: closed up 194.17 points, or 0.6%, at 32,033.28
S&P 500: closed down 23.30 points, or 0.6%, at 3,807.30
Nasdaq Composite: closed down 178.32 points, or 1.6%, at 10,792.68
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EUR: down at USD0.9971 (USD0.9984)
GBP: down at USD1.1547 (USD1.1573)
USD: up at JPY146.46 (JPY145.90)
GOLD: down at USD1,658.90 per ounce (USD1,662.60)
OIL (Brent): down at USD94.05 a barrel (USD94.75)
(changes since previous London equities close)
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ECONOMICS
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Friday's key economic events still to come:
11:00 CEST EU economic sentiment indicator
10:00 CEST Germany gross domestic product
14:00 CEST Germany consumer price index
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UK Prime Minister Rishi Sunak told his Indian counterpart Narendra Modi he "hoped" they could agree a trade pact, Downing Street said, despite missing a Diwali deadline to seal the deal. Downing Street noted the leaders – set to meet in person at next month's G20 summit in Indonesia – "also agreed to work together as two great democracies to strengthen the developing economies of the world". It cited security, defence and the "economic partnership" as key areas for cooperation.
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Sunak's climate credentials were under scrutiny after he decided to snub Cop27, amid speculation that he could move to expand the windfall tax on energy companies. Climate activists and opposition members of Parliament have been urging the new UK prime minister to go further on his windfall tax as oil and gas giants see profits soar. Downing Street said "nothing is off the table" ahead of Chancellor Jeremy Hunt's autumn budget on November 17.
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The number of empty shops in the UK has continued to fall but remains higher than pre-pandemic levels amid fears that falling consumer confidence will test the fragile recovery. The overall vacancy rate across Britain fell to 14% in the third quarter, 0.1 percentage points better than the previous quarter and 0.6 percentage points better than the same period last year, the British Retail Consortium and Local Data Company reported. It is the fourth consecutive quarter of falling vacancy rates. Shopping centre vacancies fell to 18.8%, down from 18.9% in the second quarter, while high street vacancies decreased to 13.9% from 14%.
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BROKER RATING CHANGES
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JPMorgan raises Anglo American price target to 4,100 pence (4,000p) - overweight
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JPMorgan raises Lloyds Banking price target to 58 pence (56p) - overweight
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Deutshce Bank cuts Shell price target to 2,761 pence (2,779p) - buy
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COMPANIES - FTSE 100
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NatWest Group Chief Executive Alison Rose said the bank "continues to deliver a strong financial performance" despite the "challenging environment". In the three months to September 30, operating profit before tax rose to GBP1.09 billion from GBP976 million a year before. Putting a cap on the bank's profit, NatWest set aside GBP247 million in the quarter to cover an expected increase in bad loans, which is reversed from a GBP221 million gain the year prior. Total income increased to GBP3.21 billion from GBP2.69 billion. Net interest income was up to GBP2.64 billion from GBP1.87 billion, as its net interest margin improved to 2.72% from 2.28%. Looking ahead, NatWest expects its NIM to be over 2.80% for 2022 as a whole - assuming a Bank of England base rate of 2.25% - while its income, excluding notable items, will be about GBP12.8 billion.
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International Consolidated Airlines Group's revenue surged in the third quarter as the British Airways owner continues to benefit from increased tourism and travel demand. In the three months to September 30, IAG recorded a pretax profit of EUR1.01 billion versus a loss of EUR714 million the year before. Its operating profit improved to EUR1.21 billion from a EUR452 million loss. Total revenue climbed to EUR7.33 billion from EUR2.71 billion, as passenger revenue multiplied to EUR6.42 billion from EUR2.00 billion. Available seat kilometres was 87% higher to 74.83 billion, while revenue passenger kilometres more than doubled to 64.08 billion. "All our airlines were significantly profitable and we are continuing to see strong passenger demand, while capacity and load factors recover," Chief Executive Luis Gallego said. IAG also owns Aer Lingus and Iberia.
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Glencore saw a drop in production in the first nine months of 2022 across most of its metals, with the exception of strong growth from cobalt and nickel, forcing the miner to lower its annual guidance. In the nine months to September 30, copper production was down 14% year-on-year to 770,500 tonnes, while gold was down 15% to 504,000 ounces. Chief Executive Gary Nagle said: "Operational performance over the third quarter was impacted by a range of events including extreme weather in Australia, industrial action at nickel assets in Canada and Norway - since resolved - and the emergence of significant supply chain issues in Kazakhstan stemming from the Russia-Ukraine war. Full-year 2022 production guidance has, accordingly, been reduced for those affected commodities." Glencore said its commodities trading Marketing arm will make a significantly reduced by still above-average contribution in the second half.
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COMPANIES - FTSE 250
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Computacenter said 2022 will be a year of "modest" adjusted profit before tax growth, but did note its previous "two exceptional years". "We are benefiting from currency movements and the positive, but limited, contribution from our in-year acquisitions, but these are much smaller than the Covid headwinds," it explained. Looking towards 2023, the firm said it will be another year of growth, as it "continues to invest heavily in its IT roadmap".
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OTHER COMPANIES
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Irish lender AIB Group recorded "strong" profitability and loan growth in the third quarter. It is confident of meeting its upgraded income outlook for 2022. Total income has increased 17% in the first nine months of 2022, aided by higher interest rates - which saw net interest income grow 10%. Net interest income is expected to grow by more than 15% in all of 2022. AIB noted EUR9.0 billion in new lending so far in 2022, with EUR3.5 billion coming in the third quarter. "The group is trading well with good income trajectory and momentum in the business," it added. For 2022, it sees customer loans growing 5% to 6%.
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By Paul McGowan; paulmcgowan@alliancenews.com
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