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(Alliance News) - Stocks in London ended higher on Thursday with the FTSE 100 befitting from weakness in the pound after the Bank of England kept interest rates on hold, at the detriment of large-cap lenders.
The FTSE 100 index closed up 31.02 points, or 0.4%, at 7,279.91. The FTSE 250 ended up 354.14 points, or 1.5%, at 23,471.11 and the AIM All-Share closed up 8.73 points, or 0.7%, at 1,235.50.
The Cboe UK 100 ended up 0.6% at 722.20, the Cboe UK 250 closed up 1.5% at 20,966.90 and the Cboe Small Companies finished flat at 15,548.70.
In Paris the CAC 40 stock index ended up 0.5%, while the DAX 40 in Frankfurt ended up 0.4%.
"European markets have seen an altogether more positive session today, with the FTSE 100 rebounding strongly after the Bank of England wrong footed the markets by not nudging interest rates higher when they met earlier today," said CMC Markets analyst Michael Hewson.
"A rate rise had been widely expected, given earlier briefings by senior central bank officials, and when this didn't happen the FTSE 100 underwent a sharp jump into positive territory, although the pound got absolutely pummelled, while gilt yields also fell sharply" Hewson added.
The pound was quoted at USD1.3505 at the London equities close, down sharply from USD1.3662 at the close Wednesday.
In the FTSE 100, BT Group ended the standout performer, up 11%, after the telecommunications firm maintained its financial outlook for the full year, despite a slight slip in earnings in the first half.
BT reported a 2.7% dip in revenue for the six months to September 30 to GBP10.31 billion, driven by a revenue decline in Enterprise & Global. Pretax profit slipped 5.0% to GBP1.01 billion, primarily due to higher finance expenses. BT said it hit its GBP1 billion of gross annualised savings target 18 months earlier than planned, at a cost of GBP571 million.
It has brought forward its 2025 financial year target of achieving GBP2 billion in gross annualised savings to 2024, and peak capital expenditure from 2023 is now expected to be GBP4.8 billion, down from GBP5 billion seen previously.
It also reported record Openreach 'fibre to the premises' build in the second quarter, to bring its footprint to nearly six million. As a result, BT said it has decided to retain 100% of the project for shareholders and to remain fully focused on driving build and take-up.
Back in May, BT explored the creation of a joint venture to fund the roll-out of fibre to an additional five million premises. BT said on Thursday it has conducted an extensive review and held discussions with prospective investors, but has decided not to proceed due to costs coming down and take-up ahead of expectations.
JD Sports Fashion closed up 3.7% after the UK Competition & Markets Authority demanded the sportswear retailer sell Footasylum, saying the 2019 takeover could lead to "a substantial reduction in competition and a worse deal for Footasylum's customers".
JD Sports lashed out the UK regulator's decision, saying the main competition that it faces is the direct-to-consumer operations of big sportswear brands, such as Nike and adidas, rather than other high-street retailers like Footasylum.
The FTSE 100 company called the CMA's decision "extreme and unprecedented", saying it "defies logic". It said it will study the regulator's Footasylum report and consider its options.
At the other end of the large-caps, J Sainsbury closed down 2.4% after the supermarket chain maintained guidance despite bracing for a normalisation in shopping trends and facing supply chain challenges.
Revenue for the half-year to September 18 rose 5.3% to GBP15.72 billion from GBP14.93 billion a year ago. The UK supermarket chain swung to a pretax profit of GBP541 million from a loss of GP137 million. Underlying pretax profit improved 23% to GBP371 million.
In the second half, Sainsbury's expects consumer behaviour to normalise and grocery growth to moderate. It also noted supply chain challenges and a tight labour market. Despite all this, the company continues to expect to report underlying pretax profit of at least GBP660 million for the financial year ending March 2022. Underlying pretax profit was GBP356 million last year and GBP586 million in financial 2020. Profit by the same measure was GBP371 million in the first half, up 23% on a year ago.
In addition, high street banks ended as the worst performers after the Bank of England defied market expectations as it kept interest rates on hold.
NatWest closed down 5.6%, Lloyds down 4.5% and Barclays down 3.9%. Higher interest rates mean lenders have a bigger margin to play with.
Challenger banks Virgin Money and OSB Group were 9.1% and 1.4% lower respectively.
Elsewhere, Metro Bank jumped 30% after the bank said it has received a takeover approach from private equity firm Carlyle Group. The challenger bank said that, while the approach does not constitute a formal offer, it has engaged with Carlyle.
The BoE vote 7-2 to maintain Bank Rate at its record low 0.1% at its November meeting. Markets had been expecting a 15 basis point hike to 0.25%.
The two votes against the motion to hold, from Dave Ramsden and Michael Saunders, were to enact this 15 basis point hike. Governor Andrew Bailey voted to keep rates unchanged.
This led to accusations of Bailey misleading markets and the sobriquet "unreliable boyfriend" - a moniker first given to predecessor Mark Carney due to his poor communication, which was synonymous during his tenure.
The decision "will come as a surprise to some in markets," said Berenberg economist Kallum Pickering.
While CMC's Hewson said the decision was "a huge own goal for the central bank, already widely distrusted by the markets due to the unreliable boyfriend era of Mark Carney."
In addition, the BoE trimmed its UK economic growth forecasts for this year and next, adding that high inflation would be temporary. The bank said the UK economy would grow 7.0% this year, down from its previous forecast of 7.25%.
The bank "will always focus on the medium term prospects for inflation rather than factors that are likely to be transient", Bailey later told a press conference.
However, the BoE said it would "likely be necessary" to have "some modest tightening of monetary policy" to bring down inflation.
Policymakers "judged that... it would be necessary over coming months to increase" the main rate to bring UK annual inflation back down to the central bank's target of 2.0%.
The UK consumer price index - which currently stands at 3.1% - was "now expected to peak at around 5.0% in April", the BoE said.
"Interest rate markets are going to have to take a cold shower after whipping themselves up into a frenzy over a rate hike. It's not just that the Bank of England committee kept rates on hold, but seven out of the nine members voted to do so. The Governor, Andrew Bailey, was one of those who voted to keep rates on hold. This might come as a bit of a surprise, seeing as his hawkish comments to an international banking conference started the hares running. Like his predecessor, Mark Carney, Bailey has successfully demonstrated that being an unreliable boyfriend is just part of the job description. If markets haven't learned that by now, they never will," Laith Khalaf, head of investment analysis at AJ Bell said.
"No doubt some will characterise this latest decision as the Bank bottling it, but there are pretty sound reasons to hold off on hiking rates right now. The Bank's judgement that inflation is transitory hasn't really been tested, as it's only six months that CPI has been marginally above target, and in fact the inflation index fell back at the last reading. Although inflation is now predicted to peak at 5% next April, the data is notoriously unreliable at the moment, thanks to the distortions created by the pandemic, and a synchronised emergence from it in Europe and America," Khalaf added.
Elsewhere, the UK construction sector saw activity strengthen in October despite widespread supply chain problems, IHS Markit said.
The IHS Markit/Chartered Institute of Procurement & Supply UK construction purchasing managers' index registered 54.6 points in October, up from 52.6 in September to indicate faster expansion. The PMI has now posted above the crucial 50.0 no-change mark in each of the past nine months and hit a peak of 66.3 in June.
The euro stood at USD1.1547 at the European equities close, down from USD1.1581 late Wednesday, following disappointing PMI data.
Eurozone business activity expansion was confirmed easing to its lowest in six months on supply chain woes, according to survey data from IHS Markit.
The composite output index dipped to 54.2 in October from 56.2 in September. The reading was also below October's flash figure of 54.3, but only just.
While the index remains well above the no-change mark of 50.0 which separates expansion from contraction, October's figure was the lowest reading in six months.
Dragging down the composite score was the service sector, with the services business activity index for the bloc falling to 54.6 from 56.4. October's flash reading had been 54.7. The manufacturing purchasing managers' index, released previously, fell to 58.3 points in October from 58.6 in September.
Against the yen, the dollar was trading at JPY113.72, down from JPY114.04 late Wednesday.
Stocks in New York were mostly higher at the London equities close following a heavily-telegraphed Federal Reserve decision Wednesday to trim stimulus.
The DJIA was down 0.3%, but the S&P 500 index was up 0.2% and the Nasdaq Composite up 0.4%.
All three major indices ended at records on Wednesday after Fed said it would begin to slow its stimulus bond purchases this month as it pointed to a solid recovery in the US economy.
On the corporate front, Moderna sank 18% in New York after the drugmaker cut its 2021 forecast for Covid-19 vaccine deliveries, pushing back some doses to next year.
The biotech company, which has soared to prominence this year on the success of its coronavirus vaccine, cited longer delivery times for international shipments.
Moderna now expects 2021 vaccine deliveries of between 700 and 800 million doses, down from the prior range of 800 million to 1.0 billion.
Brent oil was quoted at USD82.05 a barrel at the equities close, little changed from USD82.02 at the close Wednesday after the Organization of the Petroleum Exporting Countries and allies agreed to continue raising output moderately despite pressure from the US.
The 13 members of the cartel and their 10 allies said in a statement that they reconfirmed "the decision to adjust upward the monthly overall production by 0.4 (million barrels per day) for the month of December 2021".
The powerful producers led by Saudi Arabia and Russia in the so-called OPEC+ grouping gathered for less than two hours in their regular monthly meeting via videoconference.
Analysts had widely expected the grouping to re-affirm a decision in July to modestly step up production after slashing it steeply last year as the pandemic hit global markets.
The decision aimed "to ensure a stable and a balanced oil market, the efficient and secure supply to consumers," the statement said.
The OPEC+ nations also pledged "to continue to adopt a proactive and transparent approach which has provided stability to oil markets."
Gold stood at USD1,793.00 an ounce at the London equities close, higher against USD1,766.02 late Wednesday.
The economic events calendar on Friday has eurozone retail sales numbers at 1000 GMT and the US jobs report at 1230 GMT.
The UK corporate calendar on Friday has third-quarter results from British Airways parent International Consolidated Airlines Group and a trading statement from insurer Beazley.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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