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(Alliance News) - Stock prices in London remained in the red at midday on Thursday, with hawkish rhetoric from central banking chiefs dampening market mood.
"A more cautious mood has descended on financial markets as investors have been reminded that the interest rate hiking cycle is not yet at an end," said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
"The trio of the [US Federal Reserve]'s Jerome Powell, the [European Central Bank]'s Christine Lagarde, and the Bank of England's Andrew Bailey made a hawkish huddle at the central bankers meeting in Portugal. All warned that further rate rises were to come with inflation staying persistent, with at least two hikes expected from the Fed by the end of the year."
The FTSE 100 index was down 17.94 points, or 0.2%, at 7,482.55. The FTSE 250 was down 97.84 points, or 0.5%, at 18,314.97, and the AIM All-Share was down 5.45 points, or 0.7%, at 751.15.
The Cboe UK 100 was down 0.3% at 746.57, the Cboe UK 250 was down 0.4% at 15,993.22, and the Cboe Small Companies was down 0.3% at 13,043.18.
Central bankers on Wednesday took part in the annual European Central Bank Forum in Sintra, Portugal. The theme of the 2023 forum was "macroeconomic stabilisation in a volatile inflation environment".
Analysts at ING summarised that the central message from the conference was that economies are holding up "better than expected", the decline in inflation has been "frustratingly slow", and more tightening needs to be done.
Federal Reserve Chair Jerome Powell told the event that the US central bank is leaving open the possibility of consecutive interest rate hikes in the months ahead. "Policy hasn't been restrictive enough for long enough," he said.
Ricardo Evangelista, a senior analyst at ActivTrades, said few currency traders seem willing to bet against the dollar against this backdrop, though the dollar was mixed at midday in London.
The pound was quoted at USD1.2627 midday on Thursday in London, down from USD1.2741 at the London equities close on Wednesday. The euro stood at USD1.0925, higher against USD1.0916.
Against the yen, the dollar was trading at JPY144.22, unchanged from JPY144.22 on Wednesday. Earlier in the day, it had reached a high of JPY144.69.
Evangelista said the yen was emerging as the "weakest link" among major currencies.
"The Bank of Japan is alone amongst its peers, adopting a dovish stance, with Governor Ueda declaring that the target of 2% inflation is to be pursued through sustainable ways, discarding any monetary policy tightening and driving the currency to the lowest level against the dollar since last November," Evangelista explained.
In London, utility stocks were weaker at midday as emergency talks surrounding the future of UK water supplier Thames Water sparked concerns about an industry-wide crisis.
United Utilities and Pennon were down 1.3% and 3.2%, respectively. Severn Trent was down 2.9%.
On Wednesday it was reported that the UK government was drawing up contingency plans for the emergency nationalisation of Thames Water as concerns grow over its mammoth GBP14 billion debt pile.
Ministers are said to be in talks about the possibility of temporarily bringing the utility company back into public hands under a so-called special administration regime.
Thames Water is the UK's biggest water supplier and provides water services for 15 million people in London and the South East.
"Arguably, publicly listed companies have fewer shadows to hide in when it comes to transparency about dividend payments than firms with more complicated investment structures. However, as the next regulatory timeframe looms for the period 2025 to 2030, there is set to be much bigger demands from regulators on infrastructure improvements to reduce sewage spills, increase capacity, and meet net zero targets," said Hargreaves Lansdown's Susannah Streeter.
"Capital expenditure will have to increase sharply as a result – United Utilities, Severn Trent and Pennon have already had to push up spending, but budgets will need to expand, and debt levels will rise as a result."
B&M European Value Retail remained the worst blue-chip performer at midday, down 6.4%.
The variety goods value retailer said strong, profitable momentum across all regions boosted its quarterly revenue. Revenue in the first quarter of financial 2024, ended June 24, grew 14% to GBP1.32 billion from GBP1.16 billion a year prior.
Russ Mould, investment director at AJ Bell, said the firm is the "ultimate play on the cost-of-living crisis", offering a range of goods at cheap prices.
"So why has the share price fallen 6% on the news? It could be the lack of full-year guidance which implies no upgrades to earnings expectations. The shares have already had a strong run this year, up more than 30%, so perhaps some investors are banking profits while the going is good," Mould suggested.
3i Group was among the best-performing stocks in the FTSE 100, up 1.6%.
The private equity and venture capital firm said Netherlands-based non-food discounter Action, which it invests in, has continued to deliver very strong sales growth in the year-to-date, reporting like-for-like sales growth of 22%.
3i said the remainder of its private equity portfolio continues to demonstrate "resilience" with the majority trading well, though it noted lower customer demand and inflation pressures have impacted a "small" proportion of the portfolio.
In the FTSE 250, Serco remained the top performer in the FTSE 250, up 10% after it upgraded its annual guidance following a strong start to the year.
The outsourcer said it expects annual revenue to rise by around 6.0% to GBP4.8 billion from GBP4.53 billion in 2022. This is ahead of February's guidance of GBP4.6 billion.
"We have had a strong start to the year, including robust demand for immigration services supported by the effective integration of ORS into our global platform, growth in defence services, and our successful rebid of the CMS contract," said Chief Executive Mark Irwin.
IWG dropped 4.9%, making it one of the worst-performing stocks in the FTSE 250 at midday.
The workspace provider said it extended the maturity of its revolving credit facility and added it is cautiously optimistic for the rest of 2023.
Elsewhere in London, De La Rue jumped 12% after it said it IS seeing "encouraging signs of recovery" following a significant downturn in printed currency demand over the past 18 months.
In European equities on Thursday, the CAC 40 in Paris was up 0.8%, while the DAX 40 in Frankfurt was up 0.2%.
Stocks in New York were called higher. The Dow Jones Industrial Average was called up 0.3%, the S&P 500 index up 0.3%, and the Nasdaq Composite up 0.4%.
Brent oil was quoted at USD74.41 a barrel at midday in London on Thursday, up from USD74.05 late Wednesday. Gold was quoted at USD1,909.79 an ounce, lower against USD1,910.97.
Still to come in Thursday's economic calendar, there is a German inflation reading at 1300 BST, as well as a US gross domestic product reading and the latest US jobless claims report at 1330 BST.
By Heather Rydings, Alliance News senior economics reporter
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