(Alliance News) - Stock prices in London were lower at midday on Wednesday, as investors grew concerned about inflation picking up alongside economic recovery, while Rio Tinto gave the mining sector a dividend boost.
UK inflation edged higher annually in January with the country in lockdown, according to the latest figures from the Office for National Statistics.
On an annual basis, UK consumer prices rose 0.7% in January, accelerating from 0.6% in December. The reading beat market consensus, cited by FXStreet, for an 0.5% increase.
On a monthly basis, consumer prices fell 0.2% in January following a rise of 0.3% in December. Consensus had expected the reading to come in at negative 0.4%.
"For various quirky reasons, UK inflation nudged higher in January, a move that is set to continue and take headline CPI to 2% by year-end. But will this last in 2022? We aren't so sure, and this implies higher inflation is unlikely to be a major concern for the Bank of England," commented analysts at ING.
London's blue-chip index was down 14.70 points, or 0.2%, at 6,734.16. The FTSE 250 index was down 158.93 points, or 0.7%, at 21,257.42, and the AIM All-Share index was flat at 1,227.20.
The Cboe UK 100 index was down 0.2% at 669.81 points. The Cboe 250 was down 0.6% at 18,770.02, and the Cboe Small Companies was up 0.1% at 12,800.71.
The CAC 40 index in Paris was down 0.1% and Frankfurt's DAX 30 was 0.6% lower.
US stock market futures were pointed to a lower open. The Dow Jones Industrial Average was called down 0.1%, the S&P 500 down 0.2% and the Nasdaq Composite down 0.3%.
IG Group's Josh Mahony explained: "From a market perspective, this rise in inflation brings in a fresh reason for anxiety given the impact a surge in prices could have upon central bank policy. Rising bond yields provide less reason to hold stocks and precious metals, with the US dollar gaining traction as a result. Optimists will recognise that the Fed's recent average inflation targeting policy allows for significant overshoot on the inflation-front, yet we are yet to see other banks follow suit thus far.
"While the economic recovery does provide grounds for optimism over exactly where we go from here, much of that relies on a widespread accommodative stance on the monetary and fiscal front. Thus today does provide a warning sign of the importance inflation will play going forward through this recovery."
In the FTSE 100, Chilean copper miner Antofagasta was the best performer, up 4.5%, tracking copper prices higher.
Spot copper rallied to USD8,419 a tonne on Wednesday from USD8,391 at the same time on Tuesday.
Rio Tinto was up 2.9% after the miner upped its annual payout with a record final dividend, shrugging off Covid-19 to post a hefty profit rise for 2020.
Revenue in 2020 was up 3.3% to USD44.61 billion from USD43.17 billion. Its pretax profit surged 38% to USD15.39 billion from USD11.12 billion.
The Anglo-Australian miner raised its annual dividend by 26% to 557.0 US cents from 443.0 cents.
"USD9.0 billion full-year dividend, equivalent to 557 US cents per share and 72% of underlying earnings, includes USD5.0 billion record final ordinary dividend (309 US cents per share) and USD1.5 billion special dividend (93 US cents per share) declared today," Rio Tinto explained.
Rio Tinto's earnings follows peer BHP's upbeat interim results on Tuesday which saw the company declare a record dividend of its own. Also on Tuesday, commodities trader and miner Glencore restored its payout to shareholders. BHP and Glencore were up 0.4% and 0.9% respectively.
"Another day, another record dividend from the mining sector as Rio Tinto ups its payout. This old world industry is becoming fashionable again given the contribution it is likely to make to producing the metals and minerals required for a new world of renewables and electric vehicles," commented AJ Bell's Russ Mould.
Oil major BP was up 2.0%, and peer Royal Dutch Shell 'A' and 'B' shares were up 1.7% and 1.5%, respectively, tracking spot oil prices higher.
Brent oil was quoted at USD64.00 a barrel Wednesday at midday, up sharply from USD62.98 at the London equities close Tuesday, finding support from a deadly winter storm in Texas that has hit output in the key production state.
"Crude prices hang on to Monday's rally as the US cold snap continues to play havoc with domestic energy markets. By its nature, snow in Texas is a temporary thing, and it will reverse as quickly as the weather patterns change," commented Axi's Stephen Innes.
At the other end of the large caps, Hargreaves Lansdown was still the worst performer, down 6.7% at 1,542.00p, following a substantial share sale from its co-founder.
Peter Hargreaves sold GBP300 million shares in the fund supermarket, Barclays Bank confirmed on Wednesday. Hargreaves - who founded the firm alongside Stephen Lansdown in 1981 - sold 19.5 million shares at 1,535p each.
Following the GBP300 million bookbuild, he holds just shy of a 20% stake in the FTSE 100 firm.
In February of last year, Hargreaves sold a GBP550 million stake in the company.
British American Tobacco was 4.5% lower. The Dunhill and Rothmans cigarette maker lifted its dividend for 2020, as profit rose considerably on an improved operating performance and lower costs, despite a dip in revenue.
For the year, the tobacco group posted pretax profit of GBP8.67 billion, a 9.6% rise from GBP7.91 billion the year before. Revenue for 2020 declined by 0.4% to GBP25.78 billion from GBP25.88 billion the prior year.
British American Tobacco declared a dividend of 215.6 pence, up 2.5% from 210.4p paid out in 2019.
Looking ahead, the group expects its adjusted earnings per share in constant currency to rise by a mid-single figure for 2021, while revenue is set to grow by between 3% and 5%. However, the global cigarette market is expected to be down 3%, while the US market remains dependent on Covid-19 uncertainty.
"From a returns perspective, shareholders will be concerned that BAT predicts a 3% decline in the tobacco market next year, but it is switching customers over to non-combustibles at an impressive rate. Last year it switched over 3.5 million, a giant leap towards its aim of 50 million by 2050. Despite the pandemic, it was able to achieve double-digit profit growth, chip away at its sizeable debt and increase its dividend - no mean feat given the current environment." said eToro analyst Adam Vettese.
On AIM, Online Blockchain and Argo Blockchain were up 51% and 13% respectively, tracking the price of bitcoin higher. The world's oldest cryptocurrency hit another record of USD51,282 Wednesday, having broken USD50,000 for the first time Tuesday as more major companies embrace the use of cryptocurrencies.
"The cryptocurrency broke above the USD50,000 hurdle for the first time ever on Tuesday and is continuing to push to new uncharted territories at the start of today's session, hitting a high so far of USD51,500. In contrast, gold is now looking quite bleak after breaking the USD1800 support as investors keep a close eye on government bonds after the 10-year US yield climbed above the March 2020 high the day before. Bond prices have slumped in recent weeks with investors piling into the more risk-sensitive assets like stocks and bitcoin," said ThinkMarkets analyst Fawad Razaqzada.
The dollar was faring better against major counterparts as the prospects of further economic recovery and a possible acceleration in inflation increased.
The pound was quoted at USD1.3868 at midday Wednesday, down sharply from USD1.3911 at the London equities close Tuesday.
The euro was priced at USD1.2065, lower from USD1.2110. Against the yen, the dollar was trading at JPY106.00, up from JPY105.78.
Analysts at ActivTrades explained: "The US dollar is gaining ground to other major currencies during Wednesday trading. The recent dollar strength results from the markets' expectation of a strong rebound in economic activity in the US, sustained by President Biden's fiscal stimulus program combined with the Fed's accommodative monetary policy; a scenario that could lead to inflation rising above healthy levels for the first time in decades.
"The spectre of high inflation, although not more than a possibility at this stage, has been enough to decrease the appeal of Treasuries, leading to a rise in yields and increasing demand for the greenback."
Gold was quoted at USD1,790.33 an ounce, down against USD1,803.32 at the London equities close on Tuesday, as demand for the safe-haven asset waned.
In the economic calendar for Wednesday, there are US producer prices and retail sales due at 1330 GMT. Minutes from the previous US Federal Reserve meeting are out at 1900 GMT.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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