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(Alliance News) - Stocks in London were seen opening higher on Wednesday ahead of a hotly anticipated US interest rate decision, with the Federal Reserve expected to carry out its largest rate hike since 1994.
In early UK company news, retailer WH Smith reported that revenue has beat pre-pandemic levels for the first time since the start of the Covid outbreak, while hospitality firm Whitbread also notched growth on pre-virus times.
IG says futures indicate the FTSE 100 index of large-caps to open 45.54 points higher, or up 0.6%, at 7,233.00 on Wednesday. The FTSE 100 closed down 18.35 points, or 0.3%, at 7,187.46 on Tuesday.
Market expectations for the Fed have heightened over recent days, spurred by a stronger-than-expected US inflation print at the end of last week.
Up until as recently as Monday, a half-point hike this week was still seen as the most likely option. But markets now think the Fed will deviate from its forward guidance and lift interest rates by 75 basis points. This would take the key federal funds rate to a range of 1.50% to 1.75%.
Oanda's Jeffery Halley said the pause in selling appears to be "merely a consolidation" ahead of the Fed decision.
"The market has priced in at almost 100%, an FOMC hike of 75bps this evening. My two cents worth is that the Fed will not go 100bps, as that would further erode their credibility on the forward guidance front, which is already ragged," said Halley.
"They may, however, decide to upgrade their forward guidance to an even more hawkish tilt. I suspect 75bps is already built into prices now, and if the guidance is more modest in scope, I am sure the buy-the-dippers will be out in force for the rest of the week."
Sterling was quoted at USD1.2030 early Wednesday, firm against USD1.2011 at the London equities close on Tuesday. The British currency earlier Tuesday was trading at levels not seen since the start of Covid lockdowns in March 2020.
The euro traded at USD1.0479 early Wednesday, higher than USD1.0414 late Tuesday.
The yen recovered after hitting fresh multi-year lows, with the dollar quoted at JPY134.67, down from JPY134.88. Earlier Wednesday, the dollar hit a high of JPY135.56, its highest level against the Japanese currency since 1998.
In early UK company news, Premier Inn hotel chain-owner Whitbread said trading has been ahead of expectations.
Whitbread said it plans to invest around GBP20 million to GBP30 million in labour, refurbishments and IT in its current financial year given a "tight" jobs market and its focus on maintaining a market leading position. "However, our high levels of occupancy and continued strong sales performance mean we remain confident in our continued margin recovery in the UK," it said.
For its first quarter ended June 2, total sales were up 22% on their pre-pandemic level and up 11% on a like-for-like basis from pre-pandemic, meaning financial year 2020. UK total sales were 18% above pre-pandemic times.
"The strength of Premier Inn's recovery in the UK continues to be ahead of expectations with a particularly strong Q1 performance that is well ahead of pre-pandemic levels, and we continue to significantly outperform the market," said Chief Executive Alison Brittain.
Germany, where Whitbread's open hotel estate now stands at 40, also performed well, with total like-for-like sales up 12% from pre-pandemic.
"This impressive Q1 performance, together with improved visibility into Q2, gives us increased confidence in delivering a strong first half and remaining ahead of the market for the rest of the year," said Brittain.
Books and stationery retailer WH Smith also reported growth on pre-pandemic levels. For the 15 weeks to June 11, total revenue was just above its pre-pandemic level for the first time, driven by the Travel arm, which saw sales at 123% of 2019 levels. The Travel rebound was led by North America, where sales were 111% of 2019, while they were 104% in the UK and only 88% in the Rest of the World region.
Meanwhile, High Street operations saw revenue at just 79% of 2019 levels so far in the company's third quarter, worsening from the second quarter outturn of 84%. "This includes the impact from the cyber incident on Funky Pigeon. We saw a good performance from our Platinum Jubilee ranges, which resonated well with customers, and our focus on front-of-store mega deals is delivering good results," the company noted.
With its travel arm's strong performance expected to carry into the peak summer trading period, WH Smith said it now expects full-year results at the higher-end of analyst forecasts.
Miner Antofagasta said repairs to concentrate pipeline at Los Pelambres, Chile, have started. The pipeline is expected to resume operations by the end of the month.
"Total expenditure to repair the pipeline and bring it back to normal operations is not expected to be material," said Antofagasta, though it cautioned that full-year copper production is expected to be at the bottom end of its original 660,000 to 690,000 guidance range.
Peer Rio Tinto said it has delivered first ore from the Gudai-Darri iron ore mine. The capital cost for the mine - its first greenfield mine in the Pilbara, Western Australia, in more than a decade - is estimated at USD3.1 billion, with the firm's total capital expenditure guidance for 2022 unchanged at around USD8 billion.
Production from the mine will continue to ramp up through the remainder of this year and is expected to reach full capacity during 2023, Rio Tinto said.
"The mine's commissioning and ramp-up is expected to increase Rio Tinto's iron ore production volumes and improve product mix from the Pilbara in the second half of this year. Full-year shipments guidance for 2022 remains at 320 to 335 million tonnes (100% basis) subject to risks around the ramp up of new mines, weather and management of cultural heritage," the company said.
Vehicle retailer Motorpoint reported a surge in annual revenue, but flagged an uncertain outlook amid inflationary pressures and supply chain issues.
Revenue for the financial year ended March 31 jumped 83% to GBP1.32 billion from GBP721.4 million the year before, which the company chalked up to market share growth and vehicle price inflation. This helped pretax profit more than double to GBP21.5 million from GBP9.7 million.
The outlook appears shaky, with Motorpoint noting that rising inflation is putting pressure on consumer spending, something which is likely to reduce overall sales in its markets. Further, supply chain issues will continue to limit new car production, which in turn constrains used-car supply.
Nonetheless, it said: "Given the group's proven track record of profitability and proactively responding to market conditions, alongside our capital light model and robust balance sheet, the board is confident in its decision to continue to progress towards its medium term strategic goals."
Motorpoint did not recommend a dividend, in line with the year before, as it focuses on driving "significant growth".
In the US on Tuesday, Wall Street ended mixed, with the Dow Jones Industrial Average ending down 0.5%, the S&P 500 down 0.4% and the Nasdaq Composite up 0.2%
In Asia on Wednesday, Tokyo's Nikkei 225 index closed down 1.1%. The Shanghai Composite was up 1.3%, while the Hang Seng index in Hong Kong was up 1.4%. The S&P/ASX 200 in Sydney closed down 1.3%.
China's factory output and retail sales remained weak in May, official data showed Wednesday, with tepid demand and lingering Covid restrictions putting a damper on growth in the world's second-largest economy.
Retail sales sank 6.7% on-year in May, the National Bureau of Statistics said, though that was an improvement from April's 11% drop. The figure was also slightly better than forecasts from analysts polled by Bloomberg.
Industrial production was up 0.7% after falling 2.9% in April, while the urban unemployment rate ticked down to 5.9%.
Gold was quoted at USD1,819.80 an ounce early Wednesday, up against USD1,814.44 on Tuesday. Brent oil was trading at USD121.56 a barrel, tumbling from USD124.93 late Tuesday.
The economic events calendar on Wednesday has eurozone industrial production at 1000 BST and US retail sales at 1330 BST. The Fed interest rate decision is at 1900 BST, followed by a press conference with Fed Chair Jerome Powell at 1930 BST.
By Lucy Heming; lucyheming@alliancenews.com
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