LONDON MARKET CLOSE: Earnings boost stocks as attention turns to Fed

(Alliance News) - London-listed equities ended higher on Wednesday, boosted by strong corporate earnings ahead of what is expected to be another 75 basis point interest rate hike from the US Federal Reserve later.

Packaging firm Smurfit Kappa, lender Lloyds Banking Group and budget carrier Wizz Air all impressed, lifting peers with them.

On Wall Street, meanwhile, focus on the corporate front will be on tech earnings, with Facebook owner Meta Platforms reporting after the closing bell in New York.

The FTSE 100 closed up 41.95 points, or 0.6%, at 7,348.23. The FTSE 250 index ended up 70.30 points, or 0.4%, at 19,639.09. The AIM All-Share index rose 4.36 points, or 0.5%, at 902.88.

The Cboe UK 100 index ended up 0.6% at 733.54. The Cboe 250 closed up 0.3% at 17,095.02. The Cboe Small Companies rose 0.8% at 13,664.47.

In mainland Europe, the CAC 40 stock index in Paris ended up 0.8%, while the DAX 40 in Frankfurt closed 0.5% higher.

"European markets have had a more positive bias today, helped by broader resilience in the tech sector after last night's numbers from Microsoft and Google. It's also been a good day for more traditional areas of the market with positive numbers from the likes of Lloyds Banking Group, Reckitt Benckiser, and Smurfit Kappa," CMC Markets analyst Michael Hewson commented.

Smurfit ended the best large-cap performer, rising 5.5% after the corrugated packaging firm reported a "strong" half-year performance.

For the six months ended June 30, the Dublin-based company's pretax profit jumped 86% to EUR769 million from EUR413 million a year ago. Revenue surged 36% to EUR6.39 billion from EUR4.68 billion.

Smurfit lifted peer Mondi, who climbed 4.8% in a positive read-across.

Reckitt added 2.8% as the hygiene and household goods maker raised its annual guidance following a positive first-half performance.

Reckitt swung to a pretax profit of GBP1.69 billion in the first half of 2022, from a loss of GBP1.94 billion last year. Revenue rose 4.4% to GBP6.89 billion from GBP6.60 billion.

Looking ahead, Reckitt said annual sales growth will be in a range of 5% to 8%, up from previous guidance of 1% to 4%. It also expects growth in its adjusted operating margins.

Also impressing, Lloyds Banking shares rose 4.3% after the high-street lender raised its annual guidance against a beneficial backdrop of rising UK interest rates.

Half-year net income surged 12% to GBP8.45 billion from GBP7.56 billion a year earlier, though pretax profit was GBP3.66 billion, down from GBP3.91 billion.

Lloyds said it set aside GBP377 million to cover a possible increase in loan defaults as UK interest rates rise to combat rampant inflation.

Looking ahead to 2022, Lloyds said its banking net interest margin is now expected to be greater than 280 basis points. It was 2.77% in the first half, up from 2.50% a year before.

Peer NatWest rose 1.2% in a positive read-across.

Wizz Air jumped 8.4% as the Hungarian airline said it more than quadrupled its revenue in the first quarter of its new financial year.

In the three months to June 30, the budget carrier reported revenue of EUR808.8 million, up sharply from EUR199.0 million the previous year. In the first quarter ending June 30, 2019 - the last first quarter result before the pandemic hit - revenue was EUR691.2 million.

Turbo-charged by the strong Wizz Air figures, fellow budget carrier easyJet added 4.8%.

Among those that disappointed the market, however, Parsley Box dropped 36%. The ready-made meals company saw a significant drop in revenue and new customers.

Revenue for the six months to June 30 decreased 31% to GBP9.6 million from GBP14.0 million the year prior. New customer revenue decreased by 70% and repeat customer revenue decreased 21% from the previous year.

The dollar was mixed ahead of the Fed's interest rate decision.

The pound was quoted at USD1.2045 at the time of the London equities close on Wednesday, up from USD1.2021 late Tuesday. The euro was priced at USD1.0133, up from USD1.0120. Against the yen, the dollar was trading at JPY137.17, higher against JPY136.63.

The Federal Open Market Committee will conclude its two-day policy meeting on Wednesday and announce its decision at 1900 BST. This will be followed by a press conference with Federal Reserve Chair Jerome Powell at 1930 BST.

The US central bank is widely expected to announce a second successive 75 basis points increase, taking the funds rate to 2.25% to 2.50%. The main focus will be on the Fed's outlook for the economy and clues about future path for aggressive rate hikes.

"[The Fed] finds itself in an uncomfortable spot, with markets now pricing in a relatively swift u-turn in 2023 from aggressive tightening to loosening in order to support the economy. The Fed must walk a fine line as any validation of that will undermine its efforts to tighten and get a grip on inflation. Attention will be on its guidance over the coming months and how hawkish it will continue to be," Oanda analyst Craig Erlam commented.

"To complicate matters further, data tomorrow could confirm the US has fallen into recession, whether the White House considers it one or not. I imagine the Fed will disregard that in the short-term, referencing the strength of the labour market if it feels the need to, and stay the course on raising rates and defeating inflation."

Stocks in New York were solidly higher ahead of the interest rate decision.

The Dow Jones Industrial Average was up 0.4%, the S&P 500 up 1.4% and the Nasdaq Composite 2.5% higher. The latter got a boost from Microsoft, up 5.0% and Google owner Alphabet, whose A stock surged 6.3%, after reporting quarterly earnings late Tuesday.

Facebook owner Meta Platforms was up 5.1% ahead of its own earnings release later on Wednesday.

Brent oil was quoted at USD106.68 a barrel late Wednesday, up from USD105.24 late Tuesday. Gold stood at USD1,718.59 an ounce, inching higher from USD1,717.77.

Thursday's economic calendar has US GDP data at 1330 BST, after an inflation reading from Germany at 1300 BST.

The local corporate calendar has half-year results from lender Barclays, oil major Shell and transport firm National Express. Brewer Diageo reports annual results.

By Eric Cunha; ericcunha@alliancenews.com

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