LONDON MARKET CLOSE: Europe falls amid pre-Fed decision caution

(Alliance News) - Blue-chip stock prices in Europe closed lower on Wednesday, as risk aversion set in ahead of a Federal Reserve interest rate decision later.

The Fed is expected to lift US rates by 25 basis points, and stock market investors will be hoping that is the last hike of the current cycle.

Among individual shares, NatWest and Lloyds shares fell, on poorly-received results from the latter and a dramatic chief executive departure at the former. Rolls-Royce jumped as a well-received update meant it distanced itself further from the "burning platform" tag it was once labelled with.

The FTSE 100 index ended down 14.91 points, 0.2%, at 7,676.89. The FTSE 250 rose 36.66 points, 0.2%, to 19,186.54. The AIM All-Share closed up just 0.15 a point at 766.15.

The Cboe UK 100 ended down 0.3% at 765.53, the Cboe UK 250 rose 0.3% to 16,847.48, and the Cboe Small Companies added 0.4% at 13,745.48.

In European equities on Wednesday, the CAC 40 in Paris slumped 1.4%, weighed down by luxury retail after poorly-received earnings from LVMH, while the DAX 40 in Frankfurt fell 0.5%.

Stocks in New York were mixed. The Dow Jones Industrial Average edged up 0.1%, the S&P 500 down 0.2% and the Nasdaq Composite 0.4% lower.

Oanda analyst Craig Erlam commented: "Stock markets are still struggling a little for direction, with investors clearly heavily focused on the outcome of the Fed and ECB meetings. In both cases, a 25 basis point rate hike is heavily backed in the markets, but at the same time the language that accompanies the decision and what comes next is less obvious.

"I think there's every chance that in both cases, policymakers opt to accept that a pause at the next meeting may be appropriate while in no way closing the door on further hikes in the months ahead."

A 25 basis point lift would take the federal funds rate range to 5.25% to 5.50%. The Fed decided against a hike last month, ending a streak of 10 successive rate rises.

The pound was quoted at USD1.2931 at the time of the London equities close on Wednesday, higher compared to USD1.2853 on Tuesday. The euro stood at USD1.1074, up against USD1.1044. Against the yen, the dollar was trading at JPY140.33, lower compared to JPY141.03.

Rolls-Royce, once described by new Chief Executive Tufan Erginbilgic as a "burning platform", impressed. The stock surged 21%.

The London-based jet engine and power plant manufacturer said it expects to report underlying operating profit of GBP660 million to GBP680 million, well above consensus of GBP328 million and GBP125 million in the first half of 2022.

Keeping a lid on the large-cap index, NatWest fell 3.7%. Alison Rose departed as chief executive, after admitting to being the source of an inaccurate story about Nigel Farage's finances.

Rose said she made a "serious error of judgment" when she discussed Farage's relationship with private bank Coutts, owned by NatWest Group, with a BBC journalist.

Analysts at Shore Capital Markets commented: "Overall, this is a very sad end to what had up to now been a productive period of leadership for Ms Rose, during which the operational and financial performance of the group had significantly improved, albeit with the more recent help from a tailwind of rising interest rates. Fundamentally, we think NatWest remains an undervalued stock, which is reflected in our current buy stance, but this situation is likely to cast a shadow over share price performance in the near-term."

Fellow lender Lloyds lost 1.6%. For the half year ended June 30, the Edinburgh-based bank said its pretax profit rose by 23% to GBP3.87 billion from GBP3.15 billion for the same period in 2022.

Total income rose to GBP14.90 billion from GBP11.99 billion.

AJ Bell analyst Danni Hewson commented: "The net interest margin, the difference between what a bank earns in interest from loans and what it pays out, is slightly higher than analysts had forecast for the quarter, though down on where it had been in the three months previously. There are storm clouds gathering as the country's biggest mortgage lender has to consider how many of its customers are likely to struggle as they face a jump from ultra-low fixed rates to the unexpected 'new normal'.

"For investors the bank delivered a mottled picture, with financial performance expected to slow and despite a sweetener for shareholders with a 15% jump on last year’s dividend pay-out the uncertainty has been enough to prompt a sell off."

Miners were lower, after Rio Tinto reported a profit fall on "softer market conditions".

The Anglo-Australian mining and metals company reported its half-year pretax profit in the six months ended June 30 was USD6.93 billion, plummeting from the restated USD12.32 billion year-on-year.

Its stock fell 3.1% on Wednesday.

THG rose 3.8%. The e-commerce firm is in talks over a surprise deal to buy business newspaper City AM, Sky News reported on Wednesday.

The London-based newspaper was put up for sale earlier this month after it was impacted significantly by the pandemic and a reduction in commuter numbers into the capital.

It is understood that THG, which owns online retail brands including MyProtein and Cult Beauty, is seeking to purchase the business in a pre-pack administration process.

Brent oil was quoted at USD83.16 a barrel late Wednesday afternoon in London, up from USD82.73 late Tuesday. Gold was quoted at USD1,974.44 an ounce, higher against USD1,962.17.

Thursday's economic calendar has a European Central Bank interest rate decision at 1315 BST, before a press conference with President Christine Lagarde. There is a US gross domestic product reading at 1330 BST.

A busy day on the corporate calendar has half-year results from miner Anglo American, British Gas owner Centrica and housebuilder Persimmon.

By Eric Cunha, Alliance News news editor

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