LONDON MARKET CLOSE: FTSE 100 soars ahead of Fed as oil, travel gain

(Alliance News) - Stocks in London roared higher on Wednesday ahead of the latest US interest rate decision, supported by oil and travel stocks.

"Let's hope Powell doesn't rain on the markets parade and send the market straight back down again, as we continue to ride what has been a roller-coaster week for equity markets," said Michael Hewson, chief market analyst at CMC Markets.

The FTSE 100 index closed up 98.32 points, or 1.3%, at 7,469.78. The FTSE 250 ended up 227.37 points, or 1.1%, at 21,873.08, and the AIM All-Share closed up 13.08 points, or 1.2%, at 1,097.29.

The Cboe UK 100 ended up 1.3% at 742.90, the Cboe UK 250 closed up 1.4% at 19,584.96, and the Cboe Small Companies ended up 1.3% at 15,388.28.

In European equities on Wednesday, the CAC 40 in Paris ended up 2.1% and the DAX 40 in Frankfurt ended up 2.2%.

European stocks gained as the week's volatility continued into Wednesday's Fed decision.

"The latest Fed decision is only hours away, but the allure of buying the dip remains too strong for many to resist. Equities have picked themselves up off the lows of the week, with price action around Microsoft providing a template for this week, where initial weakness is replaced with buying," said Chris Beauchamp, chief market analyst at IG.

Microsoft shares initially stumbled following the release of its second quarter results late Tuesday, but the technology stock was trading 4.1% higher in New York on an earnings beat.

Revenue for the three months to December 31 jumped 20% to USD51.73 billion from USD43.08 billion year-on-year, with the firm noting revenue in Intelligent Cloud of USD18.3 billion was up 26%. Net income for the quarter grew 21% to USD18.77 billion from USD15.46 billion, and diluted earnings per share rose 22% to USD2.48 from USD2.03, easily topping consensus of USD2.31.

More broadly, stocks in New York were off to a good start on Thursday with the Dow Jones up 1.0%, the S&P 500 up 1.5% and the tech-heavy Nasdaq Composite up 2.2%.

Investors were buying the dip ahead of Wednesday's eagerly-awaited US interest rate decision, due at 1900 GMT.

The Fed is not expected to tweak rates this week, but instead should line up an interest rate hike in March. After the central bank's recent hawkish pivot amid persistently high inflation, markets have priced in four rate hikes in 2022 - the first expected in the spring.

As a prelude to the Fed, the Bank of Canada on Wednesday kept interest rates unchanged but dropped its "exceptional" forward guidance.

The BoC expects the Canadian economy to grow around 4% in 2022 after growth of 4.5% in 2021, and this should moderate further to 3.5% in 2023. Inflation remains well above target, it added, though should soften to around 3% by the end of this year.

"The bank thinks inflation will peak later in the year, something that the Fed still likely suspects to be the case. So much hawkishness appears to have been priced in from Jerome Powell that he might find it hard to live up to expectations," said IG's Beauchamp.

The dollar was mixed heading into the Fed. The pound was quoted at USD1.3514 at the London equities close Wednesday, up compared to USD1.3491 at the close on Tuesday.

The euro stood at USD1.1280 at the European equities close Wednesday, only a hair higher against USD1.1279 at the same time on Tuesday as investors monitor tensions between Russia and Ukraine.

Top officials from Ukraine and Russia met in Paris on Wednesday for talks to defuse tensions on their border, a meeting seen as a positive step by France despite fresh warnings from the US that Moscow was preparing military action.

The US embassy in Ukraine has urged its citizens in the ex-Soviet country to "consider departing now" as fears grow over a possible Russian invasion.

Against the safe haven Japanese yen, the dollar was trading at JPY114.34, up compared to JPY113.92 late Tuesday.

Fellow safe haven asset gold also slipped amid Wednesday's improved risk sentiment. The precious metal was quoted at USD1,832.19 an ounce at the London equities close Wednesday against USD1,846.58 at the close on Tuesday.

This compounded woes for precious metals miner Fresnillo, which ended 15% lower in London following a mixed bag of results for the final quarter of 2021, and predictions that production faces tough times heading into 2022.

The Mexico-City based miner said silver production for all of 2021 was below guidance, staying flat on 2020 at 53.1 million ounces. Attributable gold production for the full year came in ahead of expectations, but was still down 2.4% year-on-year at 751,200 ounces.

A fourth wave of Covid is now sweeping over Mexico, which is compounding staffing shortages, mostly due to self-isolation. Fresnillo said this has increased over January, and expects the disruption to continue into the first quarter of 2022.

Meanwhile, oil majors were embolden as Brent prices surged above USD90 a barrel for the first time since 2014. Brent oil was quoted at USD90.27 a barrel at the London equities close Wednesday, jumping from USD87.57 late Tuesday.

Shares in BP ended up 3.8% while Royal Dutch Shell 'A' and 'B' shares gained 5.6% and 5.4% respectively.

British Airways parent International Consolidated Airlines shook off worries over higher fuel prices to end Wednesday's session 7.4% higher, along with a broader rebound for the travel industry. Holiday Inn owner InterContinental Hotels rose 2.8% and Anglo-German tour operator Tui gained 5.4%.

Investors were buying into the pandemic recovery plays amid Wednesday's upbeat mood, looking towards a relaxation of UK travel rules next month. From February 11, fully vaccinated arrivals will no longer need to take a coronavirus test, and the requirement for those not in that category to self-isolate will be dropped.

Elsewhere in London, Sage fell 6.5% despite posting a strong start to its new financial year. The Newcastle, England-based company said organic revenue totalled GBP458 million in the three months to December 31 - the company's first financial quarter - up 5.3% from GBP435 million a year before.

Quilter shares dropped 9.4%. The London-based wealth manager reported substantially improved annual net flows amid pandemic-induced market volatility. Assets under management and administration rose by 13% to GBP111.8 billion as of December 31 from GBP99.0 billion a year prior, with growth supported by improved net flows and positive market movement.

Playtech fell 6.9% after recommending shareholders vote in favour of the takeover offer from Aristocrat Leisure. The FTSE-250 listed gambling software firm issued a statement in response to a Sky News article released late on Tuesday.

The article - citing "inside sources" - reported that the company is making contingency plans to break up the business, if a group of Asian-based shareholders vote to block the Aristocrat deal. The group referenced is said to hold 25% of stock in Playtech, and the vote requires 75% shareholder approval.

Shareholders will vote on the deal on Wednesday next week.

Amigo rebounded 37%, though the stock remains 54% lower since the start of the week amid a warning of insolvency if a new business scheme and equity raise are not approved and the departure of its chief financial officer.

The UK corporate calendar on Thursday has production results from miner Anglo American and half-year results from distiller Diageo. Wealth management business St James's Place, airline easyJet and tonic water maker Fevertree all put out trading statements.

The economic calendar for Thursday has US gross domestic production and jobless claims at 1330 GMT.

By Lucy Heming; lucyheming@alliancenews.com

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