LONDON MARKET CLOSE: Rally runs out of steam as UK inflation tops 10%

Wed, 19th Oct 2022 17:07

(Alliance News) - After starting the week with two sessions in the green, the mood soured in London on Wednesday as UK consumer inflation was shoved back into double digits.

"Some of the enthusiastic dip-buying seen earlier in the week has faded, although this might just be a lull before any short-term bounce," Chris Beauchamp, chief market analyst at IG, said.

"Earnings have been better than feared, providing a reason for this counter-trend bounce to continue for a while yet, even if the broader outlook remains difficult to say the least. But signs of risk appetite are weaker, which means the better news needs to keep coming through to avoid a fresh slump."

The FTSE 100 index closed down 11.75 points, or 0.2%, at 6,924.99. The FTSE 250 ended down a heftier 281.76 points, or 1.6%, at 17,247.55. The AIM All-Share lost 9.51 points, or 1.2%, at 785.97.

The Cboe UK 100 closed 0.2% lower at 692.60, the Cboe UK 250 fell 1.5% to 14,806.44, and the Cboe Small Companies closed 0.7% lower at 12,369.96.

In European equities on Wednesday afternoon, the CAC 40 in Paris lost 0.4%, and the DAX 40 in Frankfurt gave back 0.2%.

The pound fell to USD1.1242 Wednesday evening from USD1.1291 late Tuesday.

New data showed consumer inflation in the UK was shoved back into double digits in September, which turns the spotlight firmly onto the Bank of England.

The consumer price index rose by 10.1% in September from a year before, according to the Office for National Statistics. The inflation rate picked up from 9.9% in August and returned to the same rate as recorded in July.

The latest figure came in marginally hotter-than-expected, with a reading of 10% expected, according to FXStreet.

AJ Bell's Danni Hewson said stretching household budgets to cover the "basic necessities of life has become harder and harder".

"Cutbacks have already been made. Big name brands ditched for value lines in the weekly food shop, thermostats have been dialled down, non-essential journeys put off or abandoned altogether," she continued.

"The fact that food and energy costs were the main drivers for September’s renewed spike won’t surprise anyone. Staples like bread, cheese, milk and cereals shot up at a pace many people will never have experienced. And even before winter’s cold fingers grab hold of our purse strings people are having to pay more to cook that food, with some households declaring ovens no-go areas."

As consumer prices continue to climb higher, there will now be pressure on the UK's central bank to do more to rein in inflation.

Victoria Scholar, head of Investment at interactive investor, said: "Today’s hotter-than-anticipated inflation reading paves the way for another aggressive interest rate increase from the Bank of England at its next meeting in early November as the central bank looks to curtail economic activity to bring price levels back towards its 2% target.

"However, the central bank is between a rock and a hard place as it looks to curb price pressures without inadvertently adding to the risk of recession."

In London, high-street lenders were struggling. Lloyds closed down 4.5%, NatWest 2.5% and Barclays 2.2%.

CMC Markets analyst Michael Hewson said: "UK banking shares have struggled the most today on fears that they could be hit by a new windfall tax on top of the 8% banking surcharge they pay on top of the corporation tax rate. With that due to rise to 25% next year it seems there is no length that politicians will stoop to try and fill various holes in the public finances."

"As far as oil companies are concerned, they’ve shrugged off similar speculation that the current windfall tax could be increased further on them, which is a little surprising, but when you’re taxed at a 65% tax rate there’s a limit to how much higher it can go," Hewson added.

BP added 2.3% and Shell gained 0.9%.

Just Eat Takeaway gained 2.2%. The online food delivery firm lifted its second-half bottom-line guidance, after a profitable third-quarter, which came despite order numbers falling.

Just Eat said it was adjusted earnings before interest, tax, depreciation and amortisation positive in the third quarter of 2022. It was an outcome that was "materially ahead" of prior guidance.

In the first half of the 2022 financial year, Just Eat Takeaway had reported an adjusted Ebitda loss of EUR134.0 million.

Total orders in the third quarter fell 11% to 235.3 million from 265.8 million a year earlier. The total gross transaction value improved 2%, however.

Asos ended as the best performer in the midcaps, rising 12%.

The online clothing retailer reported a swing to annual loss, though it outlined plans to revive its fortunes after performing a "diagnostic" on its issues.

Revenue in the financial year that ended August 31 rose 0.7% to GBP3.94 billion from GBP3.91 billion a year earlier. However, Asos reported a swing to an annual pretax loss of GBP31.9 million from a profit of GBP177.1 million.

Among its issues, Asos said, is an underperforming international arm, its supply chain operations, its "customer acquisition and commercial model", and the need for data and digital improvements.

Over the next 12 months, it will look to improve inventory management, reduce its costs and "reinforce" its leadership team and culture.

Stocks in New York were lower in mid-morning trade. The Dow Jones Industrial Average was down 0.2%, the S&P 500 down 0.3% and the Nasdaq Composite down 0.4%.

Streaming service Netflix jumped at the open in New York, up 14%, after reporting a strong rise in paid members in the third quarter - with a promise of further growth - sending its shares to rocket in after-hours trading.

In the three months to the end of September, net income slipped to USD1.40 billion from USD1.45 billion. Diluted earnings per share fell to USD3.10 from USD3.19.

It recorded 2.41 million paid net additions in the third quarter, down from 4.38 million a year prior but reversing the 980,000 losses in the previous quarter.

The euro traded at USD0.9784 Wednesday evening UK time, down from USD0.9826 at the time of European equities close on Tuesday.

The dollar rose to JPY149.77 from JPY149.24 late Tuesday.

A barrel of Brent oil rose to USD90.83 in London from USD88.97 late Tuesday. Gold traded at USD1,631.50 an ounce late Wednesday, down from USD1,647.70 at the London equities close Tuesday.

In the international economic events calendar on Thursday, there is German producer prices at 0700 BST, with eurozone at balance of payments at 0900 BST and US initial jobless claims at 1330 BST.

In the local corporate calendar, there is third quarter results from distribution firm Bunzl, gold miner Centamin and money manager St James's Place.

By Paul McGowan; paulmcgowan@alliancenews.com