LONDON MARKET CLOSE: Stocks mixed ahead of ECB interest rate decision

Wed, 20th Jul 2022 17:08

(Alliance News) - Blue-chip European equities fell on Wednesday after the EU took precautionary measures in the face of reduced Russian gas supplies, as investors look ahead to the European Central Bank's rate decision on Thursday.

Moscow shut down deliveries to Germany for technical reasons last week, but there had been fears it would keep the taps off in retaliation for European sanctions over its invasion of Ukraine.

Taking no chances, the European Commission on Wednesday urged EU countries to reduce their demand for natural gas by 15% over the coming winter months to overcome Russia's energy supply "blackmail".

In a statement, the EU's executive arm also asked member states to give it special powers to force through needed demand cuts if Russia cuts Europe's gas lifeline.

"Russia is blackmailing us. Russia is using energy as a weapon and therefore, in any event, whether it's a partial major cut off of Russian gas or total cut off... Europe needs to be ready," Commission President Ursula von der Leyen told reporters.

The FTSE 100 index closed down 28.31 points, or 0.4%, at 7,267.97. The FTSE 250 ended up 117.25 points, or 0.6%, at 19,399.84. The AIM All-Share closed up 8.08 points, or 0.9%, at 896.78.

The Cboe UK 100 ended down 0.4% at 724.37, the Cboe UK 250 closed up 1.5% at 16,808.89, and the Cboe Small Companies finished up 1.1% at 13,432.77.

In European equities, the CAC 40 in Paris ended down 0.3%, while the DAX 40 in Frankfurt finished 0.2% lower.

CMC Markets analyst Michael Hewson said: "European markets initially got off to a positive start today, helped by the spill over from yesterday's reports that Nord Stream 1 would restart on time, however these gains have been tempered over doubts as to whether gas flows would return to similar levels as before.

"Comments from EU Commission President Ursula Von der Leyen that the EU needs to start rationing now for a winter without Russian gas appears to have upped the ante further, with Putin likely to try and make it much more difficult to build up storage capacity to that end. Against this less investor friendly backdrop, European markets have slipped back as we look ahead to tomorrow's eagerly anticipated ECB rate decision, where the choices facing ECB President Christine Lagarde appear limited."

In the FTSE 100, Scottish Mortgage Investment Trust ended the best performer, up 4.8%, tracking a rise in high-profile US technology stocks in which it invests.

Sage Group closed up 2.2% after Citigroup raised the accounting software provider to 'neutral' from 'sell'.

Ocado Group gained 2.7%. The online grocer said the chief executive of its retail joint-venture alongside Marks & Spencer Group will step down from the role. M&S closed up 0.9%.

Melanie Smith will leave the business at the end of next month. She has led the joint-venture since its formation back in August 2019. Lawrence Hene, Ocado's chief product officer, will take on the role of interim CEO of the joint-venture.

In the FTSE 250, Hochschild Mining ended the worst performer, down 6.0%, after the miner reported lower gold and silver outputs for the first half of 2022.

For the six months ended June 30, the London-based gold and silver miner operating in the Americas reported 96,360 ounces of attributable gold production, down 9.3% from 106,260 ounces the year before. Attributable silver production amounted to 5.07 million ounces, also down 14% from 5.92 million ounces.

The dollar was stronger across the board. The pound was quoted at USD1.1988 at the London equities close, down from USD1.2030 at the close Tuesday.

A hotter-than-expected UK inflation print failed to lift sterling, despite its like impact on the thinking of Bank of England policymakers.

The UK inflation rate raced to 9.4% in June, figures on Wednesday showed, beating market forecasts and hitting a series high.

The annual pace of price increases accelerated from 9.1% in May and also topped FXStreet-cited market consensus of 9.3%.

The Bank of England's inflation target is 2.0%.

The ONS said in Wednesday's report that its indicative modelled consumer price inflation estimates "suggest that the CPI rate would last have been higher around 1982, where estimates range from nearly 11% in January down to approximately 6.5% in December."

Grant Fitzner, chief economist at the ONS, said: "Annual inflation again rose to stand at its highest rate for over 40 years.

"The increase was driven by rising fuel and food prices; these were only slightly offset by falling second-hand car prices."

The ONS said the largest upward effect came from essentials such as milk, cheese and eggs, but big price rises were also seen for vegetables, meat and other food products, such as ready meals.

It comes on top of eye-watering gas and electricity tariff increases, with the annual inflation rate standing at a record 70% and with further rises to come.

Governor Andrew Bailey on Tuesday mooted a possible 50 basis point interest rate hike next month. At the annual Mansion House speech in the City of London on Tuesday, Bailey said a 50 basis point rise - from 1.25% to 1.75% - would be one of the options for the Monetary Policy Committee.

So far, the UK central bank has opted for smaller interest rate rises, although some of the MPC members have argued for quicker rate rises.

"While accelerating monetary policy normalisation has the potential to support the pound, this is bullish news for the stock market and overall risk demand. The pound is sensitive to fluctuations in risk appetite, so do not expect it to make a sustained return to growth against the dollar without a stock's bull market first," said FXPro analyst Alex Kuptsikevich.

On the political front, former chancellor Rishi Sunak and UK Foreign Secretary Liz Truss will battle it out over the coming weeks to be the UK's next prime minister.

Sunak and Truss finished in the top two places after five rounds of voting by Tory MPs, with Penny Mordaunt eliminated from the race after a bitter contest in Westminster.

Sunak, the frontrunner throughout the parliamentary leg of the contest, received 137 votes in the final round of voting. Truss won 113 votes, narrowly pushing Mordaunt into third place on 105.

Sunak and Truss will now face a campaign to win the votes of Tory members, with the result of the contest announced on September 5. The winner is expected to replace Boris Johnson as prime minister the following day.

The euro stood at USD1.0202 at the European equities close, down from USD1.0245 late Tuesday, ahead of the European Central Bank's interest rate decision on Thursday.

There is a growing conviction the ECB could turn to a 50-basis-point hike. The bank had previously said it would lift rates off historic lows for the first time since 2011 this week, tipping a 25-point rise.

Against the yen, the dollar was trading at JPY138.05, up from JPY137.77 late Tuesday.

Stocks in New York were higher at the London equities close as earnings season continues in earnest. The DJIA was up 0.2%, the S&P 500 index up 0.8% and the Nasdaq Composite up 1.6%.

Netflix was up 3.3% in New York after the streaming services provider, late Tuesday, posted a rise in second-quarter earnings, hailing the success of smash hit 'Stranger Things', as the platform lost fewer subscribers than anticipated.

Netflix reported a loss of 970,000 global paid subscribers in the second quarter, having shed 200,000 subscribers in the first quarter. However, this was better than the 2 million loss it had originally guided for.

Brent oil was quoted at USD107.06 a barrel at the equities close, up from USD105.85 at the close Tuesday.

Gold stood at USD1,707.88 an ounce at the London equities close, lower against USD1,714.05 late Tuesday.

The economic events calendar on Thursday has the Bank of Japan rate decision overnight, UK public sector finance figures at 0700 BST and the latest US jobless claims numbers at 1330 BST.

The UK corporate calendar on Thursday has annual results from online trading company IG Group, interim results from online grocer Ocado and trading statements from stockbroker AJ Bell and home furnishings retailer Dunelm.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com