LONDON MARKET MIDDAY: BoE raises key UK rate to 0.5%; some wanted more

(Alliance News) - Stock prices in Europe were lower on Thursday in cautious trade on the day of two key central bank updates and the day after an unimpressive set of results from Facebook-owner Meta Platforms.

The Bank of England was the first to announce its interest rate decision. As expected, the central bank raised the Bank Rate to 0.50% from 0.25%, having increased the benchmark UK interest rate from 0.10% in December. The increase was approved by a majority of just 5 votes to 4; however, the bank said those in the minority had wanted to be even more aggressive and raise the Bank Rate to 0.75% to calm inflation.

Sterling was quoted at USD1.3615 shortly after the announcement, up from USD1.3560 at the London equities close on Wednesday and USD1.3567 shortly before the interest rate hike.

"Although supply chain issues may have kicked off the inflation narrative, the current wage-price spiral, coupled with high energy prices, have given the [Monetary Policy Committee] a sense of urgency," commented Giles Coghlan, chief currency analyst at HYCM.

"If inflation enters wages, then companies will charge higher prices and we could see a 'spiralling' effect of even higher wages prompting still higher prices. As the Covid outlook improves, expect two further hikes this year, though the BoE may be less hawkish than this move may imply going forward."

The European Central Bank announces its own interest rate decision at 1245 GMT. Ahead of the announcement, the euro fetched USD1.1280, down from USD1.1295.

The FTSE 100 index was down 24.95 points, or 0.3%, at 7,558.05. The mid-cap FTSE 250 index was down 118.22 points, or 0.5%, at 22,131.18. The AIM All-Share index was down 7.10 points, 0.6%, at 1,098.32.

The Cboe UK 100 index was down 0.2% at 752.42. The Cboe 250 was down 0.6% at 19,786.98, and the Cboe Small Companies was 0.2% lower at 15,451.08.

The ECB is expected to leave its monetary policy unchanged, despite rampant inflation. After a record consumer inflation figure for January, numbers on Thursday showed producer prices surged at the end of 2021.

According to figures from Eurostat, annual producer price inflation accelerated to 26% in December from 24% in November. December's figure was largely in line with market consensus. On a monthly basis, producer prices climbed 2.9%, topping market estimates of 2.8% growth. In November, prices had risen 1.8% on a monthly basis.

In mainland Europe, the CAC 40 stock index in Paris was down 0.2% and the DAX 40 in Frankfurt was 0.4% lower in the early afternoon.

"After a few decent days on the market, equities hit a stumbling block on Thursday with most of the major indices across Europe and Asia easing back," AJ Bell analyst Russ Mould commented.

Stock market futures in New York were markedly lower. The Dow Jones Industrial Average was called down 0.3%, the S&P 500 down 1.1% and the tech-heavy Nasdaq Composite down 2.2%.

Hargreaves Lansdown analyst Susannah Streeter commented: "The tech earnings season is turning out to be a game of two very different halves. After the run of pretty solid numbers from Apple, Microsoft and Alphabet, play has seriously deteriorated with Meta significantly undershooting on expectations.

"There had been hopes that the poor form the tech sector had shown in terms of valuations may prove to be a temporary upset, but now investors are bracing for another round of pummelling as fears rise again about the prospects of tech stocks which have been the darlings of Wall Street."

Facebook-owner Meta Platforms reported fourth-quarter net income slipped 8.6% to USD10.26 billion from USD11.22 billion a year before. This resulted from a 38% increase in costs and expenses of USD21.09 billion from USD15.30 billion. The rise in costs eclipsed a 20% jump in revenue to USD33.67 billion from USD28.07 billion.

Shares in the company were 21% lower in pre-market trade.

In London, Compass topped the FTSE 100 with an 8.4% share price rise. The contract caterer said its revenue grew 39% on an organic basis in the first quarter ended December 31. First-quarter revenue hit 97% of pre-virus levels. In North America alone, it topped levels seen in 2019.

Oil major Shell advanced 0.9% after a strong set of annual results, as well as the promise of chunkier returns.

For the whole of 2021, revenue increased by 49% to USD272.66 billion from USD183.20 billion. Shell swung to an annual pretax profit of USD29.83 billion from a USD26.97 billion loss in a Covid-damaged 2020.

Shell said it will increase the pace of its share buybacks to USD8.5 billion in the first half of 2022, including the remaining USD5.5 billion proceeds from its Permian disposal.

Shell also increased its annual dividend by 37% to USD0.8935 per share, from USD0.6530 in 2020. The company will raise its first quarter dividend to USD0.25 per share from the USD0.24 declared for the fourth quarter of 2021.

Peer BP was also 0.9% higher.

BT dropped 5.0%. The telecommunications operator posted weaker year-to-date earnings following the conclusion of its third quarter.

BT also unveiled a possible joint-venture for its sports broadcasting unit, after "a detailed process to identify the best way to generate investment". It has entered into exclusive talks with the US's Discovery, which owns Eurosport UK.

BT said revenue in the nine months to December 31 fell 2.4% to GBP15.68 billion from GBP16.06 billion a year earlier. Pretax profit declined 3.4% to GBP1.54 billion from GBP1.59 billion.

BT now expects group adjusted revenue to fall 2% on an annual basis. Adjusted revenue had declined 6.3% to GBP21.37 billion in the financial year ended March 31, 2021.

Playtech surged 11% after another twist in its takeover saga. It was the top FTSE 250 performer.

The gambling software firm, fresh from having its takeover by Australia's Aristocrat Leisure rejected by shareholders on Wednesday, confirmed that TTB Partners, an affiliate of Gopher Investments, approached Playtech asking for consent to make a possible offer.

Playtech said it granted the release from restrictions under the UK takeover code to allow a bid. Gopher, which is buying Playtech's financial trading arm Finalto, had previously decided against making an offer for the entire company, resulting in the code restrictions on a new approach.

Elsewhere in London, BATM Advanced Communications dropped 9.0%. The networking technology and medical lab systems firm said its nationality has been reassigned to Israel from the UK, under the latest FTSE Nationality Review of Companies published on Wednesday.

Chief Executive Zvi Marom hit at "draconian" index rules which mean it will no longer be allowed inclusion in the FTSE UK Index Series, which includes the FTSE All-Share.

"We are not the only company that has been denied this by virtue of our domicile and dual listing. A lack of pragmatism and blindness to the possibility of market disruption is fast becoming a deterrence for good foreign-domiciled companies to list on the London Stock Exchange, especially when other bourses do not have such draconian rules," Marom said.

In an update, BATM said it will no longer be eligible for inclusion on the FTSE UK Index Series from March 21. This is due to its domicile in Israel, its dual listing in Tel Aviv and the "volume of trading on that exchange".

The exclusion does not impact trading of its shares on the London Stock Exchange. It is will continue to be listed on the Main Market.

Gold stood at USD1,803.89 an ounce midday Thursday, down from USD1,808.75 at the London equities close on Wednesday. Brent oil was quoted at USD88.22 a barrel, up from USD89.02.

The UK energy watchdog lifted its annual price cap by more than 50% to GBP1,971 from GBP1,277, as wholesale prices continue to surge. The cap affects 22 million customers and is effective from April.

"The increase is driven by a record rise in global gas prices over the last 6 months, with wholesale prices quadrupling in the last year," Ofgem said.

Against the yen, the dollar was trading at JPY114.84 on Thursday, up from JPY114.33 at the London equities close on Wednesday.

Still to come on Thursday's economic calendar is a US PMI reading at 1445 GMT, after the latest initial jobless claims reading at 1330 GMT.

By Eric Cunha; ericcunha@alliancenews.com

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