LONDON MARKET MIDDAY: FTSE 100 boosted by banks ahead of US inflation

(Alliance News) - The FTSE 100 in London was lifted by banking stocks heading into Wednesday afternoon, after the Bank of England's latest stress test showed the sector to be "resilient".

The mood elsewhere was generally positive, with investors anticipating that the afternoon's US data at 1330 BST will show inflation has eased.

The FTSE 100 index surged 80.33 points, 1.1%, at 7,362.85. The FTSE 250 was up 138.76 points, 0.8%, at 18,278.85, and the AIM All-Share was up 3.65 points, 0.5%, at 742.27.

The Cboe UK 100 was up 1.2% at 734.53, the Cboe UK 250 was up 1.1% at 16,045.05, and the Cboe Small Companies was up marginally at 13,493.08.

The latest stress test from the Bank of England has shown major UK lenders would be able to weather an increasingly stress-hit macroeconomic scenario, according to the UK central bank.

On Wednesday, the BoE said the major UK banks were "resilient to a severe stress scenario" in its latest cyclical stress test results, with all eight surveyed lenders passing.

The UK central bank said the test was of a macroeconomic scenario of rising global interest rates, "deep simultaneous recessions with materially higher unemployment in the UK and global economies", and sharp falls in asset prices.

AJ Bell analyst Danni Hewson commented: "This will be a relief to people worried about the sector in the aftermath of several banks in US and Europe getting into trouble earlier this year.

"While everything was fine and dandy in the stress test, the outlook is far from rosy and reality is beginning to approach those stress test scenarios. The more interest rates go up, the greater the risk of some borrowers not being able to repay their debts and the greater the chance of an economic slump."

Nevertheless, banks gave the FTSE 100 a boost on Wednesday. Lloyds Group was up 2.8%, while both NatWest and HSBC added 1.6%.

Focus elsewhere will be on the latest US inflation reading. According to FXStreet-cited consensus, the headline annual inflation rate is expected to cool to 3.1% in June from 4.0% in May. The core figure - which excludes food and energy - is expected to ebb to 5.0% from 5.3%.

Scope Markets analyst Joshua Mahony commented: "The big risk is that any deceleration beyond this would risk reigniting the debate about the US economy coming in for a hard landing, although with many asset valuations so dramatically inflated, this all needs to be considered in context."

The inflation reading will also have an impact on the Federal Reserve's next move. Currently, the market is still widely expecting a 25 basis point hike at the Fed's next meeting later this month.

The Fed is then expected to decide against a hike in September. Upside surprises to inflation readings before then, however, could put another rate lift on the table in September.

Stocks in New York were called higher ahead of the afternoon's data. The Dow Jones Industrial Average was called up 0.1%, while both the S&P 500 index and the Nasdaq Composite were called 0.2% higher.

The pound was quoted at USD1.2924 at midday on Wednesday in London, higher compared to USD1.2890 at the equities close on Tuesday. The euro stood at USD1.1019, higher against USD1.0987. Against the yen, the dollar was trading at JPY139.62, lower compared to JPY140.66.

In the FTSE 100, International Consolidated Airlines lost 2.8%. Deutsche Bank cut the British Airways owner to 'hold' from 'buy'.

Bunzl was down 2.4%, after RBC lowered the distribution services company to 'underperform' from 'sector perform'.

In the FTSE 250, JD Wetherspoon was a top performer, jumping 9.7%.

The Watford, Hertfordshire-based pub and hotel chain said like-for-like sales in the first 10 weeks of its final quarter were up 11% on the same period of pre-pandemic financial 2019. Year-to-date sales were 7.4% ahead of the pre-pandemic comparators.

On the previous year, like-for-like sales were up 12% in the final quarter.

Shore Capital's Greg Johnson said: "[JD Wetherspoon] has navigated the current inflationary environment better than we had anticipated, supported by a pub sector which is proving resilient."

On AIM, Eqtec surged 33%, after it agreed to sell its 95% interest in French market development centre firm Grande-Combe to Idex.

Eqtec is a London-based technology firm which focuses on distributed, decarbonised, new energy infrastructure via waste-to-value solutions for hydrogen, biofuels, and energy generation. Idex is a France-based company that develops local energy and carbon-free infrastructure.

Eqtec will retain a 5.0% interest. It will receive EUR750,000 after the completion of the transaction. It is also eligible for additional payments up to full commissioning of the France market development centre, for a total of up to EUR750,000.

In European equities on Wednesday, the CAC 40 in Paris was up 0.7%, while the DAX 40 in Frankfurt surged 0.8%.

Online retailer Zalando jumped 10%, by far and away the best-performing DAX 40 constituent. Zalando rose in a positive read-across after smaller peer About You, also listed in Frankfurt, soared 33% on a well-received trading update. Joining in on the rally, London-listed online retailer Asos jumped 7.6%, and boohoo rose 2.9%.

Brent oil was quoted at USD79.40 a barrel at midday in London on Wednesday, up slightly from USD79.28 late Tuesday. Gold was quoted at USD1,934.11 an ounce, higher against USD1,931.42.

In addition to the US inflation data, there will be an interest rate announcement from Canada at 1500 BST. The Canadian central bank is expected to hike rates by 25 basis points to 5.00%.

"The Bank of Canada surprised markets with a hike in June, and our base case is that policymakers will follow up with another 25bp increase today. As discussed in our preview, the data flow since the June meeting has not pointed unequivocally in the direction of more tightening, but the latest jobs report continued to point to a tight jobs market and we see a higher chance that the BoC will favour two back-to-back hikes after a five-month pause," analysts at ING commented.

By Sophie Rose, Alliance News reporter

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