LONDON MARKET MIDDAY: Markets brace for aggressive US Fed tightening

(Alliance News) - Stock prices in London were sharply higher at midday on Wednesday ahead of a highly anticipated policy statement from the Federal Reserve, with investors hopeful the US central bank will shed some light on its plan for ending monetary stimulus and hiking interest rates.

The Fed will unveil its decision on the quantitative easing programme and interest rates at 1900 GMT, followed by a press conference with Chair Jerome Powell at 1930 GMT. Ahead of that, the Bank of Canada announces policy at 1500 GMT.

In London, the FTSE 100 index was up 126.73 points, or 1.7%, at 7,498.19. The mid-cap FTSE 250 index was up 316.87 points, or 1.5%, at 21,962.58. The AIM All-Share index was up 14.55 points, or 1.3%, at 1,098.76.

The Cboe UK 100 index was up 1.6% at 745.12. The Cboe 250 was up 1.8% at 19,676.71, and the Cboe Small Companies up 1.2% at 15,365.85.

In mainland Europe, the CAC 40 stock index in Paris was up 2.1%, while the DAX 40 in Frankfurt was up 2.2%.

Investors are pricing in more than a 90% chance of a rate increase at the March meeting of the Federal Open Market Committee, the first of four rate hikes in 2022, according to CME data.

Earlier this week, economists at Goldman Sachs said they expect the Fed to hike four times this year but also said more are possible due to the surge in inflation.

Pierre Veyret, analyst at ActivTrades, commented: "European assets traded all in the green on Wednesday, alongside US futures as investors brace for the incoming Federal Reserve announcement. Volatility is likely to remain high on riskier assets today, especially towards growth stocks, as most market operators wait for a major decision on rates and balance sheet reduction from the FOMC meeting later today.

"A first hike in interest rates is now widely expected among stock traders, and there is a high chance markets will welcome the news, reassured by the fact the Fed is finally taking action to tackle inflation."

In the FTSE 100, travel-related stocks were among the best performers on Wednesday. International Consolidated Airlines was up 7.4%, InterContinental Hotels up 4.0% and Whitbread up 3.9%.

In addition, Carnival, Tui and easyJet were the among the top midcap gainers, up 5.8%, 5.2% and 4.4%, respectively.

"Changes to UK testing rules have seen a spike in demand for half-term holidays next month, and airlines will be hoping this also leads to greater ticket sales across the year," explained AJ Bell's Russ Mould.

"A calmer period on the stock markets has encouraged some investors to look for stocks and sectors that have potentially been oversold, which might explain why many aviation stocks were in demand," Mould added.

Oil majors BP and Shell 'A' and 'B' were up 3.7%, 4.0% and 4.1% respectively - tracking spot oil prices higher.

Brent oil was quoted at USD88.96 a barrel on Wednesday at midday, up sharply from USD87.57 at the close on Tuesday.

At the other end of the large-caps, Fresnillo was by far the worst performer, down 12%, after the Mexican precious metals miner posted disappointing production numbers.

For 2021, Fresnillo delivered attributable silver production of 53.1 million ounces, which was below guidance of 53.5 million to 59.5 million ounces. The company said output was below guidance due to lower grades and less ore at the Saucito and Fresnillo mines.

Fresnillo reported 2021 gold production of 751,200 ounces, down 2.4% on 2020 but ahead of guidance of 675,000 to 725,000 ounces of gold. It attributed the lower gold production to lower ore grades at Cienega and at San Julian Veins.

All of Fresnillo's seven operating mines are in Mexico. The company claims to be the world's largest primary silver company and Mexico's largest gold producer.

Looking ahead, Fresnillo forecasts 50.5 million to 56.5 million ounces attributable silver in 2022. Fresnillo also guided for 600,000 to 650,000 ounces attributable gold production in 2022. Both are down on 2021.

Fresnillo said the 2022 guidance issued is in light of the ongoing and new operational challenges caused by the virus pandemic and its resulting effects on workforce availability, as well as the implementation of the new labour laws that limit use of contractors.

Also in the FTSE 100, Sage was down 4.5%. The UK accounting software firm said it has made a strong start to its new financial year, with organic revenue growth of 5% in the three months to the end of December. Revenue totalled GBP458 million in the financial first quarter, up from GBP435 million a year before.

Sage highlighted that recurring revenue grew by 8%, bolstered by a 21% rise in revenue from Sage Business Cloud to GBP280 million. The company reaffirmed its annual guidance. Its shares remain up 19% over the past 12 months.

Elsewhere, Stagecoach was up 1.4%, even as the UK Competition & Markets Authority served an initial enforcement order in relation to the planned merger between the public transport firm and peer National Express.

Noting the announcement, Stagecoach said the CMA indicated that the purpose of the order is to maintain the businesses in their current shape whilst it commences its review of the merger.

As such, the order will delay completion of the proposed sale of the marketing, retail and customer service activities of Stagecoach's inter-city coach businesses to ComfortDelGro Corp beyond February 28.

Stagecoach said that both its board and that of National Express continue to believe the Stagecoach inter-city coach business sale represents a "comprehensive solution" to any competition concerns that might arise from their overlapping coach operations.

National Express shares were up 2.7%.

The pound was quoted at USD1.3520 at midday on Wednesday, up from USD1.3491 at the London equities close Tuesday.

On the political front, UK Prime Minister Boris Johnson is set to face further questions over a police investigation into 'partygate', as No 10 braces for the submission of a report into possible lockdown breaches.

A Downing Street source said that Sue Gray had not, as of Tuesday evening, handed in her findings about alleged coronavirus rule-breaking parties held at the top of the UK government.

The senior civil servant's inquiry had been expected to be finalised this week, with reports suggesting it could be published to coincide with Wednesday's Prime Minister's Questions, or possibly on Thursday. It comes as police launched their own probe into multiple events in No 10 after being passed information from the Gray inquiry.

The prime minister's official spokesman signalled that Johnson would be willing to speak to those at Scotland Yard investigating the alleged breaches of coronavirus rules over the past two years.

The euro was priced at USD1.1285, firm against USD1.1279. Against the yen, the dollar was trading at JPY114.14, up from JPY113.92.

Gold stood at USD1,844.17 an ounce, slightly lower against USD1,846.58 late Tuesday.

New York was called sharply higher on Wednesday as equity markets attempted a formidable rally on Tuesday but ended in firmly in the red.

The Dow Jones Industrial Average was called up 1.1%, the S&P 500 up 1.4%, and the Nasdaq Composite up 2.2%, based on futures trading.

On the corporate front, Microsoft will be in focus after the Xbox maker and software provider late Tuesday hailed strength in cloud offerings as it reported robust second quarter growth.

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.

The stock was up 3.5% in pre-market trade in New York.

Texas Instruments was up 4.4% in pre-market activity. The chipmaker late Tuesday posted double-digit revenue growth in the fourth quarter of 2021, rounding off a year of strong earnings growth for the Dallas-based firm.

Revenue in the three months to the end of December rose 19% to USD4.83 billion from USD4.08 billion a year earlier. Pretax profit was 28% higher at USD2.46 billion from USD1.93 billion a year earlier. Revenue growth was led by "strong demand in industrial and automotive markets", Chair & Chief Executive Rich Templeton explained.

Earnings season continues on Wednesday with Elon Musk's electric car maker Tesla posting fourth-quarter earnings after the closing bell in New York. The stock was up 3.3% in pre-market trade.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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