LONDON MARKET MIDDAY: Markets red as inflation worries return to fore

(Alliance News) - Inflationary worries consumed investors in Europe on Tuesday, setting Wall Street up for a downbeat return from a long weekend in the US.

Oil majors and telecommunications were among a handful of blue-chip stocks to advance in London on Tuesday.

The FTSE 100 index was down 46.01 points, or 0.6%, at 7,565.22 midday Tuesday. The mid-cap FTSE 250 index was down 292.80 points, or 1.3%, at 22,578.84. The AIM All-Share index was down 10.97 points, or 0.9%, at 1,155.78.

The Cboe UK 100 index was down 0.6% at 751.23. The Cboe 250 was down 1.1% at 20,279.22, and the Cboe Small Companies flat at 15,840.17.

"A rise in oil prices to a seven-year high and a continuing, though below inflation, rise in UK earnings has put the spotlight once again on inflationary pressures and a cost of living crisis," said AJ Bell investment director Russ Mould.

Brent oil was trading at USD87.60 a barrel, higher than USD86.01 late Monday and around its highest price since 2014.

Oil's ascent drove up the share prices of European energy firms, with BP up 1.0% at midday and Royal Dutch Shell 'A' and 'B' shares both 1.3% higher. At the top of France's CAC 40 was TotalEnergies, up 0.9%.

TotalEnergies was one of few blue-chip stocks to advance in Paris on Tuesday. The CAC 40 and the DAX 40 in Frankfurt were down 1.2% in afternoon trade.

Wall Street was called for a lower open on its return from the Martin Luther King Jr Day holiday. The Dow Jones was pointed down 0.8%, the S&P 500 down 1.2% and the tech-heavy Nasdaq Composite down 1.9%.

AJ Bell's Mould added: "However, the steady stream of US earnings reports, which this week includes Netflix, Bank of America and Goldman Sachs, could help tip the scales in either a positive or negative direction."

Banking titan Goldman Sachs reports on Tuesday followed by peer Morgan Stanley on Wednesday. Netflix ticks off tech earnings earnings on Thursday after the US market close.

Helping the internationally-exposed FTSE 100 stave off steeper losses was a weaker pound, down despite some solid jobs data.

The UK unemployment rate unexpectedly edged down to 4.1% in the three months to November, having been forecast by analysts to remain steady at 4.2% for the three months to October.

But annual growth in total pay - or including bonuses - was 4.2% for the three months to November, and regular pay, which strips out bonuses, rose 3.8%. Both were below the annual UK inflation rate for November, which was 5.1%.

"Despite solid nominal wage growth, today's figures still saw earnings shrink in real terms for the first time since July 2020 as surging price levels more than offset the rise in wages," said Interactive Investor's Victoria Scholar.

Sterling was quoted at USD1.3616 midday Tuesday, lower than USD1.3650 at the London equities close on Monday.

Focus now switches to UK inflation data on Wednesday ahead of the Bank of England's next monetary policy meeting, at the start of February. Investors are bracing for four UK interest rate hikes in 2022.

"We think that the Bank of England's rate expectations (four hikes by the end of 2022) are overdone, but this morning's jobs data as well as tomorrow's CPI data – in our view – are set to do little to challenge the current hawkish bets," commented ING.

Overnight, Japan's central bank revised its inflation forecast on Tuesday and adjusted its view of price risks, while leaving its monetary easing policy in place in a nod to lingering pandemic uncertainty. Against the yen, the dollar rose to JPY114.73 from JPY114.60 late Monday in London.

The euro traded at USD1.1387, down against USD1.1405 late Monday despite data showing German economic sentiment has picked up dramatically at the start of 2022, on expectations of a fall in Covid cases by early summer.

The ZEW economic sentiment index in Germany was 51.7 points in January, leaping from 22.9 points in December and well above FXStreet-cited market consensus of 32.7.

Back in London, BT shares topped the FTSE 100, up 3.0%, after Goldman Sachs lifted the telecommunications firm to its Conviction Buy List. Peer Vodafone rose 2.8% in a positive read-across.

At the bottom of the index was Polymetal International, falling 4.7% as the precious metals miner tracked gold prices lower. Gold was quoted at USD1,810.88 an ounce midday Tuesday, lower from USD1,818.80 on Monday.

In the FTSE 250, Just Group rallied 9.6% after saying its retirement income jumped in 2021, hailing a "buoyant" pension de-risking market. Just Group, based in Reigate, Surrey, provides retirement financial services to individuals and companies.

The company said retirement income sales surged 25% to GBP2.67 billion in 2021. They were boosted by defined-benefit de-risking sales jumping 28% to GBP1.94 billion.

QinetiQ rose 4.4% on a strong third quarter. The Farnborough, Hampshire-based defence technology company hailed "excellent" order intake in the three months to December 31, now standing at over GBP900 million. Revenue, operating profit and cash flow, meanwhile, are in line with expectations.

"With more than 95% coverage of our FY22 revenue under contract, we remain confident of delivering in line with expectations for FY22," QinetiQ added.

Elsewhere, THG shares tumbled 8.8% to take their year-to-date decline to 26%. The stock has fallen 77% over the past 12 months.

The latest fall was due to a margin warning on Tuesday. The online retail platform operator reported strong revenue growth last year, but flagged a margin hit from foreign exchange movements and slower sales growth in the year ahead.

Fourth-quarter revenue was GBP711.7 million, up 27% on a year ago and nearly double on a two-year basis. For 2021 as a whole, revenue rose 35% to GBP2.18 billion.

However, the beauty products retailer's full-year adjusted earnings before interest, tax, depreciation and amortisation margin is expected to be in the range of 7.4% to 7.7%, compared to market expectations of around 7.9%, after taking into account 90 basis points of adverse foreign currency movements, it said.

For 2022, the margin is expected to improve throughout the year, and revenue growth is seen in a region of 22% to 25% at constant currencies, slowing from the 38% achieved in 2021.

By Lucy Heming; lucyheming@alliancenews.com

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