LONDON MARKET MIDDAY: Pound slips as BoE opts for quarter-point hike

(Alliance News) - Stock prices in London were higher, while the pound was flat, on Thursday, after the Bank of England as expected raised UK interest rates by a quarter percentage point.

The Monetary Policy Committee voted 6-3 to raise the Base Rate to 1.00% from 0.75%. The minority of policy makers wanted a more-aggressive 50 basis point hike.

The MPC added that "some degree" of further tightening may be needed in coming months.

The pound was quoted at USD1.2500 following the BOE announcement. Just prior, it had been trading at USD1.2530, up from USD1.2501 at the London equities close Wednesday.

The FTSE 100 index was up 84.70 points, or 1.1%, at 7,578.15. The mid-cap FTSE 250 index was up 310.12 points, or 1.5%, at 20,529.59. The AIM All-Share index was up 9.35 points, or 0.9%, at 1,007.91.

The Cboe UK 100 index was up 1.1% at 754.58. The Cboe 250 was up 1.3% at 18,109.59. The Cboe Small Companies rose 0.2% to 15,096.05.

In mainland Europe, the CAC 40 stock index in Paris was up 1.4% and the DAX 40 in Frankfurt was up 1.8%.

Meanwhile, polling stations were open for local elections in the UK, with council seats in Scotland, Wales, London and many parts of England up for grabs, and Northern Ireland electing its new assembly. Millions of voters are expected to cast ballots to select the local representatives they want to run services and facilities in their area.

The ruling Conservatives will find out in the coming days as votes are tallied whether they will be made to pay the price for the so-called partygate saga in Downing Street, which has seen Prime Minister Boris Johnson and Chancellor of the Exchequer Rishi Sunak fined for breaking coronavirus laws.

New York was pointed to a lower open on Thursday. Wall Street had ended sharply higher on Wednesday after the US Federal reserve assuaged fears over further aggressive monetary policy tightening.

The Dow Jones Industrial Average was called down 0.3%, the S&P 500 down 0.5%, and the Nasdaq Composite down 0.7%, based on futures trading. The stock indices had closed up 2.8%, 3.0% and 3.2% respectively on Wednesday.

Fed Chair Jerome Powell said more half-point interest rate hikes will be on the table at forthcoming meetings, after the central bank lifted interest rates by 50 basis points, as expected. This was the first time the US central bank has hiked rates by a half-point at one meeting since 2000, and takes the federal funds rate to now stand at 0.75% to 1.00%.

However, on the prospect of an even chunkier 75 basis point hike, Powell said it is not something the central bank is "actively considering".

The Fed also decided to start reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at the start of June.

On Wall Street, eBay will be in focus after the online auction site, late Wednesday, reported a loss, having suffered declining revenue, active buyers and gross merchandise volume in the first quarter of 2022.

The San Jose, California-based company swung to a net loss of USD1.34 billion in the three months to March 31 from a profit of USD641 million a year prior. Per share, eBay swung to a loss of USD2.28 from a profit of USD0.94 in the quarter.

The stock was down 6.9% in pre-market trade in New York.

In the FTSE 100, Endeavour Mining was the best performer, up 8.5%, after the miner said it kicked off 2022 on "strong footing" with revenue increasing in the first quarter on stronger gold prices.

The miner, which has assets in Burkina Faso and Ivory Coast, said its average realised gold price climbed 8.5% year-on-year to USD1,911 an ounce in the first quarter of 2022, from USD1,762.

Chunkier gold prices helped quarterly revenue rise 14% annually to USD686 million from USD601 million. Pretax profit dropped 71% to USD51 million from USD173 million a year prior. Profit was hit by a USD178.8 million loss on financial instruments, related to forward gold sales, the company explained.

Mondi was the second-best performer, up 8.2%, after the packaging firm posted a strong quarterly performance and decided to pull the plug on its Russian businesses.

The Weybridge, England-based firm said it has decided to divest its Russian assets after assessing all options for its interests there.

For the three months to March 31, underlying earnings before interest, tax, depreciation and amortisation rose 63% to EUR574 million, from EUR353 million in the same period a year prior.

The group said its pipeline currently includes around EUR1 billion of expansionary projects already approved or under advanced evaluation, which it anticipates will generate mid-teen returns when in full operation.

Looking ahead, Mondi expects to deliver a year of good progress, with the annual performance benefiting from shorter planned maintenance shuts and the contribution from the capital investment programme.

Shell was up 3.1% after the oil major reported a substantial rise in first-quarter earnings due to the surging price of oil.

Rival BP was up 0.5%.

For the the three months to March 31, Shell's income attributable to shareholders was USD7.12 billion, up 26% from USD5.66 billion in the first quarter last year. Current cost of supply earnings attributable to shareholders for the first quarter was USD5.02 billion, up 15% from USD4.35 billion.

Shell explained income attributable to shareholders reflected post-tax charges of USD3.9 billion related to the phased withdrawal from Russian oil and gas activities.

The oil major posted adjusted earnings of USD9.1 billion, nearly tripled from USD3.23 billion the year before. First quarter cash flow from operating activities was USD14.82 billion, up nearly 80% from USD8.29 billion.

Turning to returns, Shell raised its first quarter dividend by 47% to USD0.25 per share from USD0.17 a year ago.

The strong results come as calls mount from UK politicians in the opposition Labour and the Liberal Democrats parties for a windfall tax on oil and gas firms to help ease the cost-of-living crisis in the country.

The sector is reaping the benefits of rocketing oil and gas prices, which have been pushed to record levels by Russia's invasion of Ukraine and surging demand as economies emerge from the pandemic.

UK Chancellor Sunak has so far resisted pressure to make the firms pay more tax, instead looking to companies making big profits to invest the cash back into the UK.

"Plans to allocate significant sums to share buybacks and increase its dividend will not go down that well in the circumstances, and the political pressure to do something may become unanswerable, particularly if the incumbent Conservative government endures a pasting in today's local elections," said AJ Bell's Russ Mould.

"Whether a windfall tax is introduced or not, Shell finds itself in a much stronger financial position than it was in even before the pandemic, with net debt down from nearly USD80 billion to less than USD50 billion."

Melrose Industries rose 2.4% after the industrial turnaround specialist said trading for the four months to April 30 is in line with expectations for the year.

The London-based firm said that, consistent with industry trends, its Aerospace division was experiencing continued growth, with like-for-like sales up 6%.

Next was up 0.7%. The clothing retailer left annual profit guidance unchanged after reporting a decent start to its financial year.

In the first quarter ended April 30, the retailer's full price sales climbed 21% year-on-year. In the UK & Ireland region alone, full price in-store sales climbed almost three-fold.

Next confirmed its financial year guidance it posted in March, repeating a pretax profit range of GBP795 million to GBP895 million. It still expects full price sales to rise 5.0% yearly.

At the other end of the large-caps, Hikma Pharmaceuticals was the worst performer, down 7.5%. The drugmaker downgraded guidance for its Generics business due to the delayed launch of a generic of the Xyrem treatment for narcolepsy.

In 2017, Hikma entered into a settlement agreement with Jazz Pharmaceuticals to sell an authorised generic of Xyrem.

Under the terms of the agreement, Hikma had a date certain launch of January 1, 2023, or earlier depending on market conditions and also had 180 days exclusivity.

However, Jazz Pharmaceuticals now expects authorised generic entry of Xyrem to occur "in late 2022, or possibly even January 2023". As a result, Hikma now does not expect revenue and profit contribution from its agreement with Jazz to sell the generic until the first half of 2023.

For 2022, Hikma now expects Generics revenue to be in the range of USD710 million to USD750 million and core operating margin to be around 20%, with the lower end of the range reflecting the possibility of further price erosion in the US generic market. This is down from previous guidance of Generics revenue growth in the range of 8% to 10% over 2021 revenue of USD820 million and core operating margin in the range of 24% to 25%.

In the FTSE 250, PureTech Health was the best performer, up 10%, after the clinical-stage biotherapeutics company approved a share buyback of up to USD50 million.

In economic data on Thursday, UK services sector activity slowed in April as strong inflationary pressures and the war in Ukraine limited the pace of expansion, S&P Global said.

The UK services purchasing managers' index registered 58.9 points in April, down from 62.6 in March. However, the latest print was higher than the preliminary figure of 58.3. The UK composite PMI, which includes manufacturing activity, decreased to 58.2 points in April from 60.9 in March.

The euro was priced at USD1.0592, higher against USD1.0560. Against the yen, the dollar was trading at JPY129.76 in London, down from JPY129.93.

Brent oil was quoted at USD110.60 a barrel at midday in London, up from USD108.55 late Wednesday, amid a meeting by the OPEC+ producers group on Thursday. Gold stood at USD1,896.04 an ounce, higher against USD1,866.98.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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