LONDON MARKET MIDDAY: Sentiment damped as central bank moves mulled

(Alliance News) - London stocks slumped as the end of the week approached, unable to reap any benefit from a weaker pound as focus turns to how the Bank of England next week will confront growing inflationary pressures following a hawkish US Federal Reserve meeting.

The FTSE 100 index was down 56.87 points, or 0.8%, at 7,096.56 on Friday at midday. The mid-cap FTSE 250 index was just 6.94 points lower at 22,528.20. The AIM All-Share index was down 0.3% at 1,238.29.

The Cboe UK 100 index was down 0.8% at 706.77. The Cboe 250 was down 0.1% at 20,242.80, and the Cboe Small Companies down 0.4% at 15,300.73.

In mainland Europe, the CAC 40 in Paris was down 0.2%, while the DAX 30 in Frankfurt was down 0.7% in early afternoon trade.

"European markets are heading towards the weekend on the back foot, with declines for the likes of the Dow and S&P 500 highlighting the ongoing concerns that rising inflation could soon curtail the expansive monetary policy mix around the world," said Joshua Mahony, senior market analyst at IG.

Markets are continuing to digest a more hawkish Federal Reserve, after the central bank on Wednesday signalled rate hikes in 2023. The updated dot-plot showed 11 of the 18 committee members expect at least two rate hikes in 2023 and seven expecting one as soon as next year.

Up next in the central bank roster is the Bank of England, with a decision due next Thursday. The UK, like other countries across the globe, is contending with gathering price pressures as the economy starts to bounce back from last year's bruising lockdowns.

Figures earlier this week showed UK annual inflation in May topped the BoE's 2% target for the first time in nearly two years. The consumer price index jumped 2.1% on an annual basis in May, accelerating from 1.5% growth in April, to mark the fastest growth since July 2019.

The BoE targets a 2% inflation rate.

"Despite promises that central banks will remain accommodative, we are evidently moving towards a phase which will become increasingly dominated by attempting to quantify just how long we have left until the pendulum starts to swing back towards monetary tightening," said IG's Mahony.

Wall Street is on track for a largely lower open on Friday, with the Dow Jones called down 0.2% and the S&P 500 down 0.1% but the Nasdaq Composite set to rise 0.1%.

In London, oil majors were dragging down the FTSE 100.

Brent oil was trading at USD72.53 a barrel at midday, falling against USD74.06 late Thursday.

London-listed energy majors tracked the price of oil lower. Royal Dutch Shell 'A' and 'B' stock fell 2.7% and 3.4% respectively, while BP shares were 2.5% lower.

Meanwhile, gold prices recovered some poise, sending up shares in Mexican gold and silver miner Fresnillo. Gold was quoted at USD1,791.45 an ounce midday Friday, rising from USD1,768.00 on Thursday. Fresnillo was up 3.1% and peer Polymetal International advanced 0.9%.

"Gold gained approximately 1% during early Friday trading, following a slowdown in dollar gains, however the precious metal is still on track for the worst weekly performance since March 2020. With investors pricing in the adoption of a more hawkish stance from the Fed, the dollar will be likely to remain supported, at least in the near-term, presenting an important headwind for gold in the weeks ahead," said Ricardo Evangelista, senior analyst at ActivTrades.

The euro traded at USD1.1917 midday Friday, soft on USD1.1920 late Thursday. Against the yen, the dollar fell to JPY110.14 versus JPY110.30.

Friday's currency under-performer was the pound after some weaker-than-expected UK retail sales data. Sterling was quoted at USD1.3898, tumbling from USD1.3933 at the London equities close on Thursday.

Retail sales volumes fell 1.4% month-on-month in May, pulling back after a 9.2% surge in April. Mid-April saw the re-opening of non-essential retail in England after months of lockdown. Consensus, according to FXStreet, had expected growth of 1.6% for May.

The largest contribution to May's decline came from food stores, the Office for National Statistics noted, where sales fell by 5.7%. Evidence suggests the easing of hospitality restrictions diverted some spending to pubs and restaurants after months of eating and drinking at home.

Alongside the UK retail sales data came first-quarter results from Tesco, the country's biggest supermarket chain. They showed a slowdown in sales growth.

Like-for-like retail sales for the 13 weeks to May 29 grew 1.0% year-on-year to GBP13.36 billion, and rose 8.1% on a two-year basis. For the financial year ended February, like-for-like sales growth was 6.3%.

In March 2020, UK supermarkets began to get a pandemic-related boost as consumers stockpiled and were forced to spend more time at home due to lockdown restrictions.

"To its credit, 1% like-for-like growth on a one-year basis is not a disaster. It implies that Tesco is holding its own against tough competition in the grocery space and no doubt retained lots of the customers it won in 2020 from having wider availability of online delivery slots than its peers," commented Russ Mould, investment director at AJ Bell.

Tesco shares were down 2.4% in London at midday.

At the top of the FTSE 250 was Wizz Air, rising 3.7% after HSBC raised the central and eastern Europe-focused airline to Hold from Reduce.

Inchcape shares advanced 3.6%, as it guided to a full-year profit beat.

Since its first quarter update in late-April, Inchcape has seen "encouraging trends", the automotive distribution, retailing and services company noted.

"The group's performance to date has exceeded our expectations. During the period we have seen our businesses benefit both from an uptick in demand and margin resilience," it said.

Inchcape expects annual pretax profit, before exceptional items, to top consensus forecasts of GBP216 million, so at least a 68% hike from GBP128.9 million in 2020.

By Lucy Heming; lucyheming@alliancenews.com

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