LONDON MARKET MIDDAY: Shares slide as inflation points to UK rate hike

(Alliance News) - London equities were spending another day trailing counterparts in Europe as expectations were raised on Wednesday for a UK interest rate hike before the year is out.

The FTSE 100 index was down 21.44 points, or 0.3%, at 7,305.53 midday Wednesday. Additionally weighing on the blue-chip index were Spirax-Sarco's supply chain struggles and an investor shrug at SSE's 'net zero acceleration programme'.

The mid-cap FTSE 250 index was down 22.24 points, or 0.1%, at 23,517.47. The AIM All-Share index was up 4.64 points, or 0.4%, at 1,249.85.

The Cboe UK 100 index was down 0.4% at 723.88. The Cboe 250 was down 0.2% at 20,966.79, but the Cboe Small Companies up 0.1% at 15,614.56.

In mainland Europe, the CAC 40 in Paris was up 0.1, while the DAX 40 in Frankfurt was up 0.2% on Wednesday.

The FTSE 100 was underperforming after a stronger-than-expected UK inflation reading. The annual rate surged to 4.2% in October from just 3.1% in September. Consensus, according to FXStreet, had been anticipating an inflation figure of 3.9%.

This was the highest 12-month inflation rate since November 2011, when it was 4.8%. The Bank of England recently warned inflation could peak at around 5% in April next year.

"The prospect of higher rates has given some support to the pound, but the movement is only mild which suggests that rising inflation is a surprise to no-one," said Russ Mould, investment director at AJ Bell.

Sterling was quoted at USD1.3448 in midday trade, up on USD1.3430 at the London equities close on Tuesday but off morning highs.

Nonetheless, the "small strength" in the pound has knocked the FTSE 100, said Mould.

Data in the eurozone also confirmed price pressures continued to gather last month. The annual inflation rate in the single-currency area was 4.1% in October, up from 3.4% in September. A year earlier, consumer prices fell by 0.3%. Not since July 2008 has inflation been at a higher level.

The figures confirmed an earlier flash reading, however, meaning Wednesday's eurozone data came as no shock.

The euro continued to trade lower against the dollar. The single currency was changing hands at USD1.1315, slipping from USD1.1347 late Tuesday.

Against the yen, the dollar climbed to JPY114.78 from JPY114.50.

Gold was quoted at USD1,861.11 an ounce early Wednesday, up from USD1,858.07 on Tuesday. Brent oil was trading at USD81.30 a barrel, down on USD82.00 late Tuesday.

Wall Street is on track for a subdued start, with only the tech-heavy Nasdaq Composite set to notch gains at the open, called up 0.1%. The Dow Jones and S&P 500 were both pointed marginally lower.

As well as inflation worries, the FTSE 100 was being pulled down by Spirax-Sarco engineering, shares tumbling 6.0%.

The industrial engineering firm said it has continued to experience very strong demand, with order books in all three of its businesses expanding in the four months to the end of October above expectations. But it warned that all three have been hurt by shipment delays, with the effects greater within Watson-Marlow and Electric Thermal Solutions.

SSE fell 4.2% after the power utility outlined plans to sell off some of its electricity network assets, rebase its dividend, and markedly lift renewable energy spending. In addition to outlining plans to invest GBP12.5 billion by 2026, SSE also presented its first-half results, with numbers showing a decent earnings rise.

However, investors may have been looking for SSE to unveil a business split.

"This is unlikely to be sufficient to get activist investor Elliott off its back, which having joined the shareholder register earlier this year has been reportedly pushing for SSE to take more radical action and separate the renewables assets from the grid business," said AJ Bell's Mould.

Experian was down 1.9%. The credit checking firm said revenue in the six months to September 30 rose 23% year-on-year to USD3.06 billion from USD2.49 billion. Pretax profit increased 43% annually to USD654 million from USD458 million.

A bright spot in the large-cap index was Sage, rising 5.7% as it forecast organic recurring sales growth to accelerate in the year ahead.

Pretax profit for the financial year that ended September 30 dipped to GBP347 million from GBP373 million. Full-year revenue fell 3% to GBP1.85 billion. However, organic recurring revenue grew 5% to GBP1.64 billion, which Sage said was underpinned by Sage Business Cloud growth of 19%.

Looking ahead, Sage expects organic recurring revenue growth to accelerate in its new financial year, seen in the region of 8% to 9%. Organic operating margin is "expected to trend upwards in FY22 and beyond", after dipping 2.7 percentage points to 19.3% in the recently ended financial year.

At the bottom of the FTSE 250 was CMC Markets, falling 8.4% after slashing its interim dividend in line with profit, following a much weaker performance compared to a year before.

For the six months ended September 30, CMC reported pretax profit of GBP36.0 million, a 74% fall from GBP141.1 million the same period a year before, as net operating income dropped 45% to GBP126.7 million from GBP230.9 million. CMC declared an interim dividend of 3.50 pence per share, down 62% from 9.20p a year prior.

Elsewhere in London, McColl's shares dived 18%. The convenience store retailer said continued supply chain disruption hit fourth-quarter revenue, flagging the nationwide shortage of delivery drivers and insufficient supply of some key products.

McColl's now expects adjusted earnings before interest, tax, depreciation and amortisation to be in range of GBP20 million to GBP22 million for the financial year ending on November 28. This would be down from GBP29.1 million for the 2020 financial year.

By Lucy Heming; lucyheming@alliancenews.com

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