LONDON MARKET MIDDAY: Stocks fall on 100 basis point rate US hike fear

(Alliance News) - Stock prices in London were lower at midday on Thursday as investors continued to take positions on the expectation of more aggressive interest rate hikes by the US Federal Reserve in the next several months to tame red-hot inflation.

On Wednesday, official data showed the US consumer price index rose 9.1% from a year before, the fastest such increase since November 1981. This heightened fears the Fed may increase the base rate by a full percentage point when it meets on July 26 to 27.

The FTSE 100 was down 43.25 points, or 0.6%, at 7,113.12. The FTSE 250 index was down 36.34 points, or 0.2%, at 18,676.55. The AIM All-Share index was down 1.87 point, or 0.2%, at 877.30.

The Cboe UK 100 index was down 0.8% at 709.63. The Cboe 250 was down 0.4% at 16,262.69, and the Cboe Small Companies was down 0.3% at 13,059.88.

In mainland Europe, the CAC 40 stock index in Paris was down 0.6%, while the DAX 40 in Frankfurt was down 0.7%.

ActivTrades analyst Pierre Veyret explained: "European shares continue to fall, alongside US futures, as market sentiment remains weighed down after the latest US CPI release. Investors waiting for a positive surprise were left disappointed yesterday following another inflation print showing a fresh 40-year record high at 9.1%. This number isn't well perceived at all by the market as it paves the way for more monetary tightening from the Fed, especially as the pressure brought by rising prices isn't showing any sign of a peak or slowdown to come.

"Traders are now bracing for a complicated summer for riskier assets, even now pricing a 1% rate hike for the upcoming FOMC meeting at the end of the month, while all eyes are already on next year's likely recession."

In the FTSE 100, Centrica was up 3.0% after JPMorgan placed the British Gas parent on its 'positive catalyst watch' list.

Experian was up 2.8%. The credit checking agency reported slowing revenue growth in its first quarter that ended June 30 as business in all regions except in the Americas shrank. "Overall performance was affected by weak macroeconomic conditions in some markets," Experian explained.

In May, the firm had said it expects full-year growth of 7% to 9% as it monitors global macroeconomic trends. Total revenue for the quarter that ended June 30 is set to grow 7%, slowing from 31% a year ago. Revenue for UK & Ireland fell by 6%, in contrast to revenue growth of 35% a year ago. Europe, Middle East, Africa & Asia Pacific decreased by 8%, compared to growth of 78% a year ago.

The Dublin-based company's total revenue growth was kept above zero due to continued growth in the Americas. Latin America grew 30%, down from growth of 33%, while North America grew 8%, down from growth of 26% a year ago.

At the other end of the large-caps, insurer Admiral was the worst performer, down 14%, in a negative read-across after smaller rival Sabre Insurance issued a profit warning. FTSE 250-listed insurers Direct Line, Hiscox and Beazley were off 9.2%, 2.2% and 1.9% respectively.

Sabre shares were down 36% after the motor insurer warned inflation will have a bigger effect on the underwriting margins of its core Motor book than it had previously assumed.

For the six months to June 30, pretax profit slumped 81% to GBP4.3 million from GBP22.2 million a year ago. While gross written premiums increased 17% to GBP91.8 million from GBP78.2 million, the net loss ratio widened to 72% from 45%, and the combined operating ratio worsened to 99% from 74%. Any combined ratio below 100% indicates underwriting profit, so the lower the better, and a ratio of 99% is bordering on loss-making.

In May, the firm had said it expected the combined ratio to be around 80% for 2022. Looking ahead, Sabre expects to achieve a range of between 75% and 80% in 2024.

In addition, Sabre still expects to pay a dividend for 2022, but one "at a reduced level", before returning to "more normal" levels in 2023.

In the FTSE 250, Playtech was by far the worst performer, down 19%, after the gambling software provider noted that suitor TTB Partners does not intend to make a takeover offer.

TTB Partners said that, due to challenging underlying market conditions, it does not intend to make an offer for Playtech.

The Hong Kong-based finance company expressed interest in making an all-cash offer for Playtech back in February, after Playtech shareholders voted down a GBP2.1 billion offer from Australia's Aristocrat Leisure. After a recent deadline extension, TTB had until Friday to either make a firm offer or walk away.

Playtech, noting the statement, said it remains confident in its long-term prospects.

Ashmore Group was down 4.0% after the emerging markets-focused money manager reported a drop in assets under management in its financial fourth quarter.

Ashmore reported total assets under management of USD64.0 billion at the end of June, down 18% from USD78.3 billion at the end of March. This comprised net outflows of USD6.6 billion and negative investment performance of USD7.7 billion.

The company said there was "broad-based risk aversion" across asset classes globally. "As is typical in such a market environment, Ashmore's investment processes underperformed over the quarter," it said.

SSP was down 1.3%. The food kiosk operator said its revenue continued to strengthen in the third quarter as rail travel bounced back from the pandemic.

For the three months to June 30, SSP said revenue was at 87% of 2019 levels driven by a recovery in passenger numbers.

But SSP noted that it also benefited from "longer passenger dwell times in some markets", without explaining this further. The UK in recent months has suffered both train strikes and flight cancellations and delays, leaving passengers stuck in airports and train stations.

SSP said recovery has been led by domestic and leisure travel in both the air and rail sectors. Further, rail commuter travel continued to recover well, albeit at a slower pace than leisure travel, SSP said.

Looking ahead, SSP said its medium-term expectation for a recovery of the like-for-like business to 2019 levels of profitability remains unchanged.

Following Wednesday's blow-out US inflation report, the dollar was higher across the board. Sterling was quoted at USD1.1860 at midday on Thursday, down from USD1.1929 at the London equities close on Wednesday.

The euro traded at USD1.0036 at midday, lower against USD1.0089 late Wednesday. Against the yen, the dollar was trading at fresh 24-year highs, quoted at JPY138.84 in London, rising sharply from JPY137.35 late Wednesday.

On the economic front, the European Commission slashed growth forecasts for the eurozone, saying the consequences from the war in Ukraine were continuing to destabilise the economy because of record high inflation.

The EU executive, which tracks the economy for the 27 countries in the EU, said GDP growth in the eurozone will be 2.6% in 2022 and a sharply lowered 1.4% in 2023.

Inflation will end the year at 7.6%, much higher than previously forecast, and 4.0% in 2023. This is still well above the European Central Bank's target of 2.0% and up from a previous prediction of 2.7%.

Meanwhile, Jeremy Hunt has thrown his weight behind Rishi Sunak after failing to make the cut in the first round of voting by Tory members of Parliament to succeed UK Prime Minister Boris Johnson.

The endorsement gives the former chancellor a boost ahead of the second ballot on Thursday, which will eliminate the least popular candidate. Hunt, who along with Chancellor Nadhim Zahawi failed to garner the 30 votes needed to progress to the next stage of the contest, described Sunak as "one of the most decent, straight people with the highest standards of integrity" in politics.

Sunak, whose resignation from No 11 helped trigger the Tory leadership race, topped Wednesday's ballot, as trade minister Penny Mordaunt emerged as his leading rival in second place.

Brent oil was trading at USD99.70 a barrel Thursday at midday, down from USD100.80 late Wednesday. Gold stood at USD1,714.28 an ounce, lower than USD1,739.37.

New York was pointed to a firmly lower open on Thursday as earnings season begins with banks JPMorgan Chase and Morgan Stanley reporting second-quarter results before the market open.

The Dow Jones Industrial Average was called down 1.1%, the S&P 500 down 1.0%, and the Nasdaq Composite down 0.9%. The indices closed down 0.7%, 0.5% and 0.2% respectively on Wednesday.

JPMorgan was down 2.8% in pre-market trade after the bank said it temporarily suspended share buybacks.

For the three months to June 30, revenue was USD30.71 billion, marginally up from USD30.48 billion in the second quarter last year.

Net income was USD8.65 billion, or USD2.76 per diluted share, from USD11.95 billion, or USD3.78 diluted EPS last year.

CEO Jamie Dimon said: "As a result of the recent stress tests and the already scheduled G-SIB increase, we will build capital and continue to effectively and actively manage our risk weighted assets. In order to quickly meet the higher requirements, we have temporarily suspended share buybacks which will allow us maximum flexibility to best serve our customers, clients and community through a broad range of economic environments."

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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