LONDON MARKET MIDDAY: Stocks sink on hawkish stance of central bankers

(Alliance News) - Stock prices in London were sharply lower at midday on Thursday, after some of the world's most influential central bankers reaffirmed their determination to fight inflation, even at the risk of triggering recessions.

Finding the right monetary policy response to tackle soaring inflation is an "art", ECB President Christine Lagarde said Wednesday. "It is not a science," Lagarde said at the ECB conference in Portugal. "What we are doing there is an element of art," she said.

The ECB is set to trigger its first rate hike in over a decade at its next meeting on July 21, as inflation in the eurozone surges.

"I think we now understand better how little we understand" about inflation, Fed Chair Jerome Powell said on the panel alongside Lagarde.

The rapid tightening in monetary policy has prompted fears that economies on both sides of the Atlantic could pitch into recession. But the US is in "strong shape" to avoid shrinking the economy, while returning inflation to the Fed's 2.0% target, Powell said.

The FTSE 100 index was down 141.10 points, or 1.9%, at 7,171.22 at midday in London on Thursday. The FTSE 250 index was down 457.53 points, or 2.4%, at 18,581.26. The AIM All-Share index was down 15.16 points, or 1.7%, at 878.16.

The Cboe UK 100 index was down 1.6% at 715.41. The Cboe 250 was down 1.7% at 16,353.25, and the Cboe Small Companies was down 0.1% at 13,453.87.

In mainland Europe, the CAC 40 stock index in Paris was down 2.4%, while the DAX 40 in Frankfurt was down 2.3%.

"At the ECB forum in Portugal, the Federal Reserve maintained that its primary objective remains on reining in inflation, although conceding that this could come at the cost of recession. Chair Powell reiterated the view, however, that the US economy remained in sufficient health to withstand the monetary tightening of the screws. ECB President Lagarde, meanwhile, warned that pre-pandemic levels of low inflation may not reappear, given the altered shape of economies and the current geopolitical tensions," summarised interactive investor's Richard Hunter.

"The combination of hawkish comments again took the wind from investors' sails," Hunter added.

In the FTSE 100, Bunzl was the best performer - one of only two stocks in the green - up 0.5%. The distribution firm said it expects to deliver "very strong" growth over the six period to June 30, reflecting the "resilience and strength" its business model.

Bunzl said revenue in the first half is expected to increase year-on-year by 16% at actual exchange rates and by 12% to 13% at constant exchange rates, with inflation continuing to drive underlying revenue growth and acquisitions further supplementing growth. Adjusted operating margin for the first half is expected to be slightly higher than historical annual levels, it noted.

Bunzl upgraded its guidance for the year on the basis of the strong revenue growth to date and announced acquisitions, though no actual figures were provided.

At constant exchange rates, Bunzl now expects "very good" revenue growth in 2022, driven by good organic revenue growth and the positive contribution of acquisitions announced over the past year.

Growth of the base business is expected to be only partially offset by the further normalisation of sales of Covid-19 related products, albeit these are expected to remain ahead of 2019 levels, the company said. Bunzl also continues to expect its operating margin in 2022 to be slightly higher than historical levels.

BAE Systems was the other stock managing to keep its head above water, up 0.1% at 827.20 pence. Bank of America raised its price target on the defence contractor to 830p from 790p and reiterated its 'neutral' rating.

Conversely, Intertek was down 4.5% after JPMorgan downgraded the quality assurance provider to 'neutral' from 'overweight'.

In addition, housebuilders were tumbling amid signs of a slowdown in the housing market, shown in price figures from Nationwide. Persimmon was down 4.0%, Barratt Developments down 4.5%, Berkeley down 3.8%, and Taylor Wimpey down 3.6%.

On an annual basis, the Nationwide house price index rose by 10.7% in June, slowing from the 11.2% climb in May. The print also was just shy of the market forecast of 10.8%.

House prices grew 0.3% monthly in June, easing from 0.9% growth in May and missed the 0.5% consensus estimate.

The average price for a UK home climbed to a new record high at GBP271,613 in June, up from GBP269,914 in May, Nationwide said.

"The Bank of England recently hiked interest rates to 1.25% and is expected to increase them further still to tackle inflation, which will reduce people's spending power and cause the already dwindling number of cheap mortgage rates to quickly disappear. With wages failing to keep up, the high costs of moving home will put off prospective buyers and first-time buyers will see their hopes of getting a foot on the property ladder pushed further out of reach," commented Quilter's Charlotte Nixon.

London Stock Exchange Group was down 1.7%. The stock exchange operator said Andrea Remyn Stone stepped down as head of the Data & Analytics division for "personal reasons". She will remain as an advisor until her departure in the autumn. LSEG Chief Executive Officer David Schwimmer will lead the division until a successor is found.

The Data & Analytics unit holds its FTSE Russell stock index and Refinitiv businesses. It is LSEG's largest division by income. LSEG said the overall group is performing in line with expectations and consistent with all of its financial guidance.

The pound was quoted at USD1.2127 at midday Thursday, unmoved from USD1.2126 at the London equities close Wednesday.

The euro was priced at USD1.0411, down from USD1.0470. Against the yen, the dollar was trading at JPY136.37, lower against JPY136.69.

Brent oil was quoted at USD116.00 a barrel Thursday at midday, down sharply from USD118.78 late Wednesday.

Major oil producers led by Saudi Arabia and Russia are expected to stick to a previously decided output boost at their meeting on Thursday, despite pressure to further increase production.

Russia's invasion of Ukraine has exacerbated concerns about oil supplies, sending prices to record highs this year. Hard on the heels of an EU ban on Russian oil imports over the invasion, the OPEC+ cartel agreed at their last meeting in early June to open the taps wider than expected.

But prices continue to be high, and analysts say a respite is not in sight when the 23 members of OPEC+ meet via video conference on Thursday.

The 13 members of the Organization of the Petroleum Exporting Countries, chaired by Saudi Arabia, and their 10 partners, led by Russia, drastically slashed output in 2020 as the coronavirus pandemic and the resulting lockdowns sent demand plummeting.

Gold stood at USD1,810.05 an ounce, lower against USD1,816.73 late Wednesday.

New York was pointed to a sharply lower open on Thursday, capping off a dire end to the first half for US equties.

The Dow Jones Industrial Average was called down 1.2%, the S&P 500 down 1.4%, and the Nasdaq Composite down 1.8%. The indices are down 15%, 20% and 29% respectively over the past six months.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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