(Alliance News) - European equities were in buoyant mood on Thursday morning, after the US Federal Reserve laid out its "road ahead" by announcing a quick taper to its quantitative easing programme and a plan to lift interest rates next year.
The Fed said it would reduce its purchases of Treasury securities by USD20 billion per month and for mortgage-backed securities by USD10 billion, from the current USD120 billion a month that the central bank currently is buying. This paves the way for the end of its pandemic-era bond purchases in March
Policymakers at the Fed envisage three interest rate hikes by the end of 2022, with further increases in rates expected in both 2023 and 2024. For now, however, the Federal Open Market Committee decided to keep the target range for the federal funds rate at 0.00% to 0.25%.
The FTSE 100 index was up 83.89 points, or 1.2%, at 7,254.64 early Thursday. The mid-cap FTSE 250 index rose 259.80 points, or 1.2%, at 22,693.68. The AIM All-Share index was up 7.44 points, 0.6%, at 1,171.55.
The Cboe UK 100 index was up 1.1% at 719.21. The Cboe 250 was 1.0% higher at 20,045.09, while the Cboe Small Companies was up 0.3% at 14,660.78.
In mainland Europe, the CAC 40 stock index in Paris was up 1.5%, while the DAX 40 in Frankfurt was 1.7% higher.
"Confirmation that the Federal Reserve is to tap slightly harder on the monetary brakes was both expected and well received, as investors appreciated the increased clarity of the road ahead," interactive investor analyst Richard Hunter commented.
"The tapering programme should now end in March, easing the way to introduce interest rate hikes in an effort to curb inflation, which is now running hot. At the same time, the Fed left the door open not only to consider the impact of the Omicron variant as the economic damage becomes clearer, but also noting that maximum employment was required before hikes could be entertained.
Up next, the Bank of England announces its latest monetary policy decision at 1200 GMT, before the European Central Bank at 1245 GMT.
"The UK interest rate decision later today is poised on a knife edge, with the implications of the variant, high inflation, continued pressure given tightness in the labour market and supply chain bottlenecks all being taken into consideration. While any such hike would likely be moderate, and with a time lag until it washed through to the wider economy, it would nonetheless signal that inflation needs to be tackled. Even so, the current uncertainty regarding the variant threatens to derail the UK's economic recovery and the consensus remains that the Bank of England will sit on its hands until the February meeting when the picture may be clearer," ii's Hunter said.
The pound was quoted at USD1.3297 early Thursday, rising from USD1.3222 at the London equities close on Wednesday. Sterling was trading around its best level in two weeks ahead of the BoE interest rate decision.
The euro stood at USD1.1308, up from USD1.1262. Against the yen, the dollar was trading at JPY114.13, up from JPY113.80.
On the London Stock Exchange, AIM-listed boohoo tumbled 11%. It cut annual sales and margins guidance due to Omicron uncertainty and as returns rates hit net sales. It has also seen "continued disruption" hit online deliveries alongside persistent virus-related cost inflation.
However, boohoo said: "It is the view of the board that the factors currently negatively impacting the business are primarily related to the ongoing impact of the pandemic and are, therefore, transient in nature."
In the three months to November 30, net sales increased 10% year-on-year to GBP506.2 million from GBP460.7 million. On a two-year basis, net sales are 53% higher.
For the financial year ending February 28, boohoo now expects net sales growth in the 12% to 14% range, cut from previous guidance of a rise of 20% to 25%.
"This reflects our expectation that the factors impacting our performance in the period persist through the remainder of the financial year, and recent developments surrounding the Omicron variant could pose further demand uncertainty and elevated returns rates particularly in January and February," the retailer explained.
boohoo's adjusted earnings before interest, tax, depreciation and amortisation margin is expected to be between 6% and 7%, lowered from previous guidance of 9% to 9.5%. This will imply an adjusted Ebitda of GBP117 million to GBP139 million.
At best, this would represent a 20% fall from a year earlier.
FTSE 250-listed Domino's Pizza jumped 22%, as it reached a deal with its franchisees to end a long-running dispute and usher in a "new era of collaboration and accelerated growth".
The firm said the acrimony "held the company back", and it can now "begin a new era".
Under the terms of the deal, Domino's will make a one-time capital investment of about GBP20 million, spread over three years, to boost digital acceleration. It will also increase marketing investment and develop an improved new store incentive scheme, to encourage new site openings.
The deal runs for an initial three years from January 3.
Among the FTSE 100, Scottish Mortgage Investment Trust was one of the better performers, rising 3.0%. The investor got a boost from some of its big tech investees, who surged on Wall Street in the wake of the Fed policy announcement.
New York's tech-heavy Nasdaq Composite rose 2.2% overnight.
Elsewhere in London, cleaning and hygiene product manufacturer McBride warned price rises have now been "outpaced" by input cost increases.
Shares were trading 8.5% lower.
It now expects to report a chunkier adjusted loss before interest, tax and amortisation of GBP14 million to GBP17 million for the six months to December 31. In October, it had forecast a GBP10 million loss.
"The increase in this loss compared to our previous update in October is a consequence of the ongoing rapidly rising input costs and the timing of pricing agreements. At this stage, our wide range of outcomes is a result of pricing delays with a small number of customers and the resultant implications, which could impact short term volumes," McBride explained.
Asian equities were mostly higher on Thursday. The Nikkei 225 in Tokyo jumped 2.1%, and the Shanghai Composite closed 0.8% higher. The Hang Seng in Hong Kong closed up 0.2%, reversing an earlier decline. The S&P/ASX 200 in Sydney closed down 0.4%.
Brent oil was quoted at USD74.60 a barrel early Thursday, rising from USD73.30 at the London equities close on Wednesday. Gold stood at USD1,786.38 an ounce, up from USD1,767.04.
By Eric Cunha; ericcunha@alliancenews.com
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Scottish Mortgage (SMT)
Mcbride (MCB)
Boohoo (BOO)