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London open: FTSE falls ahead of BoE rate decision
London stocks fell in early trade on Thursday following a downbeat session on Wall Street, as investors mulled the latest rate decision from the US Federal Reserve and looked ahead to a policy announcement from the Bank of England.
At 0905 GMT, the FTSE was down 0.5% at 7,532.63, while sterling was up 0.4% against the dollar at 1.2321.
On Wednesday, the Fed hiked rates by 25 basis points despite recent turmoil in the banking sector.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “With the banking sector not out of the woods and central bank and US treasury officials still on edge, uneasy about what may lie ahead, a sense of nervousness is still hanging over the markets. The FTSE 100 has opened in negative territory, following in Wall Street’s footsteps, with the S&P 500 closing sharply lower, as the Federal Reserve raised rates but signalled a pause was on the horizon given recent turmoil.
“Because contagion has been contained, and inflation is still far too high, the Federal Reserve stuck to its plan and lifted rates by 0.25%. Achieving price stability is still the top priority, given the pain high prices have been causing right through the economy. However, policymakers are highly attuned to the consequences that the banking scare will have on lending, and so the path of further hikes from here now looks much more uncertain, with perhaps only one more rate rise likely.
“Like the Fed, Bank of England policymakers are expected to keep their hands off the pause button for now. There had been hopes that inflation could have retreated from its double-digit heights, but the lurch upwards of consumer prices in February to 10.4% is likely to refocus minds on the need to dampen down demand further and rein in the price spiral.”
The BoE will make its rate announcement at midday.
In equity markets, Schroders, Prudential, Pearson and Close Brothers all lost ground as they traded without entitlement to the dividend.
Inchcape slumped even as the automotive distributor reported a rise in annual earnings driven by growth in new and used vehicle sales and higher prices.
Informa was knocked lower by a downgrade to ‘equalweight’ at Morgan Stanley.
On the upside, Puretech Health surged after US-listed Royalty Pharma bought an interest in the company’ royalty in Karuna Therapeutics’ KarXT drug for up to $500m.
Bulmers and Magners owner C&C Group fizzed higher after saying it expects to report a jump in full-year revenues and operating profit despite a challenging backdrop, and to resume dividend payments later in the year.
Darktrace was boosted by an initiation at ‘buy’ at HSBC.
Top 10 FTSE 100 Risers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Anglo American Plc | +1.44% | +37.50 | 2,641.50 |
| 2 |  |
Antofagasta Plc | +1.43% | +22.00 | 1,558.50 |
| 3 |  |
Melrose Industries Plc | +1.23% | +1.90 | 156.05 |
| 4 |  |
Fresnillo Plc | +1.18% | +8.60 | 735.60 |
| 5 |  |
3i Group Plc | +0.86% | +13.50 | 1,582.50 |
| 6 |  |
Glencore Plc | +0.79% | +3.55 | 453.70 |
| 7 |  |
Bae Systems Plc | +0.63% | +6.00 | 964.00 |
| 8 |  |
Centrica Plc | +0.39% | +0.40 | 103.60 |
| 9 |  |
Hargreaves Lansdown Plc | +0.30% | +2.40 | 802.20 |
| 10 |  |
Barratt Developments Plc | +0.25% | +1.10 | 441.10 |
Top 10 FTSE 100 Fallers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Schroders Plc | -4.10% | -19.00 | 444.40 |
| 2 |  |
British American Tobacco Plc | -2.89% | -86.50 | 2,902.50 |
| 3 |  |
Informa Plc | -2.83% | -19.60 | 673.20 |
| 4 |  |
Hsbc Holdings Plc | -2.43% | -13.70 | 550.90 |
| 5 |  |
Standard Chartered Plc | -2.36% | -15.40 | 636.60 |
| 6 |  |
Hikma Pharmaceuticals Plc | -2.14% | -36.50 | 1,669.00 |
| 7 |  |
British Land Company Plc | -1.68% | -6.30 | 368.70 |
| 8 |  |
Pearson Plc | -1.63% | -13.40 | 811.20 |
| 9 |  |
Ashtead Group Plc | -1.57% | -80.00 | 5,024.00 |
| 10 |  |
Rolls-royce Holdings Plc | -1.49% | -2.22 | 147.00 |
US close: Stocks tumble as Fed hikes interest rates
Wall Street markets saw a significant decline into the close on Wednesday, following the announcement of a 25-basis point interest rate hike from the Federal Reserve.
The move had been widely anticipated by investors, even as concerns about banking liquidity on both sides of the Atlantic in recent weeks exacerbated market volatility.
At the close, the Dow Jones Industrial Average was down 1.63% at 32,030.11, while the S&P 500 dropped 1.65% to finish at 3,936.97.
The Nasdaq Composite also experienced a slide, losing 1.6% to end the day at 11,669.96.
In currency markets, the dollar made marginal movements against both sterling and the euro.
It was last 0.01% stronger on the pound at £0.8152, while it fell 0.04% against the common currency to change hands at €0.9208.
“After the gyrations in forecasts in recent weeks, the Fed has duly delivered the dovish hike many had expected,” said IG chief market analyst Chris Beauchamp.
“It was the only sensible move really, given the turmoil in global markets since the failure of Silicon Valley Bank.
“The dot-plot points towards a steady cut in rates in 2024, and it sends the message that Fed members take the risk of further stress in banks seriously.”
Fed rate hike turns stock sentiment sour
At the top of the agenda was news that the Federal Reserve raised interest rates as expected, increasing the target range for the Fed funds rate by 25-basis points to between 4.75% and 5.0%.
The central bank also announced that its holdings of Treasury securities, agency debt, and agency mortgage-backed securities would continue to be reduced as previously planned.
In its policy statement, the Fed said “some additional policy firming” may be necessary to return inflation to its 2% target.
The central bank said it remained “highly attentive” to inflation risks, and although the extent of the impact of recent developments on credit conditions was uncertain, job gains had picked up, unemployment was low, and price pressures remained elevated.
Members of the Federal Open Market Committee (FOMC) were unanimous in their decision to raise interest rates, while officials reduced their central prediction for GDP growth in 2023 to between 0.0% and 0.8%, from 0.4% to 1.0%.
However, their projection for the headline rate of increase in the price deflator for personal consumption expenditures in 2023 was raised to between 3.0% and 3.8% from 2.9% to 3.5%, and the projection for core PCE inflation was increased to between 3.5% and 3.9%, from 3.2% to 3.7%
“Despite recent strong economic data, officials acknowledged the likely hit from the banking sector turmoil and left their end-year projection for the Fed funds rate unchanged at 5.1%, implying only one more 25-basis point hike from here,” said Andrew Hunter, deputy chief US economist at Capital Economics.
“Nevertheless, with the crisis making us more confident that the economy will fall into recession soon, we suspect the Fed will be cutting rates again before long.”
Elsewhere, the head of the Treasury Department Janet Yellen said that her agency had not considered expanding the country’s deposit insurance programme, although it was a possibility in individual cases if needed.
Yellen said in testimony to the Senate that the Treasury had not looked at expanding the Federal Deposit Insurance Corporation’s (FDIC) deposit protection scheme, adding that it was not something they were considering.
In the event of a contagious bank run, she said the Treasury would likely seek an exception to allow such a move, but that would come on a case-by-case basis.
GameStop surges while First Republic falters
In equities, GameStop saw its stock soar by 35.24% after the meme stock favourite delivered earnings per share of 16 cents in its fiscal fourth quarter, a marked improvement from the 47-cent loss recorded at the same time a year earlier.
Revenues also beat estimates by $150.0m, coming in at $2.23bn.
Elsewhere, graphics processor specialist Nvidia saw its stock price rise by 1.03% after setting out plans to rent out the computing power needed to develop AI technologies to almost any business.
On the downside, Nike struggled, with its stock dropping 4.86% after reporting its latest quarterly earnings.
While it posted earnings of 79 cents per share, well above consensus estimates for a reading of 55 cents, the company also warned that it had experienced a 3.3-point fall in gross margins to 43.3% due to markdowns and promotions used to liquidate its inventory.
Finally, First Republic Bank was in the red, with its stock price tumbling 15.47% amid reports that it had brought in advisers to help it pick over its options amid a liquidity crisis.
Thursday newspaper round-up: TikTok, Google, NatWest
Britain’s biggest banks are under pressure to pass on higher interest rates to savers after figures showing they have made an extra £7bn by refusing to do so, and as they stand to benefit from a tax cut announced by Jeremy Hunt. On the day the Bank of England is expected to announce a further rise in interest rates, the Unite trade union said banks had already made billions of pounds in extra profit from the dramatic rise in borrowing costs. – Guardian
The chief executive of TikTok, Shou Zi Chew, is set to face a grilling from US lawmakers on Thursday as the political storm surrounding the China-owned social media platform intensifies with the Biden administration threatening to ban the app entirely in the US. TikTok, which is owned by the Chinese company ByteDance, has long faced criticisms over the data it holds on US users – data that lawmakers fear could fall into the hands of the Chinese government. While the platform has repeatedly denied those claims, stating it stores US user data outside of China, legislators on both sides of the aisle have united in their backlash despite the company’s growing popularity. – Guardian
Google’s artificial intelligence chatbot is still making the same error that contributed to a $120bn wipeout for the tech giant’s share price a month ago. Bard, which was opened to the public in the US and UK on Tuesday, still incorrectly claims that the James Webb Space Telescope took “the very first pictures of a planet outside of our own solar system”. – Telegraph
Panicked British technology companies pulled £2.9 billion from the UK subsidiary of Silicon Valley Bank in the space of a single day, far in excess of the size of withdrawals envisaged by the normal liquidity management rules, the Bank of England has revealed. In written evidence to MPs, Andrew Bailey, the governor of the Bank of England, said the scale of withdrawals on Friday, March 10, was 30 per cent of the SVB UK’s entire deposit base and it was not clear if it could continue to withstand that scale of outflow. – The Times
The chief executive of NatWest has broken ranks with her largest three retail banking rivals to disclose that the bank made 14 times more from its savers last year than in 2021, booking notional net income from them of more than £1 billion. While competitor banks refused to provide MPs with details on revenues or profits from their saving customers, NatWest’s Dame Alison Rose revealed a sharp increase in this net revenue figure from £80 million to £1.09 billion. – The Times
