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London open: Stocks fall amid US bank worries; Shell, Next buck trend
London stocks fell in early trade on Thursday amid renewed concerns about the US banking sector, as investors mulled the latest rate hike from the Federal Reserve, looked ahead to a policy announcement from the European Central Bank and waded through a deluge of earnings.
At 0915 BST, the FTSE 100 was down 0.4% at 7,759.46.
Victoria Scholar, head of investment at Interactive Investor, said: “Following a drop on Wall Street, European markets have opened lower although the FTSE 100 is nursing more modest declines partly thanks to a boost from Shell and Next which are among just a handful of gainers on the index following their positive first quarter updates.
“As expected, the Federal Reserve raised interest rates by another 25-basis points last night lifting the benchmark overnight lending rate to a range of 5-5.25%. Looking ahead Fed Chair Jay Powell suggested the central bank is approaching the peak of the tightening cycle commenting ‘we’re close, or maybe even there’. US interest rates now stand at a 16-year high after the Fed raised rates ten times in the last year and two months.”
Worries about US banks were playing on investors’ minds again after PacWest Bancorp tumbled 50% in after-hours trading after saying it was considering its strategic options, including a sale.
Scholar said: “PacWest is the latest lender to fall victim to the turmoil in the US mid-cap banking sector with worried investors either cutting their holdings or adding to short positions which has punished its share price.
“PacWest has a heavy focus on commercial real estate lending, which has suffered on the back of the Fed’s aggressive rate hiking path after the longstanding punchbowl of cheap money was removed.”
In equity markets, St James’s Place, Glencore, Hiscox and Admiral were the worst performers on the FTSE 100 as they traded without entitlement to the dividend.
BAE Systems also fell even as the defence contractor said that trading so far this year has been in line with expectations, with “continued good operational performance”.
Virgin Money was under the cosh as it posted lower first-half profit due to an increase in impairment charges for bad debts and higher investment costs.
On the upside, Hargreaves Lansdown was a high riser after a well-received first-quarter update.
Oil giant Shell rallied as it beat forecasts to post a first-quarter net profit of $9.65bn, although down 2% year-on-year due to lower oil and gas prices.
Clothing and homeware retailer Next was also in the black as it backed its full-year guidance and posted a smaller-than-expected drop in first-quarter sales.
Top 10 FTSE 100 Risers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Hargreaves Lansdown Plc | +3.36% | +26.60 | 818.40 |
| 2 |  |
Next Plc | +2.09% | +136.00 | 6,650.00 |
| 3 |  |
Shell Plc | +1.76% | +41.00 | 2,366.50 |
| 4 |  |
Halma Plc | +0.34% | +8.00 | 2,366.00 |
| 5 |  |
Fresnillo Plc | +0.34% | +2.40 | 716.40 |
| 6 |  |
Bhp Group Limited | +0.30% | +7.00 | 2,332.50 |
| 7 |  |
Anglo American Plc | +0.27% | +6.50 | 2,419.50 |
| 8 |  |
Hsbc Holdings Plc | +0.22% | +1.30 | 594.50 |
| 9 |  |
Coca-cola Hbc Ag | +0.20% | +5.00 | 2,488.00 |
| 10 |  |
Standard Chartered Plc | +0.20% | +1.20 | 612.60 |
Top 10 FTSE 100 Fallers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
St. James’s Place Plc | -4.85% | -57.50 | 1,127.00 |
| 2 |  |
Wpp Plc | -3.97% | -35.80 | 865.60 |
| 3 |  |
Ocado Group Plc | -3.86% | -18.80 | 468.50 |
| 4 |  |
Experian Plc | -3.67% | -103.00 | 2,700.00 |
| 5 |  |
Glencore Plc | -3.55% | -16.40 | 445.90 |
| 6 |  |
Admiral Group Plc | -3.42% | -78.00 | 2,204.00 |
| 7 |  |
Relx Plc | -3.21% | -81.00 | 2,443.00 |
| 8 |  |
Informa Plc | -2.75% | -19.60 | 692.80 |
| 9 |  |
Carnival Plc | -2.68% | -18.40 | 668.00 |
| 10 |  |
Hiscox Ltd | -2.60% | -31.00 | 1,162.00 |
US close: Stocks tumble as Fed takes rates to 5.25pc
Stocks on Wall Street closed in the red on Wednesday, after the Federal Reserve announced a 25-basis point hike to interest rates in its latest decision.
The Dow Jones Industrial Average dropped 0.8% to close at 33,414.24 points, while the S&P 500 index declined 0.7% to 4,090.75 points, and the tech-heavy Nasdaq Composite retreated 0.46% to end the session at 12,025.33 points.
Market participants had been broadly expecting the Fed’s decision to raise interest rates, although the central bank also hinted that a pause in its tightening cycle could be on the horizon.
In currency markets, the dollar lost ground against both sterling and the euro, weakening 0.03% against both currencies to last trade at 79.57p and 90.37 euro cents, respectively.
Against the yen, the greenback dropped 0.05% to change hands at JPY 134.64.
“As expected, the FOMC raised the target range for the federal funds rate; the decision was unanimous,” said analysts at RaboResearch.
“With First Republic out of the way, which was the main threat to a rate hike, as we discussed in our preview, the FOMC was able to reach the terminal rate from the projections made in March.
“As we expected, the FOMC removed the ‘some additional policy firming’ language from the formal statement – laying the groundwork for a pause – and Powell confirmed that the committee does not expect to cut rates this year.”
Fed leaves door open for pause after latest rate hike
At the top of the agenda was the Federal Reserve’s announcement that it was increasing short-term official interest rates, as widely anticipated, while leaving open the possibility of a pause in its tightening cycle.
The central bank added 25-basis points to its federal funds rate target, to between 5% and 5.25%.
In its policy statement, the Federal Open Market Committee (FOMC) emphasised the resilience of the banking system, and reaffirmed its commitment to returning inflation to its 2% target.
Despite modest economic growth in the first quarter, the FOMC noted that hiring remained robust, while inflation was still elevated.
The statement also explained that rate setters would consider the cumulative tightening of monetary policy, as well as economic and financial developments, in determining the need for further policy firming to achieve its inflation target.
It acknowledged that tighter monetary policy could impact economic activity, hiring, and inflation, but said the extent of those effects remained uncertain.
“The Fed failed early on with inflation due to its grand-scale inaction,” said deVere Group chief executive officer Nigel Green.
“It was a hugely consequential miscalculation by the world’s most influential central bank,” said.
“The Fed has now failed again, making another mistake – this latest interest rate hike – which could push the world’s largest economy not only into a short-term but a longer-term recession.”
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said he expected the two rounds of payroll, consumer and producer price indices and activity data between now and the Fed’s June meeting to confirm that the economy had weakened “markedly”, and that inflationary pressure was receding, meaning the Fed would leave rates on hold.
“Note that it is entirely possible that the debt ceiling situation is at crisis point at the time of the June meeting, with markets in turmoil, adding to the case for the Fed not to act.
“We think the Fed’s next move will be an easing, in September or November.”
Elsewhere, private sector employment rose more than anticipated in April, with 296,000 jobs added versus expectations for 148,000.
The ADP report also showed an annual pay increase of 6.7%, with small and medium businesses leading the way in job creation.
Finally on data, the US services sector also showed improvement in April, according to a closely-watched survey from the Institute for Supply Management, with new orders and prices paid rising at an accelerated pace.
The purchasing managers’ index (PMI) improved to 51.0, although it fell short of economists’ expectations, while a key sub-index for new orders strengthened from 52.2 to 56.1.
ISM’s sub-index for prices paid also increased slightly, while companies reduced their stockpiles, indicating slightly lower price pressures.
Estee Lauder slides on slower Asia market, Eli Lilly rises
In equities, shares of Advanced Micro Devices (AMD) tumbled 9.22% after the chipmaker reported a 30% decline in shipments for the first quarter, while pharmacy giant CVS Health Corporation fell 3.68% after reducing its annual profit forecast.
Cosmetics conglomerate Estee Lauder Companies plunged 17.34% after it missed expectations on third-quarter profit, and lowered its full-year sales outlook due to a slower Asia market.
On the upside, Eli Lilly and Company rose 6.68% after the pharmaceuticals firm announced positive results for its Alzheimer’s treatment candidate, with a late-stage trial showing that the drug slowed cognitive decline by 35%.
Meanwhile, food giant Kraft Heinz saw a 2.03% increase in its stock price after posting better-than-expected sales and profits in the first quarter.
The ketchup and macaroni peddler also lifted its full-year guidance.
Thursday newspaper round-up: Capita, Airbnb, Unilever
The chief executive of the London Stock Exchange has called for the bosses of UK companies to be paid more in order to match their counterparts in the US. Julia Hoggett argued that British companies were finding it difficult to attract and retain executives because they offered smaller pay packages than rivals in the US. – Guardian
The City regulator has contacted Capita’s corporate clients urging them to ascertain whether their customers’ data has been compromised after a cyber-attack on the outsourcer in March. The Financial Conduct Authority said it had written to firms it regulates and which outsource work to Capita to ensure they are “fully engaged” in assessing the fallout from the data breach. – Guardian
Airbnb will encourage people to stay in strangers’ spare rooms in a return to its “couch-surfing” origins, amid rising concerns about the cost of holiday accommodation. The company said its 1m single-room listings would now be shown in a dedicated section on its app. Privacy information, such as whether the door locks and if it has its own bathroom, will also be added to listings. – Telegraph
Shareholders have staged a revolt against Unilever’s pay for bosses over concerns about potentially excessive rewards. The remuneration deal handed Alan Jope, 59, the chief executive, €5.4 million, including a €3.7 million bonus. Graeme Pitkethly, 56, the finance chief, received €3.8 million, including a €2.58 million bonus. – The Times
The Financial Conduct Authority has said it will change its approach to whistleblowers after a survey revealed widespread dissatisfaction among those who alert the regulator to wrongdoing. The organisation acknowledged problems including whistleblowers not “feeling heard”; a lack of dialogue with them, which prompts doubts about the chances of a proper investigation; and frustration over a shortage of updates, sometimes interpreted as delay and inaction. – The Times
