London close: Stocks mixed, pound sinks after BoE rate hike

(Sharecast News) - London stocks were mixed at the close on Thursday, and the pound firmly in the red, after the Bank of England hiked rates by 75 basis points in a bid to tackle surging inflation. The FTSE 100 ended the session up 0.62% at 7,188.63, while the FTSE 250 was off 0.59% at 18,109.61.

Sterling was below the waterline, last trading down 1.83% on the dollar at $1.1183, as it weakened 1.2% against the euro to change hands at €1.1464.

"The pound has been the big underperformer in the foreign exchange space today, with fears over a drawn-out recessionary period driving sterling down, to the benefit of the FTSE 100," said IG senior market analyst Joshua Mahony.

"While the FTSE 100 is currently shielded by the positive impact a weaker pound has on company earnings, that boost is unlikely to last as traders weigh up the longest recession since record began.

"While banks have shown themselves to be a major beneficiary when rates rise, the economic outlook looks far from favourable amid a potential recession until mid-2024."

Mahony said perhaps the most worrying fact was that the forecast was by no means a worst-case scenario, with a "distinct possibility" that energy prices spiked once again to prolong the monetary tightening and drag out a recession.

"Unfortunately, interest rates can seem a relatively blunt tool when trying to combat sky-high inflation driven by geo-political factors and underinvestment."

The Bank of England hiked rates as expected earlier, but said that consumer price inflation looked set to fall over a percentage point short of its 2.0% target by the end of its three-year policy horizon.

Bank Rate was hiked by 75 basis points to 3.0%, making for the biggest increase for 33 years.

"The dovish split in the rate hike vote, the softer guidance around future hikes, and the Monetary Policy Committee's new forecasts showing inflation undershooting the 2% target in the medium term, all suggest that the committee is nearing the end of its tightening cycle," said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

"A majority of members now think that 'further increases in Bank Rate might be required for a sustainable return of inflation to target, albeit to a peak lower than priced into financial markets'."

In economic news, the UK services sector shrank in October for the first time since February 2021, as Liz Truss' failed mini-budget took its toll.

The S&P Global/CIPS services purchasing managers' index (PMI) declined to 48.8 from 50.0 in September, marking the worst reading since January last year.

It found that political uncertainty and rising borrowing costs since the mini-budget had dented business investment and encouraged a wait-and-see approach to new projects.

"There were also many reports that higher energy bills had led to reduced spending on non-essential services," said Tim Moore, economics director at S&P Global Market Intelligence.

"Overall input price inflation slowed for the fifth month running during October, which signalled a gradual easing of cost pressures from the record highs seen this spring.

"However, the latest rise in business expenses was still faster than at any time in the survey history prior to the pandemic, driven by further steep increases in energy costs and staff wages."

Elsewhere, a fresh report from Springboard said the gap in retail footfall narrowed to 9.8% in October when compared to the pre-Covid 2019 period, down from 12.6% in September.

The retail analysis outfit said shops were boosted by a strong performance during the school half-term, when footfall was up 8% week-on-week.

It said the uplift in footfall from 2021 diminished for a third straight month to 5.2%, dropping from 15.6% in July, while footfall in high streets was 7.8% higher than at the same time in 2021.

"Despite the growing cost of living crisis, the gap in footfall from 2019 across UK retail destinations continued to narrow in October to -9.8%," said Springboard's Dianne Wehrle.

"This is the first time that the gap from 2019 has been less than -10%, which is a positive sign in what is clearly a challenging economic environment for retailing."

On the continent, eurozone unemployment edged lower in September according to Eurostat, with the unemployment rate ticking down to 6.6% from an upwardly-revised 6.7% in August, in line with expectations.

In September 2021, the unemployment rate stood at 7.3%.

For the European Union as a whole, the unemployment rate was stable in September at 6%, and down from 6.7% a year earlier.

Across the pond, activity in the US services sector grew a tad less quickly than anticipated in October, while price pressures grew.

The Institute for Supply Management's services PMI slipped to 54.4 in October from a reading of 56.7 for September, below expectations for a print of 55.9.

Subindices for business production, new orders and employment all fell back.

US non-farm labour productivity and unit labour costs, meanwhile, were slightly better behaved than expected during the third quarter.

According to the US Department of Labor, the former increased at a quarterly annualised pace of 0.3% over the three months to September, compared to market consensus for a 0.1% decline.

Unit labour cost growth slowed to 3.5%, coming in below the 3.9% analysts had pencilled in.

Finally on data, activity in China's services sector deteriorated further in October as Covid restrictions took their toll.

The Caixin services purchasing managers' index declined to 48.4 from 49.3 in September, missing consensus expectations of 49.0.

Pantheon Macroeconomics attributed the deterioration to local governments zealously enforcing Covid-zero policy during the 20th Party Congress period.

On London's equity markets, RS Group - formerly Electrocomponents - tumbled 7.28% on news that its chief executive would be taking a leave of absence.

BT Group slumped 8.88% after it confirmed it was seeking a further £500m in cost savings, after being hit by surging inflation including higher energy prices.

Rolls-Royce slid 3.75% after the engine maker held its annual guidance, as the rebound in post-pandemic air travel continued and recent market turmoil and inflation had not impacted cash flow.

Trainline shares dropped 8.81% despite the ticket agent swinging back into the black over the first half of its fiscal year, as the rail industry recovered.

The operator also backed its full-year guidance.

Helios Towers was 3.9% lower after the company cut its guidance for full-year earnings before interest, taxes and depreciation on the back of higher power prices.

Ashmore Group and Renishaw fell by a respective 7.26% and 3.01%, as they traded without entitlement to the dividend.

On the upside, grocery giant J Sainsbury was up 6.95% even after it posted a dip in first-half profits amid the cost-of-living crisis.

Trade kitchen supplier Howden Joinery Group rallied 3.16% after saying it now expected 2022 pre-tax profit to be "marginally" ahead of consensus forecasts, as it hailed strong revenue growth.

Oil and gas company Harbour Energy was up 4.79% after reporting a production rise, while unit operating costs decreased throughout the nine months ended 30 September.

Medical equipment maker Smith & Nephew added 2.88% despite posting slightly lower-than-expected third-quarter revenues on Thursday, and saying revenue growth for the full year looked set to be in the middle of the previously guided range.

Aston Martin Lagonda bounced 17.21% by the end of the day, helped by JP Morgan's decision to mark up their estimates for the carmaker's earnings per share for the current year and next.

Reporting by Josh White for Sharecast.com. Additional reporting by Michele Maatouk, Frank Prenesti, Iain Gilbert and Alexander Bueso.

Market Movers

FTSE 100 (UKX) 7,188.63 0.62% FTSE 250 (MCX) 18,109.61 -0.59% techMARK (TASX) 4,253.69 -0.58%

FTSE 100 - Risers

Sainsbury (J) (SBRY) 211.60p 6.95% Harbour Energy (HBR) 402.90p 4.79% Smith & Nephew (SN.) 1,034.50p 2.88% Tesco (TSCO) 223.00p 2.86% Haleon (HLN) 274.45p 2.77% Shell (SHEL) 2,491.50p 2.62% British American Tobacco (BATS) 3,350.00p 2.32% Informa (INF) 565.00p 1.91% BP (BP.) 493.50p 1.89% WPP (WPP) 790.40p 1.67%

FTSE 100 - Fallers

BT Group (BT.A) 116.40p -8.88% RS Group (RS1) 885.00p -7.28% Endeavour Mining (EDV) 1,462.00p -4.57% Flutter Entertainment (CDI) (FLTR) 11,225.00p -3.98% Rolls-Royce Holdings (RR.) 80.24p -3.40% Dechra Pharmaceuticals (DPH) 2,598.00p -2.62% Fresnillo (FRES) 701.80p -2.61% Spirax-Sarco Engineering (SPX) 10,545.00p -2.50% Halma (HLMA) 2,066.00p -2.46% SEGRO (SGRO) 769.40p -2.43%

FTSE 250 - Risers

Aston Martin Lagonda Global Holdings (AML) 102.70p 14.65% Ferrexpo (FXPO) 104.00p 6.39% Lancashire Holdings Limited (LRE) 557.00p 5.69% Wizz Air Holdings (WIZZ) 1,822.50p 5.13% Bank of Georgia Group (BGEO) 2,350.00p 4.21% Tullow Oil (TLW) 45.74p 3.58% Howden Joinery Group (HWDN) 535.00p 3.16% TUI AG Reg Shs (DI) (TUI) 134.55p 3.02% Beazley (BEZ) 648.50p 2.45% TBC Bank Group (TBCG) 2,110.00p 2.43%

FTSE 250 - Fallers

Trainline (TRN) 310.70p -8.81% Dr. Martens (DOCS) 231.00p -8.26% TI Fluid Systems (TIFS) 123.00p -7.38% Ashmore Group (ASHM) 197.90p -7.26% Home Reit (HOME) 82.90p -5.04% Moonpig Group (MOON) 136.90p -4.86% Darktrace (DARK) 341.80p -4.79% Bridgepoint Group (Reg S) (BPT) 202.60p -4.25% Kainos Group (KNOS) 1,263.00p -4.10% International Distributions Services (IDS) 194.75p -4.06%