Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

FTSE 100 lower, UK interest rates seen rising 50bps

Published 04/08/2022, 10:35
Updated 04/08/2022, 10:40
© Reuters FTSE 100 lower, UK interest rates seen rising 50bps

© Reuters FTSE 100 lower, UK interest rates seen rising 50bps

FTSE 100 slips ahead of MPC rate call

• MPC decision in focus, 50bps interest rate rise expected

• UK construction PMI falls

All eyes in London are on the Monetary Policy Committee decision on UK interest rates today with a 50bps rate rise expected.

AJ Bell Investment Director, Russ Mould, said: “The FTSE 100 dipped ahead of a Bank of England meeting where it is expected to introduce a 50bps hike in rates.”

“Attention is likely to be focused on the surrounding commentary and any signals it provides about inflation expectations and the trajectory of interest rates for the remainder of the year."

Fawad Razaqzada, market analyst with City Index and FOREX.com noted the "Bank of England’s “steady as she goes” approach to interest rate hikes (25 basis points) has been heavily criticized while other major banks have been more forceful in their approaches to tacking inflation."

"While this period of inflation was never going to be kept under control by the BoE, critics argue it could have been a little more tolerable had the BoE been more aggressive and quicker in hiking interest rates."

"Consumer inflation in the UK has repeatedly surged to fresh multi-decade highs and now stands at a new 40-year high of 9.4%."

"Will it finally join the rest of central banks with a bigger hike of 50 basis points this time?" he asked.

He agreed with Russ Mould that a 50bps rate hike was on the cards.

10.05am: FTSE falls back, UK construction PMI falls below 50.0

FTSE 100 fell back in mid morning with investors in cautious mood ahead of the MPC rate decision.

At 10.00am the lead index was trading down 20.41 points at 7,425.27.

The S&P Global / CIPS UK Construction PMI fell to 48.9 in July from 52.6 in June and below the 50.0 no change threshold for the first time since January 2021.

Lower volumes of residential work and civil engineering activity more than offset a sustained expansion in the commercial segment.

A strong rate of jobs growth nonetheless continued as construction companies sought to boost capacity and meet increased order intakes and improvements in the availability of some materials meant that supplier delays were the least widespread since February 2020.

Purchase price inflation meanwhile eased considerably (index at 78.1, down from 85.8 in June), with the latest rise in cost burdens the least marked since March 2021.

Construction firms noted upward pressure on business expenses from higher energy, fuel and transport costs, but this was partly offset by some easing in commodity prices (especially for metals and timber).

Business optimism remained subdued across the construction sector in July, with growth expectations well below those seen in the opening months of 2022.

That said, the degree of positive sentiment picked up slightly from June's 23-month low.

Around 42% of the survey panel anticipate a rise in output during the year ahead, while only 15% forecast a decline.

9.05am: FTSE 100 little changed ahead of MPC decision

FTSE 100 hovered around opening levels with investors awaiting today’s decision by the Monetary Policy Committee on interest rates.

At 9.00am the blue chip index was trading 5.09 points to the good at 7,450.77 although the FTSE 250 was a firmer feature up pushing ahead by 113.28 points to 20,132.12..

Market expectations are for the MPC to raise rates by 50bps for the first time since it was set up back in 1997.

Serco Group (LSE:LON:SRP) PLC was a star performer in the FTSE 250 with shares advancing 3.14% to 190.50p after better than expected first half figures.

Peel Hunt said 9% growth in pre-tax profits to £120mln was ahead of their £111mln forecast, with EBITA of £130mln also ahead of their £123mln forecast reflecting increased demand for case management in North America, employment services in the UK, immigration services in both Australia and the UK, and the acquisition of WBB in April 2021.

As a result Peel Hunt analyst Christopher Bamberry has increased his 2022 pre-tax profit forecast to £207mln from £200mln.

But shares in Rolls Royce tumbled 4.78% to 86.36p after the group posted a first half loss of £111mln.

Michael Hewson Chief Market Analyst at CMC Markets UK noted: “The various problems with the resumption of civilian air travel have meant that the rebound in revenues that had been expected in 2022 has been slower to materialise than expected.

“Rolls-Royce (LON:RR) has been making progress, but it has been glacial as today’s share price reaction appears to indicate.

“All in all, today’s H1 numbers are disappointing, progress is being made in civil aerospace and power systems, but the deterioration in margins is concerning and something that new CEO Tufan Erginbilgic will need to get to grips with when he replaces Warren East at the end of the year.”

8.30am: FTSE flat as trading kicks off

FTSE 100 was little moved as trading got underway on Thursday with investors staying sidelined ahead of today’s Monetary Policy Committee’s (MPC) interest rate decision.

At 8.30am the FTSE 100 was down 4.68% at 7,441.00 with the broader FTSE 250 also flat, down 11.22 points (0.06%) to 20,007.62.

Market expectations are for the MPC to raise rates by 50bps for the first time since it was set up back in 1997.

Next made early progress with shares up 1.96% to 6,880p after a bumper second quarter prompted the retailer to raise full year profit guidance by £10mln.

Shore Capital analyst, Eleonora Dani, said the results were reassuring after a series of profit warnings in the sector.

She said the strength in retail sales and online was unexpected which led to the upgrade in full year guidance.

“ Next remains a well-managed company with an experienced management team and tight stock and cost control. “ she added.

Glencore PLC (LSE:LON:GLEN) fell 1.29% to 440.50p despite rewarding investors with a special dividend.

It reported a 43% increase in revenue to US$134,435mln in the first half with adjusted EBIT of US$15,415mln, up 191%.

Joshua Warner, market analyst at City Index said: "Glencore has reaped rewards from higher prices for the likes of gas and coal during the first half, which resulted in record earnings and a significant influx of cash for the commodity giant. Net debt has now fallen to nominal levels of just $2.3bn, well below the $10 bn cap set by the company.”

“This gives it plenty of headroom and this, combined with the significant improvement in cashflow, prompted Glencore to top-up shareholder returns by $4.5bn this morning, split into a new $3bn share buyback and a special dividend worth $1.45bn," he added.

Rolls Royce PLC was another early faller with shares slumping 5.26% after it reported a sharp fall in first-half underlying operating profits to £125m after taking £371mln of R&D costs.

The engineering giant reiterated full year guidance and continues to expect low-to-mid-single digit underlying revenue growth, full-year underlying operating profit margin to be broadly unchanged and modestly positive free cash flow in 2022.

7.35am: FTSE seen treading water in early trading

FTSE 100 expected to make a lacklustre start to trading on Thursday with spread betting companies calling the lead index up around 7 points.

Strong gains in the US will provide some support but the focus will be on the Monetary Policy Committee meeting with an interest rate rise of 25bps to 50bps expected.

Michael Hewson chief market analyst at CMC Markets UK commented: “European markets saw a much more buoyant tone yesterday with the news that US House Speaker Nancy Pelosi had left Taiwan without incident, and better than expected US economic data prompted a similarly strong session for US markets which finished the day strongly higher.

“This positive finish looks set to see a higher open for markets in Europe, with the focus on the Bank of England rate decision and the latest US weekly jobless claims.”

“Today the Bank of England could make history by raising interest rates by 50bps for the first time since the Monetary Policy Committee was set up back in 1997. Market expectation is that we will get 50bps today," Hewson added.

Next PLC (LSE:NXT) upped its guidance for full year profit before tax by £10mln today after a bumper second quarter.

Quarter two sales were up 5%, £50mln ahead of previous guidance.

As a result the retailer now expects full year pre-tax profit of around £860mln, an increase of £10mln from previous expectations.

Next expects this to be made up of a £15mln benefit from better than expected first half sales, improved margins with these increases partially offset by some additional costs.

Rolls-Royce Holdings PLC (LSE:RR.) reported underlying first revenues of £5.3bn today led by a recovery in Power Systems and improvement in Civil Aerospace.

But underlying operating profit of £125m was lower including a £371mln R&D cost.

The engineering giant reiterated full year guidance and continues to expect low-to-mid-single digit underlying revenue growth, full-year underlying operating profit margins to be broadly unchanged and modestly positive free cash flow in 2022.

6.50am: FTSE 100 seen little changed at Thursday's open

FTSE 100 seen little changed at the open with spread betting companies calling the lead index up around 7 points.

Focus in London will be on the Monetary Policy Committee meeting with an interest rate rise of 25bps to 50bps expected.

US markets closed in positive territory on Wednesday with the Dow Jones Industrial Average up 416 points, 1.3%, at 32,813, the Nasdaq Composite up 319 points, 2.6%, to 12,668, and the S&P 500 up 64 points, 1.6%, to 4,155.

Traders shook off some of the concerns involving Nancy Pelosi's visit to Taiwan, which China had urged her not to make, after she landed Tuesday night.

Asian markets were mixed with the Nikkei 225 rising modestly after The Bank of Japan left interest rates unchanged but the Hang Seng fell back in late trading with real estate stocks dragging the index lower.

Read more on Proactive Investors UK

Disclaimer

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.