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LONDON MARKET MIDDAY: Investors show pre-US Fed decision nerves

Stock prices in London were slightly down heading into the afternoon on Wednesday, as investors awaited the latest interest rate decision from the US Federal Reserve this evening.

The FTSE 100 index slipped just 1.15 points to 8,142.98. The FTSE 250 was down 35.58 points, 0.2%, at 19,929.81, and the AIM All-Share was up 3.07 points, 0.4%, at 763.81.

The Cboe UK 100 was flat at 813.38, the Cboe UK 250 fell 0.2% to 17,252.36, and the Cboe Small Companies was up 0.1% at 15,743.17.

Financial markets in Paris and Frankfurt are closed on Wednesday.

The Fed announces its latest interest rate decision at 1900 BST. A press conference with Chair Jerome Powell follows half an hour later.

Scope Markets analyst Joshua Mahony commented: ‘Today sees the Federal Reserve step up to the plate once again, with Jerome Powell holding the markets in his hands. Recent concerns around a resurgence in inflation pressures have pushed back the expected rate cuts that had until recently been scheduled to commence next month. The market pricing for a June rate cut has shifted from 56% to just 6% in the past month, but even more incredibly we have seen it pushed all the way back to December, bypassing three meetings in the process.

‘With the Fed’s March dot plot having laid out plans to cut three times this year, it is evident that the recent inflationary surge has similarly taken Powell and his colleagues off-guard. Today is the opportunity for him to set new expectations, and there is understandable concern that this meeting will be dominated by a more hawkish tone. Given the dramatic shift in expectations by the markets, bulls will hope that Powell could provide a glimmer of hope that things may not be as bad as markets are portraying.’

While the Fed is not slated to release another summary of economic projections, the press conference following the decision offers a chance for Chair Powell to offer some thoughts on the US interest rate outlook.

With a rate cut hat-trick for 2024 now a distant prospect, the dollar has been supported.

The pound was quoted at $1.2485 early Wednesday, down from $1.2523 at the time of the London equities close on Tuesday. The euro stood at $1.0660, down from $1.0690. Against the yen, the dollar was trading at JP¥157.95, up from JP¥157.44.

Pepperstone analyst Michael Brown said the ‘tide’ could turn on the dollar soon, however.

‘Although the USD has gained ground against all G10 peers since the turn of the year, signs are starting to emerge that the tide may well be turning against the greenback, as Fed pricing reaches ’max hawk’, growth appears to soften, and geopolitical risk seems to dissipate,’ Brown added.

Still to come on Wednesday is the latest US ADP jobs report at 1315 BST.

Equities in New York are called to open lower. The Dow Jones Industrial Average is called down 0.3%, the S&P 500 down 0.5% and the Nasdaq Composite 0.8% lower.

In London, Smith & Nephew shares rose 2.7%, the best large-cap performer. The medical devices maker said first-quarter revenue rose 2.2% on a reported basis to $1.39 billion from $1.36 billion.

‘Revenue growth in the first quarter was driven by solid performance in our Orthopaedics and Sports Medicine & ENT businesses, partially offset by some anticipated softness in Advanced Wound Management,’ Chief Executive Officer Deepak Nath said.

‘We are confident in our outlook and look forward to all three of our business units contributing as we deliver another year of strong revenue growth.’

Smith & Nephew maintained annual guidance, expecting reporting revenue growth of 4.3% to 5.3%.

GSK added 1.9% as it raised annual guidance. Shingles drug, Shingrix, was one stand-out performer in its first-quarter, but the drugmaker reported momentum across all business areas.

The London-based pharmaceutical maker said revenue in the first-quarter of the year was up 5.9% to £7.36 billion from £6.95 billion a year prior.

Pretax profit, however, weakened 29% to £1.36 billion from £1.91 billion. GSK reported ’other’ expenses worth £533 million, swinging from £297 million in gains a year prior and hurting its bottom line. Cost of sales rose 1.5% to £1.97 billion from £1.94 billion.

GSK now expects annual revenue to rise at the upper part of its 5% to 7% range, at constant currency.

It expects constant currency operating profit growth in its core operations of 9% to 11%, its outlook raised from 7% to 10%. Core earnings per share growth of 8% to 10% at constant currency is now expected, the guidance bumped up from 6% to 9%.

Aston Martin shares went into reverse, losing 5.2%, sitting at the rear of the FTSE 250. The Gaydon, England-based carmaker said revenue in the first-quarter fell 10% to £267.7 million from £295.9 million a year earlier. Its pretax loss widened 87% to £138.8 million from £74.2 million.

The company reported 945 vehicle sales, down 26% from 1,269.

AJ Bell analyst Russ Mould commented: ‘Luxury car manufacturer Aston Martin has been sent to the stock market equivalent of the scrapyard after struggling to kick into gear. The company has reported a doubling of losses in the first quarter and missed expectations across the board – including on volumes. Aston Martin has stopped production on some of its core models ahead of the launch of a new range of vehicles which the company expects to power growth in the second half of this year and beyond, but there is little reason for investors to place any faith in this strategy.

‘The company’s valuation is a fraction of what it was when it listed back in 2018, rendering initial comparisons with Ferrari as ridiculous as setting a park jogger up against an Olympic middle-distance runner. Despite a recent refinancing, Aston Martin is still burdened with a hefty debt pile and it’s likely in the last chance saloon at this point. If the new launches don’t go well it’s hard to see what road the business can take next.’

On AIM, there was some M&A impetus for Trinity Exploration and Alpha Financial Markets Consulting shares.

Alpha Financial Markets Consulting rose 39% after it confirmed private equity interest. It has a market capitalisation of £531.5 million.

It said it has received a non-binding indicative proposal from Bridgepoint Advisers, and added that Cinven is also mulling an offer. The duo have until the close of play on May 29 to confirm whether they plan to make an offer for the specialist consultancy services provider.

Trinity Exploration surged 43%, while Touchstone Exploration fell 3.9%. Touchstone said it has struck an all-share deal to acquire Trinity.

The all-share agreement values the latter at £24.1 million. Touchstone Exploration, an oil and natural gas exploration and production active in Trinidad & Tobago, said the deal will create a ‘leading Trinidadian operator of scale’.

It said: ‘The addition of Trinity’s existing production portfolio, along with its exploration and development assets, will position the combined group as one of the leading independent operating companies dedicated to investing in both onshore and offshore activity to grow Trinidadian oil and gas production.’

As part of the deal, Trinity shareholders will receive 1.5 new Touchstone shares for each Trinity share owned. Trinity shareholders will own just under 20% of the combined firm. Trinity directors consider the terms of the deal to be ‘fair and reasonable’.

Brent oil was quoted at $85.23 a barrel early on Wednesday afternoon London time, down from $86.42 late Tuesday. Gold was quoted at $2,291.09 an ounce, down from $2,298.10.

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