Stocks under pressure from expected BoE hike

(Alliance News) - Stocks in London ended lower on Monday, weighed down by a disappointing post-Covid recovery in China and the increasing expectation that interest rates in the UK will keep pushing higher.

Chris Beauchamp, chief market analyst at IG, added the moves to the downside on Monday were "amplified" by the absence of volume due to a public holiday in the US. Financial markets in New York are closed on Monday for the Juneteenth holiday.

The FTSE 100 index closed down 54.24 points, or 0.7% at 7,588.48 on Monday. The FTSE 250 ended down 176.60 points, or 0.9%, at 18,854.29. The AIM All-Share closed down 2.48 points, or 0.3%, at 790.11.

The Cboe UK 100 ended down 0.7% at 756.79, the Cboe UK 250 closed down 0.7% at 16,510.34, and the Cboe Small Companies ended down 0.7% at 13,247.73.

Meanwhile, sterling remained close to the USD1.28 mark at the close on Monday, boosted by expectations that the Bank of England will enact another 25 basis point rate hike on Thursday.

The pound was quoted at USD1.2797 at the London equities close on Monday, down slightly from USD1.2819 at the close on Friday.

Kit Juckes at Societe Generale said the "single biggest driver" of foreign exchange rates has been the shifts in expectations about short-term interest rates. Juckes said the pricing of a further five 25 basis point rate hikes in the UK this year is pulling the pound towards the USD1.30 level.

The euro stood at USD1.0928 at the European equities close on Monday, virtually unchanged against USD1.0926 at the same time on Friday.

Expectations that the European Central Bank will also keep hiking interest rates has kept the euro firm against the dollar.

An ECB official on Monday said that more interest rate hikes will be needed to rein in stubbornly high eurozone inflation.

"We need to remain highly data-dependent and err on the side of doing too much rather than too little," ECB executive board member Isabel Schnabel said in a speech in Luxembourg.

"We thus need to keep raising interest rates until we see convincing evidence" of inflation returning to the ECB's two-percent target, she said.

Against the yen, the dollar was trading at JPY141.85, up from JPY141.59 late Friday.

Analysts at Brown Brothers Harriman explained that while the more hawkish stance of other central banks compared to the US Federal Reserve has kept the dollar broadly weak in recent days, a "doveish" Bank of Japan has given the US currency "room to move higher".

In London, Next was the top blue-chip performer, closing up 4.8% on Monday.

The clothing and homewares retailer lifted yearly guidance after enjoying better-than-expected trading in recent weeks due to warmer weather and more consumer spending power.

Next said full price sales in the first seven weeks of its second quarter were up 9.3% year-on-year, a sizeable beat to the forecast of a 5% fall. Next's second quarter ends on July 29.

As a result, it has lifted pretax profit guidance to GBP835 million from GBP795 million previously. It would represent a 4.1% decline from GBP870.4 million a year prior.

It also upgraded its full price sales guidance to GBP4.67 billion from GBP4.53 billion, so up 1.4% on-year, from the previous guidance of GBP4.53 billion, which would have been a 1.5% fall.

Entain added 1.3% after Reburn upgraded the sports betting firm to 'buy' from 'neutral'. The broker said the poor market reaction to an Entain tilt at acquiring a Polish operator was unfair.

"The negative reaction to the STS acquisition has been dramatic. Flutter has outperformed Entain off the back of FanDuel's US dominance. But Entain's BetMGM joint venture remains a valuable top three player, while the STS acquisition is sensible," Redburn analyst Andrew Tam commented.

Last Tuesday, Entain said its Central & Eastern Europe operation, Entain CEE, had agreed - alongside its joint venture partner EMMA Capital - to acquire 100% of STS, Poland's leading betting operator.

Mining stocks were among the worst performers in the FTSE 100. Anglo American closed down 2.3%, Antofagasta down 2.5% and Endeavour Mining down 2.7%.

The stocks were knocked after Goldman Sachs cut its forecasts for Chinese economic growth to 5.4% from 6% previously. China is a large consumer of commodities and with poor economic growth predicted for the world's second-largest economy, the outlook for demand looks weak.

In the FTSE 250, Kainos dropped 5.8% after it said its chief executive officer of 22 years, Brendan Mooney, will finish his term in the role by the end of September. In his place, Kainos named Digital Services Director Russell Sloan as its new CEO.

Elsewhere in London, boohoo jumped 6.4% after the online fashion retailer called for wholesale changes at the board of troubled investee Revolution Beauty. boohoo owns just under 27% of Revolution Beauty.

boohoo said it will vote against the re-appointment of Chief Executive Bob Holt, Chair Derek Zissman, and Chief Financial Officer Elizabeth Lake as directors at the beauty company's annual general meeting.

It has also requisitioned a general meeting where it will look to table a bid to remove those directors, and add Alistair McGeorge and Neil Catto, the former as executive chair and the latter as CFO.

Trading in Revolution Beauty shares have been suspended since September 1 after it failed to deliver its first audit by August 31.

On AIM, Creo Medical surged 19%. The medical device company said its Speedboat Inject endoscopy product has been cleared for use in the entire gastrointestinal tract within European markets.

Speedboat Inject is already cleared for full use in the gastrointestinal tract for the cutting and coagulation of soft tissue using radio frequency and microwave energy in the US and Asia Pacific regions. It is used for the prevention and treatment of bowel cancer.

In European equities on Monday, the CAC 40 in Paris ended down 1.1%, while the DAX 40 in Frankfurt ended 1.0% lower.

Brent oil was quoted at USD76.02 a barrel at the London equities close on Monday, up from USD75.62 late Friday. Gold was quoted at USD1,952.97 an ounce, sharply lower against USD1,960.83.

In Tuesday's UK corporate calendar, there are full-year results from IG Design and a trading statement from SThree.

By Heather Rydings, Alliance News senior economics reporter

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