(Alliance News) - Stock prices in London traded lower on Thursday, with some nerves creeping into as some poor earnings on the continent overshadowed hope of a US interest rate cut next month.
Federal Reserve Chair Jerome Powell said a cut could be on the table at the September meeting. The Bank of England could beat the US central bank to the punch, however, as it is predicted to cut rates on Thursday. It is likely to be a knife-edge decision, however.
The FTSE 100 index slipped 0.61 of a point, or 0.1%, at 8,367.37 on Thursday morning. The FTSE 250 fell 34.24 points, 0.2%, at 21,566.47, while the AIM All-Share traded down 0.50 of a point, 0.1%, at 786.52.
The Cboe UK 100 was up 0.1% at 835.65, the Cboe UK 250 also added 0.1% to sit at 18,867.87, but the Cboe Small Companies rose 0.5% to 17,340.95.
The CAC 40 in Paris slumped 1.1%, while Frankfurt's DAX 40 traded 0.8% lower. Societe Generale plunged 6.4% in Paris amid a tough outlook for its French retail banking arm. Falling 4.4% in Frankfurt, BMW reported a second-quarter profit decline.
Against the dollar, the pound slipped to USD1.2794 early on Thursday in London, from USD1.2844 at the London equities close on Wednesday. The euro traded at USD1.0803, falling from USD1.0826. Versus the yen, the dollar slipped to JPY150.01 from JPY150.36.
"As we had expected, communication out of the FOMC meeting hinted at growing confidence that conditions may be in place to cut rates in September, but left the forward guidance unchanged," analysts at Barclays commented.
At the conclusion of its two-day meeting, the US central bank voted to maintain the federal funds rate range at 5.25% to 5.50%. The vote was unanimous. The federal funds rate has been at that level since July 2023, when the Fed last hiked rates, which took the range to its highest level in more than two decades.
Powell said the central bank's "confidence is growing because we are seeing good data".
"We think the time is approaching....and a rate cut could be on the table at the September meeting," Powell said.
Barclays added: "However, as expected, he was careful not to promise a cut, emphasizing that the FOMC will make decisions meeting by meeting, based on the totality of the data, the evolving outlook, and balance of risks.
"We retain our baseline projection that the FOMC will cuts rates twice this year, at the September and December meetings."
The Bank of England takes centre-stage on Thursday, and after a hold by the Fed and a hike by the Bank of Japan, Threadneedle Street could complete this week's central banking bonanza with a cut.
ING analysts commented: "We have held a longstanding house call that the Bank of England will cut rates today. And we're sticking to that call. The market is just about leaning towards that as well, but we think that sterling will drop if a cut is delivered. As we discuss in our BoE preview, we think this cut could be worth a 10-15bp drop in ten-year Gilt yields and knock a cent off GBP/USD.
"Our rationale here is, why wait? Services inflation, if you strip out volatile items, is on a clear decline and weaker pricing power is very much confirmed in the BoE decision maker panel surveys. If the BoE does cut, the consensus is that it will not provide forward guidance on the path of future rate cuts. Yet in May, Governor Andrew Bailey did go as far as to say that the market was underestimating the path of future easing. Clearly, any repetition of remarks like those will see sterling sell off some more."
In London, Next and Rolls-Royce were among the best large-cap performers, after raising guidance.
Next added 7.8%. The clothing and homewares retailer said that in the 13 weeks to July 27, full price sales rose 3.2% on-year, "exceeding our expectations by GBP42 million".
It had predicted second-quarter full price sales would fall 0.3% during the quarter, "given the exceptional summer last year". Next raised its annual pretax profit outlook to GBP980 million, which would represent a 6.7% rise from the prior year. It had previously predicted profit of GBP960 million.
Jet engine maker Rolls-Royce said it now expects full-year free cash flow between GBP2.1 billion to GBP2.2 billion, its outlook raised from a GBP1.7 billion to GBP1.9 billion range.
In addition, it said it will resume shareholder distributions in its full-year results, starting with a 30% pay-out ratio of underlying net profit, and an ongoing pay-out ratio of 30-40% each year.
For the first half of 2024, revenue improved 18% to GBP8.86 billion from GBP7.52 billion. Pretax profit was largely unmoved at GBP1.42 billion.
Rolls-Royce jumped 8.8%.
Shell rose 1.3% as it announced profit in the second-quarter beat expectations. It also unveiled a new USD3.5 billion buyback, fresh from completing one of the same size.
Second-quarter adjusted earnings totalled USD6.29 billion, rising 24% from USD5.07 billion, and topping the Vara-cited consensus of USD6.01 billion.
Shell delivered another strong quarter of operational and financial results. We further strengthened our leading LNG portfolio, and made good progress across our capital markets day 2023 financial targets, including USD1.7 billion of structural cost reductions since 2022," Chief Executive Officer Wael Sawan commented.
Vesuvius slumped 7.8% as it warned an end market recovery will now only materialise next year.
"We no longer expect a significant improvement in our end markets in the second half, with most external forecasts predicting end market recovery being postponed to 2025. Accordingly, we now expect our full year headline trading profit for the year to be only slightly ahead of last year on a constant currency basis," it cautioned.
Revenue in the first half of 2024 fell 5.9% on-year to GBP936.5 million from GBP995.3 million a year prior. Pretax profit fell 19% to GBP76.7 million from GBP94.7 million.
It raised its dividend by 4.4% to 7.1 pence per share from 6.8p.
Gulf Marine Services surged 13% as the provider of self-propelled and self-elevating support vessels, serving offshore oil, gas and renewable energy projects, said it will reinstate its dividend.
It approved a payout policy of distributing 20% to 30% of annual adjusted net profit in dividends and potentially share buybacks. The firm's last dividend was a final one for 2016.
In addition, it said it struck a deal with First Abu Dhabi Bank, Commercial Bank of Dubai and HSBC Bank to refinance its current bank debt.
"The three banks, two of which are current lenders, will have an equal participation to the term loan and to the working capital facility," it adds.
The facility includes a term loan worth USD250 million, but United Arab Emirates dirham-denominated.
A barrel of Brent rose to USD81.63 early Thursday, from USD80.37 at the time of the London equities close on Wednesday. Gold traded at USD2,441.69 an ounce, up from USD2,423.09
The economic calendar has a slew of purchasing managers' index readings, including the the UK at 0930 BST and the US at 1445 BST.
By Eric Cunha, Alliance News news editor
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