Stocks dip after surprise hike by Bank of Canada

(Alliance News) - Stocks in London closed on a cautious note on Wednesday after a surprise rate hike from the Bank of Canada revived fears that interest rates around the world will stay higher for longer.

"Risk appetite had looked wobbly earlier today following poor Chinese trade data and disappointing German industrial output numbers, but a second hawkish central bank in as many days has resulted in stocks turning lower once again," said Chris Beauchamp, chief market analyst at IG.

The FTSE 100 index closed down 3.76 points at 7,624.34 on Tuesday. The FTSE 250 ended down 64.95 points, or 0.3%, at 19,152.27. The AIM All-Share closed 0.48 of a point higher, or 0.1%, at 793.05.

The Cboe UK 100 ended down 0.1% at 760.80, the Cboe UK 250 closed down 0.3% at 16,710.67, and the Cboe Small Companies ended down 0.1% at 13,327.80.

In Europe, the CAC 40 in Paris ended down 0.1%, and the DAX 40 in Frankfurt ended 0.2% lower.

The Bank of Canada defied expectations on Wednesday and lifted its benchmark rate, after enacting successive pauses, as the central bank grapples with "stubbornly high" inflation.

The BoC - which had been expected to leave the overnight rate unchanged for the third meeting in-a-row - lifted the benchmark rate by 25 basis points to 4.75% from 4.50%.

It did not pencil in more hikes to come, however. Unlike in April, the BoC did not say it "remains prepared to raise the policy rate further", with the sentence omitted from the policy statement.

The BoC's decision comes a day after the Reserve Bank of Australia hiked interest rates to an 11-year-high and warned that further rises may be on the horizon to get surging prices under control.

The RBA lifted the key rate 25 basis points to 4.1%, its highest level since May 2012. Most analysts surveyed by Bloomberg had forecast officials to hold steady.

IG's Beauchamp said the decisions from the RBA and BoC have commanded "more attention than usual" as they act as a "prelude" to the "big movers" of the US Federal Reserve, the European Central Bank and the Bank of Japan which announce their own decisions next week.

The Fed will announce its decision on June 14. The ECB and the BoJ will follow a day after.

In London, Vodafone was up 2.3% amid reports by Reuters that the telecommunications firm is in the final stage of agreeing to merge its British operations with Hong Kong conglomerate CK Hutchison.

According to Reuters, an announcement is expected as soon as Friday.

Vodafone will own 51% and Hutchison 49% of the combined group, which could be worth around GBP15 billion, one Reuters source said.

In a joint statement back in October, Vodafone confirmed that it was in discussions with CK Hutchison regarding a possible combination of Vodafone UK and Three UK.

However, at the time, Vodafone emphasised that "there can be no certainty" that any transaction with CK Hutchison would ultimately be agreed.

Housebuilders remained among the worst performing stocks in the FTSE 100 at the close on Wednesday.

Persimmon closed down 1.7%, Barratt Developments closed down 1.2%, and Berkeley finished 1.0% lower.

The stocks came under pressure after data from Halifax showed UK house prices saw their first annual decline in over a decade in May.

According to the mortgage lender, average UK house prices were flat in May from April, after declining by 0.4% in April from March.

On an annual basis, however, prices fell 1.0% in May, after edging up 0.1% in April. This marked the first annual decline in house prices since December 2021, when they fell 0.1%.

In the FTSE 250, discoverIE took the index's top spot after finishing 15% higher.

The customised electronics maker posted a pretax profit of GBP29.1 million in the financial year that ended March 31, up 70% from the previous year's GBP17.1 million. Revenue climbed 18% to GBP448.9 million from GBP379.2 million in the prior year.

Looking forward, discoverIE said its order book remained at a higher than expected level, providing visibility of strong demand.

Elsewhere in London, 888 surged 26% after it received backing from an investment vehicle that includes several former board members of Ladbrokes and Coral owner, Entain.

According to a regulatory filing issued on Tuesday, FS Gaming Investments has built a 6.6% stake in 888.

FS Investments is backed by Kenny Alexander, Lee Feldman and Shay Segev. Alexander was formerly chief executive of GVC, now known as Entain.

Analysts at Jefferies said the names are a "blast from gaming past" and added it read the investment as a "positive endorsement" of the 888/William Hill integration opportunity.

On AIM, Mobile Streams jumped 17% after it announced it signed an exclusive commercial partnership with crypto financial services company, Bitso.

Under the one-year partnership, Mobile Streams will offer Bitso the opportunity to promote all Mobile Stream NFT products from its licences and create joint NFT collections.

In New York, stocks were mixed at the time of London equities close, with the Dow Jones Industrial Average up 0.2%, the S&P 500 index flat, and the Nasdaq Composite down 0.3%.

The dollar was largely weaker, as focus turned to the upcoming Federal Open Market Committee meeting next week.

"Since Federal Reserve speakers are currently restricted from making public statements, and there are no major US economic indicators to analyse today, the foreign exchange markets might remain relatively stagnant until there is a clearer indication of the prevailing interest rate differentials or overall market sentiment," Luca Santos, currency analyst at ACY Securities explained.

The pound was quoted at USD1.2459 at the London equities close on Wednesday, up from USD1.2411 at the close on Tuesday. The euro stood at USD1.0705, higher against USD1.0687. Against the yen, the dollar was trading at JPY139.85, higher compared to JPY139.77 late Tuesday.

Brent oil was quoted at USD77.24 a barrel at the London equities close on Wednesday, up from USD76.40 late Tuesday. Gold was quoted at USD1,954.11 an ounce, lower against USD1,959.55.

In Thursday's UK corporate calendar, there are full-year results from Wizz Air and half-year results from Crest Nicholson.

The economic calendar has EU GDP figures at 1000 BST and the US weekly unemployment insurance claims report at 1330 BST.

By Heather Rydings, Alliance News senior economics reporter

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