FTSE 100 falls as investors await rates clarity

(Alliance News) - Blue-chip European shares were lower early Wednesday afternoon, with the mood in equity markets uncertain ahead of Thursday's key US inflation report.

The FTSE 100 index traded down 23.66 points, 0.3%, at 7,660.30. It has shed around 0.9% in a tricky start to 2024.

The FTSE 250 was down 13.52 points, 0.1%, at 19,280.50, and the AIM All-Share was up 0.42 of a point, 0.1%, at 753.08.

The Cboe UK 100 was down 0.3% at 765.50, the Cboe UK 250 was down 0.2% at 16,740.33, while the Cboe Small Companies was up 1.0% at 15,081.10.

In European equities, the CAC 40 in Paris was down 0.2%, while the DAX 40 in Frankfurt was 0.1% lower.

Stocks in New York are called to open mixed. The Dow Jones Industrial Average is called down 0.1%, the S&P 500 flat and the Nasdaq Composite up 0.2%.

"Between tomorrow's US inflation report, and the earnings from a raft of big banks, we should gain greater clarity over market sentiment by the weekend," Scope Markets analyst Joshua Mahony commented.

According to FXStreet, the consensus is for the US headline consumer price index to edge up to 3.2% annually in December, from 3.1% in November. However, core inflation - which excludes food and energy - is expected to cool to 3.8% from 4.0%.

The reading may help direct the path of Federal Reserve interest rates. The US central bank is expected to stand pat in its first meeting of the year, but cut rates in March.

AJ Bell analyst Russ Mould commented: "The market is still trying to work out if central banks are going to under-promise and over-deliver on interest rates cuts or if they really mean it when they say any such move is still some way off."

The data comes ahead of the Federal Reserve's first decision of the year on February 1. It is widely expected to maintain the federal funds rate range at 5.25%-5.50% in that meeting.

According to the CME FedWatch Tool, there is a 68% change that it cuts rates in March, however.

Away from the Fed, European Central Bank Vice President Luis de Guindos said a technical recession for the eurozone is possible.

In a speech on Wednesday, he said the single currency area may have suffered a downturn at the end of last year, Bloomberg reported.

"Soft indicators point to an economic contraction in December too, confirming the possibility of a technical recession in the second half of 2023," de Guindos said, according to the news agency.

"The rapid pace of disinflation that we observed in 2023 is likely to slow down in 2024, and to pause temporarily at the beginning of the year, as was the case in December."

Sterling was quoted at USD1.2722 early Wednesday afternoon, rising from USD1.2703 at the London equities close on Tuesday. The euro traded at USD1.0945, higher than USD1.0923. Against the yen, the dollar was quoted at JPY145.05, up versus JPY144.35.

In London, Sainsbury's shares fell 5.2%, as a tough Christmas period for its clothing and merchandise offering overshadowed decent grocery sales.

The London-based supermarket chain said grocery sales rose 9.3% year-on-year in the 16 weeks to January 6, with Christmas grocery sales in the final six weeks of that period climbing 8.6%.

Sainsbury's said total retail sales excluding fuel grew 6.5% annually in the full 16-week period, and 4.9% in the six-week Christmas period.

However, general merchandise sales fell 0.6% annually in the 16 weeks and slumped 3.7% over Christmas. Clothing sales fell 1.7% in the 16 weeks and slumped 6.0% in the six-week shorter period.

Housebuilders nudged higher. Persimmon said it completed 9,922 homes in the 12-months ended December 31, down a third from 14,868 in 2022. The average selling price rose slightly to GBP255,750 from GBP248,616 over the period.

Persimmon said that it entered 2024 with an improved forward sales position, up to GBP1.06 billion from GBP1.04 billion at the end of 2022. Private forward sales were up 11%.

While the company predicted that market conditions will remain "highly uncertain" ahead of the 2024 general election, Persimmon said that "longer term demand for new homes remains favourable".

Persimmon shares rose 3.8%. Peers Berkeley Group and Taylor Wimpey added 1.5% and 0.5% in a positive read-across.

Belvoir rose 1.6%, while Property Franchise Group lost 1.3% after the duo said they have agreed an all-share merger. The deal will create a GBP214 million company managing 152,000 properties across the UK.

Belvoir shareholders will receive 0.806377 of a new Property Franchise Group share for each Belvoir share they own. Based on Property Franchise Group's share price prior to the announcement, this values Belvoir's shares at 277.4 pence each and its total equity at GBP103.5 million. It values Property Franchise Group's equity at GBP111.00 million.

After the merger, current Belvoir shareholders will own 48.25% of the enlarged company and Property Franchise Group holders 51.75%.

Elsewhere, Marks Electrical slumped 27%.

The electrical products retailer said revenue in the three months to December 31 rose 18% to GBP35.1 million from GBP29.8 million a year prior. However, the firm said that its gross margin did not see the rise that had been expected.

"In a challenging trading environment where consumers remain highly price-conscious, our gross product margin did not increase to the levels we expected, and despite proactive action on other controllable costs, the impact of this in the peak trading period has had a material impact on our full year profit guidance," Marks Electrical explained.

Gold was quoted at USD2,034.50 an ounce early Wednesday afternoon, higher than USD2,029.09 on Tuesday. Brent oil was trading at USD77.66 a barrel, falling from USD77.81.

By Eric Cunha, Alliance News news editor

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