Market report

Fed hikes rates | FirstGroup | SMS | Shop prices


8pm: Fed raises interest rates

Wall Street leapt after the Federal Reserve raised interest rates by an expected 75 basis points for the second consecutive month in a row. Traders were buoyed by comments from Fed Chair Jerome Powell hinting that the central bank could slow the pace of rate hikes later this year.

The Dow Jones Industrial Average rose 1.7%, over 500 points, while the S&P 500 gained 2.9% and the tech-heavy Nasdaq Composite 4.3%.

James Athey, investment director at abrdn said: “The decision to hike 75bps is no surprise at all and as such the lack of any meaningful market reaction logically follows.

“Beyond that I’d think that chair Powell might have been hoping to get through the press conference without causing too many ructions in markets.

“However, investors are likely to latch onto the chair’s refusal to give any forward guidance and instead follow the ECB into a meeting by meeting stance as prima facie evidence that the deterioration in recent economic data is already testing the Fed’s resolve to keep pushing hard on the economic brake.

“Has he just taken the first step towards another Powell pivotal? A steeper yield curve, a weaker dollar and stronger risk assets are the obvious response to such an interpretation.

“The problem, of course, is that these very market moves act to further ease financial conditions at a time where inflation remains at a 40 year high. Not the result anyone in the Eccles building should have wanted to see.”

5pm: London higher ahead of Fed statement

Ahead of the Fed’s announcement on interest rates tonight, the FTSE 100 closed 41.95 points higher at 7,348.23.

Lloyds Banking Group shares rose 4.3% after it raised its annual guidance against a beneficial backdrop of rising UK interest rates. NatWest rose 1.2% in a positive read-across.

Wizz Air leapt 8.4% as the Hungarian airline said it more than quadrupled its revenue in the first quarter of its new financial year.

On AIM, shares in Scottish ready meals service Parsley Box, headed by Kevin Dorren and Chris van der Kuyl, lost a third of their value as it announced sharp falls in new and repeat customer orders. Full story here

7am: FirstGroup positive

Transport company FirstGroup said in a pre-AGM statement that it expects to make significant further progress in the current financial year.

“FirstGroup is now a resilient and robust platform from which to develop and maximise the opportunities that exist for growth,” it said.

“It is cash-generative, well-capitalised, and able to invest in a low carbon future while supporting progressive dividends to shareholders.”

7am: Smart Metering Systems

In an update, Scotland-based metering installer Smart Metering Systems, said underlying profitability is expected to be marginally ahead of the board’s previous expectations.

Tim Mortlock, CEO, said: “The defensive nature of smart meters, combined with our long-term index-linked cash flows has seen SMS demonstrate strong financial and operational resilience throughout the pandemic, energy market volatility and recent geopolitical upheaval.

“Our existing pipeline of meter assets and grid-scale battery storage assets alone is well on track to hit our medium-term growth expectations.”

7am: Lloyds profits dip

Lloyds Banking Group has set aside £377m to cover a possible increase in customer loan defaults as the economy weakens.

It reported a dip in first-half profits but lifted its guidance for the year on the back of rapidly rising interest rates. Full story here

7am: Parsley Box revenue falls

Ready meals service Parsley Box, headed by Kevin Dorren and Chris van der Kuyl, saw its first half EBITDA losses reduce, but revenue fell sharply as new and repeat customers fell away. Full story here

7am: Unite ahead

Student accommodation provider Unite Students said it is anticipating strong demand for the next academic year.

UCAS data shows a 7% increase in the number of applicants as at the 30 June deadline, compared to pre-pandemic levels in 2019/20. Full story here

12.01am: Shop price inflation hits record

Shop price inflation hit a record high in July, with soaring food prices leading the way.

Prices surged 4.4% in July, picking up speed from a 3.1% rise in June, according to latest British Retail Consortium-NielsenIQ tracker.

Food inflation quickened to 7.0% in July from 5.6% in June. Fresh food inflation alone surged to 8.0% from 6.2%.

A key factor is rising production costs – from the price of animal feed and fertiliser to availability of produce – exacerbated by the war in Ukraine.

Global markets

Wall Street stocks closed lower on Tuesday, as investors chewed over a slew of squeezed corporate earnings figures and awaited news on interest rates from the Federal Reserve tonight.

At the close, the Dow Jones Industrial Average was down 0.71%, as the S&P 500 lost 1.15% and the Nasdaq Composite was 1.87% lower.

Retail giant Walmart tumbled 7.6% after issuing its second profit warning since May, and General Motors fell 3.42% after its second quarter earnings missed estimates, as ongoing supply chain woes impacted profitability.

However, there were better figures from Coca-Cola, up 1.64% after lifting its full-year revenue guidance, while General Electric jumped 4.61% after it posted higher quarterly earnings thanks to a recovery in the aviation industry.

The market is anticipating a 75- basis points hike from the Federal Reserve after the Federal Open Market Committee (FOMC) meeting later today.

Anything other than a 75 bp shift in policy could prompt further volatility, but the focus is shifting to the commentary from Fed Chair Jerome Powell.

His previous comments have highlighted that he believes that the main risk is from not controlling inflation, rather than the consequences of a recession.

In Europe, the squeeze on gas supplies from Russia to Germany continues to weigh on the euro.

This failed to boost crude oil with the WTI futures contract hovering around $95 a barrel and the Brent contract steady near $104.40.

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