Inflation in Europe remains ‘too high’

Markets are pricing in another interest rate increase by the European Central Bank following a hike today and strong warnings that the inflation battle is far from over.

Traders believe the Frankfurt-based bank could go further and are pricing in at least one more increase after President Christine Lagarde told a media briefing: “We are not pausing – that is very clear.” 

The FTSE 100 closed 85.73 points lower at 7,702.64.

The ECB raised its interest rate by 25 basis points, the smallest since it began lifting them last summer, later than other banks. It brings the rate it pays on bank deposits, the benchmark for borrowing costs in the 20-country euro zone, to 3.25% from 3% earlier.

Ms Lagarde opened her post-meeting comments by saying the inflation outlook “continues to be too high for too long”.

She warned that the lags in the impact of the ECB’s series of interest rate increases on the real economy “remain uncertain” and urged the 20-eurozone governments to roll back support measures to avoid driving up inflationary pressures, which would call for a stronger monetary policy response.

Stocks fell and the pound gained 0.2% against the euro on the back of the smaller 0.25 percentage point interest rate increase and the outlook for smaller rises over the rest of the year.

Eurozone inflation data released earlier this week showed a slight rise in headline inflation in April, to 7%, and slight fall in core inflation, to 5.6%.

“Underlying price pressures remain strong,” the ECB said in a statement. “At the same time, the past rate increases are being transmitted forcefully to euro area financing and monetary conditions, while the lags and strength of transmission to the real economy remain uncertain.”

Economic growth in the bloc was stagnant in the first quarter.

The US Federal Reserve last night hiked rates as widely expected, bringing the federal funds rate range to 5%-5.25% — its highest level since August 2007, but hinted at pausing the m onths-long policy.

The Bank of England’s monetary policy committee is expected to impose one more interest rate rise next week, possibly the last this year as the series of hikes is allowed to take effect on inflation.

7am: Virgin Money bid target?

Virgin Money could be heading into bid target territory according to Shore Capital after another downward lurch in its trading performance.

Full story here

7am: Next

Next reported a slight dip in sales but said it was ahead of guidance for the first quarter of the year.

Full price sales were down 0.7% against last year, moderately ahead of Next’s guidance of 2%. Full year guidance is unchanged with Next still expecting profit before tax of £795m, down 8.7% on last year.

7am: Shell

Energy company Shell posted earnings of $9.65bn (£7.6bn) for the first three months of this year, joining its rival BP in beating forecasts..

However, profits are lower than the $9.8bn it made in the final quarter of last year as oil and gas prices fall from their highs last summer.

Full story here

7am: Rathbones

Wealth manager Rathbones said total funds under management and administration rose 1.1% in the first quarter to £60.9 billion, reflecting positive market and investment performance.

Net inflows in our discretionary and managed business were £303 million, representing a 2.6% annual growth rate with net operating income increasing 6.4% compared with the previous quarter to £117.8 million.

Rathbones remains on track to meet the operating margin targets provided in the 2022 preliminary results, supported by the successful delivery of Saunderson House synergies and the launch of an enhanced digital capability.

Over the coming months Rathbones expects to complete the combination with Investec that was announced on 4 April, subject to regulatory approvals. The Prospectus and Circular in relation to the combination will be published later this quarter.

Paul Stockton, group chief executive, said: “This transaction represents a significant opportunity in our sector to become the UK’s leading discretionary wealth manager.”

Financial highlights:

–    Total funds under management and administration totalled £60.9 billion at the end of the first quarter* (31 December 2022: £60.2bn).

–      £45.8bn in the Investment Management business (31 December 2022: £45.1bn).

–      £11.4bn in the Rathbone Funds business (31 December 2022: £11.0bn).

–      £3.7bn in Saunderson House (31 December 2022: £4.1bn).

–    Discretionary and managed net inflows totalled £0.3bn (Q1 2022: £0.3bn), representing an annualised growth rate of 2.6% (Q1 2022: 2.5%, Q4 2022: 3.1%).

–    Underlying net operating income totalled £117.8 million for the three months ended 31 March 2023, a decrease of 2.2% from the £120.5m in the corresponding period last year.  

6am: Mobile tie-up

Vodafone and CK Hutchison are said to preparing a £15 billion merger that would create Britain’s biggest mobile phone operator.

The deal would value the equity of the combined entity at around £9bn, with £6bn of debt, according to the FT. It would have around 28m customers.

The two parties are expected to reveal the merger later this month after the appointment of Margherita Della Valle as Vodafone’s new chief.