The FTSE 100 was trading deep in the red on Thursday after the Bank of England voted to keep rates on hold at 3.75%.
London’s leading index was down 1% at the time of writing, but it was more a consequence of a hawkish Federal Reserve than of any commentary from the BoE, which voted 7-2 to keep rates at 3.75%.
“The two votes for a hike show there are some policymakers still concerned about underlying inflation pressures,” said Luke Bartholomew, Deputy Chief Economist, at Aberdeen.
“But with the recent fall in energy prices and the softer inflation data yesterday, events are evolving in line with, or potentially even better, than the Bank’s scenario A from the last meeting, which was consistent with keeping rates on hold this year.”
The BoE followed a surprisingly hawkish Federal Reserve instalment last night, which knocked US stocks lower going into the close. Those who hoped that the appointment of the new Fed Chair, Kevin Warsh, would usher in a new chapter of dovishness and lower interest rates were left bitterly disappointed by predictions of an interest rate hike later this year, despite the supposed resolution of the conflict in the Middle East.
“Even though the Federal Reserve wasn’t expected to raise US interest rates at its meeting last night, nine of the 18 committee members predicted an interest rate hike this year, while just one said they expected a cut. That took the market by surprise and caused a wobble on Wall Street,” said Russ Mould, investment director at AJ Bell.
The Bank of England was widely expected to keep rates on hold ahead of today’s announcement, so the decision to leave rates at 3.75% didn’t come as a surprise and barely moved the dial for FTSE 100 stocks.
Most of which were down at the time of writing as investors focused on the outlook for US interest rates.
Tesco was the headline corporate story on Thursday, releasing Q1 numbers showing market share gains but slowing sales growth, raising concerns about what margins would look like in the current financial year.
“With margins under the spotlight, management’s confidence in maintaining full-year profit guidance should reassure investors that Tesco is managing the balance between competitiveness and profitability effectively despite a subdued trading backdrop,” said Garry White, Chief Investment Commentator at Charles Stanley.
Whitbread shares were flat after reporting group sales up 2% and UK accommodation sales up 3%, while Germany stormed ahead with 13% growth.
Derren Nathan, head of equity research, Hargreaves Lansdown, said: “As England got off to a steady start at the World Cup, Whitbread checked in with a resilient opening quarter of its own. In the core UK division, accommodation sales were up 3% in the first quarter, a meaningful acceleration from the 1.9% reported for the first 8 weeks.
“Around two-thirds of the growth was organic, with the rest from new rooms. London led the way with a 7% sales increase, shrugging off concerns of a fall in visitor numbers due to the conflict in the Middle East.”
Fresnillo was sharply lower after Berenberg cut its price target for the precious metals miner to 3,300p.
Persimmon was the FTSE 100’s top faller, losing 6% as it traded ex-dividend.