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FTSE 100 holds gains at the close despite ECB and BoE hikes

Last updated: 16:45 02 Feb 2023 GMT, First published: 06:56 02 Feb 2023 GMT

City scene
  • FTSE 100 adds 59 points
  • BoE and ECB both raise rates by 50 bps
  • US stocks diverge after Fed hike on Wednesday

4.45pm: FTSE holds gains

The UK's blue-chip index held onto its gains at the close, finishing at 7,820 points for a 0.7% rise.

Stocks are on the front-foot despite warnings from the ECB and BoE that we could be due another set of rate hikes, according to Joshua Mahony, senior market analyst at online trading platform IG. 

UK domestic stocks are particular outperformers, with the prospect of a lacklustre 2023 bringing a potential swift pivot from the BoE, Mahoney noted.

“The FTSE 250 has been a major outperformer today, amid easing fears of a prolonged recession in the UK. BoE projections of an eight-quarter slowdown have been replaced by a five-quarter contraction, which is also less severe in nature. Rising interest rates and elevated prices have certainly brought significant hurdles for the UK economy to overcome," wrote Mahoney. "However, despite the IMF projection that the UK will be the only major economy to contract this year, that could actually help drive a swifter pivot from the BoE."

3.50pm: Santander predicts 10% house price falls

Spanish bank Santander set aside £321mln for mortgage repayment defaults in 2022, according to its latest results, as the bank braces for housing prices to fall back.

In 2023, a 10% fall in house prices is expected by the Spanish bank, driven by rising interest rates and a 1.3% shrinking of the UK economy.

“We expect house prices to fall back to 2021 levels over the year ahead as higher base rates dampen demand,” said the multinational bank.

The Bank of England today raised UK base rates by 0.5% to 4% with a further increase predicted by economists for March.

Fellow lenders Barclays, Natwest and HSBC will post full-year reports over the next fortnight, with Santander’s forecasts a likely indicator of what’s to come.

3.30pm: Bring on Cheltenham

With the City expected to decamp to the Cheltenham Festival of Horseracing next month, news that the Jockey Club has removed formal dress codes from its 15 racecourses in a push to make racegoing more accessible and inclusive could be welcomed by some.

According to a Reuters report, the Jockey Club has said morning dress or formal daywear will still be required on Derby Day at Epsom for those in the Queen Elizabeth II Stand, and offensive clothing and replica sports shirts will not be permitted, the report said, but racegoers are otherwise encouraged to "dress as you feel most comfortable and confident".

"Horseracing has always been a sport enjoyed by people from all different backgrounds and it’s really important to us to be accessible and inclusive," said Jockey Club chief executive Nevin Truesdale.

"We hope that by no longer placing an expectation upon people of what they should and shouldn’t wear we can help highlight that racing really is for everyone.

"It has been clear to us that enforcing a dress code seems rather outdated in the 21st Century in the eyes of many of our racegoers," he added in the report.

3.15pm: IMF issues note of caution

The International Monetary Fund has said global central banks need to make clear to financial markets the probable need for interest rates to remain higher for longer in order to bring inflation sustainably back down to target and avoid a rebound in price pressures, Reuters has reported.

The comments come after the US Federal Reserve on Wednesday raised interest rates by 25 basis points - a smaller rate hike than seen after recent monetary policy meetings - although Fed Chair Jerome Powell reiterated that the central bank does not plan to cut rates this year as it needs to see goods disinflation followed by marked progress in the services sector, which is forecast to take longer.

Today both the Bank of England and European Central Bank hiked their interest rates by 50 basis points and indicated that further rate hikes should be expected. But investors ignored this and sent stocks higher as they expect rates to peak sooner rather than later now.

"Central banks should communicate the likely need to keep interest rates higher for longer until there is evidence that inflation — including wages and prices of services — has sustainably returned to the target," the head of the IMF's Monetary and Capital Markets Department, Tobias Adrian, and his two deputies wrote in a blog post, Reuters said.

"Loosening prematurely could risk a sharp resurgence in inflation once activity rebounds, leaving countries susceptible to further shocks which could de-anchor inflation expectations," they added.

2.50pm: New York divergent

The FTSE 100 index drifted off highs as US stocks started mixed following the Federal Reserve’s as-expected interest rate hike decision on Wednesday, with tech stocks standing out ahead of corporate earnings from heavyweights including Amazon, Alphabet, and Apple later today.

After around 15 minutes of trading in New York, the Nasdaq Composite was 2.3% higher at 12,086 points, with the S&P 500 index up 0.9% at 4,158 points, but the Dow Jones Industrial Average had lost 186 points or 0.5% at 33,908 points.

Ahead of Friday's always-important US non-farm payrolls data, a new report from the Labor Department has shown US labor productivity increased by more than expected during the fourth quarter.

Labor productivity increased 3% in 4Q, far higher than the upwardly revised 1.4% recorded in 3Q, and ahead of the 2.4% expected by economists.

Pantheon Macroeconomics chief economist Ian Shepherdson said productivity was better than expected in 4Q because hours worked rose only 0.5%, despite the reported 1.3% increase in aggregate hours in the payroll report and the 2.2% increase in self-employment, in the household survey.

“If these data stand, they will support our view that productivity is returning to the rising trend in place before Covid,” he noted. “A sustained return to anything close to 2% would be great news for the Fed because stronger productivity growth holds down medium-term inflation.”

In London, around 2.45pm, the FTSE 100 index was 60 points, or 0.8% higher at 7,821.

2.25pm: ION Group "cybersecurity event" probed

The Futures Industry Association (FIA) is assessing the impact of a cyber attack on the systems of an ION Group unit, which affected trading and clearing of exchange-traded derivatives by ION customers across global markets, Reuters reported.

Dublin-based financial technology company ION Markets said that a "cybersecurity event" had impacted its Cleared Derivatives division on Tuesday. All affected servers were disconnected and being remedied, the firm noted.

The FIA, an industry group that represents futures dealers, investors and exchanges, said it was working with impacted members as well as market regulators to evaluate the extent of the impact on trading, processing and clearing.

2.15pm: Next up comes big tech earnings and US jobs

Now that all three of this week's central bank rate decisions have been delivered, Walid Koudmani, chief market analyst at XTB.com noted that some optimism came in the form of the Bank of England's forecasts, which showed inflation in one year's time at 3.01%, down from a November forecast of 5.2%, based on market interest rates and model forecasts. 

He said: "The pound received a boost from this news and rose against the USD which saw some weakness following yesterday's decision by the FED to raise interest rates by 25bp and in essence signalling the potential end of its tightening cycle. Investors also received the long awaited ECB decision, which was the last major central bank decision of the week with the Bank announcing a 50bp hike as expected. This event continued to add to the volatility across European equity markets and the Euro which have had a mixed reaction to the decision with EURUSD pulling back from the 1.10 area as the German index approaches recent highs."

Koudmani added: "While central bank decisions were a highlight of the week, they are by no means the last events worth keeping an eye on as mega-tech company earnings await us with Alphabet, Apple and Amazon publishing their results after today's US market close and with the NFP report being published tomorrow which will give an idea of the highly followed US job market and which could change expectations for further rate hikes by the US central bank."

1.55pm: Triple-whammy confirmed

Completing this week's triple-whammy, the European Central Bank (ECB) has raised interest rates again and pencilled in at least one more hike of the same magnitude next month.

The central bank for the 20 countries that share the euro raised the rate it pays on bank deposits by another- 50 basis points (bps) to 2.5%, in line with what it said in December and with market expectations.

The ECB has been increasing rates at a record pace to fight a sudden bout of high inflation in the eurozone - the byproduct of factors such as the aftermath of the COVID-19 pandemic and an energy crisis that followed Russia's invasion of Ukraine.

The 50 bps point increase mirrors the hike earlier today by the Bank of England, while on Wednesday the US Federal Reserve raised its lending rate by 25 bps.

1.10pm: Some top risers and fallers on the markets today

COPL rallies 50% to 8.39p: Canadian Overseas Petroleum shares rebounded on Thursday morning, after falling even more on Wednesday following a warning it was struggling to meet upcoming senior credit facility covenants.

IMMO also up 50% to 3.35p: The UK-based immersive entertainment group rallied on news of a share repurchase plan with senior employee Rodney Findley, Ken Musen and Alasdair Ritchie.

NCC falls 18% to 152.8p: The FTSE 250-listed cybersecurity group plunged following a warning of softer market conditions in the coming week, despite a broadly positive earnings call. Shares rebounded to 173.4 as the day progressed.

XPD adds 6% to 41.55p: shares advanced after the freight management services company reported strong trading for the fourth quarter and said profits for 2022 will exceed its expectations. 

1.00pm: Mixed start seen in the US

Wall Street is expected to open mixed but mostly higher after the US Federal Reserve turned less hawkish on interest rates and as Facebook and Instagram owner Meta delivered quarterly revenue that beat expectations and announced measures aimed at boosting shareholder value.

While futures for the Dow Jones Industrial Average (DJIA) declined 0.1% in Thursday pre-market trading, those for the broader S&P 500 index rose 0.5%, and contracts for the Nasdaq-100 jumped 1.4%.

US stocks rallied towards the close on Wednesday after the Fed hiked rates by 25 basis points as expected and chair Jerome Powell told a press conference that “the disinflation process has started" and that it is “certainly possible” the Fed funds rate will remain below the 5% mark.

The DJIA ended 7 points higher at 34,093, reversing a 300-point loss earlier in the session, while the Nasdaq jumped 2% to 11,816 and the S&P 500 rose 1.1% to 4,119. The Russell 2000, which tracks small-cap stocks, gained 1.8% to 1,967.

“While Powell was determined not to overplay the shift in the Fed's views on inflation and interest rates, certain comments were well received by the markets,” commented Craig Erlam, senior market analyst at OANDA.

“All things considered, I think there was enough there to conclude we're almost at an end on tightening and market expectations of one more 25 basis point hike and maybe a couple of cuts later in the year look reasonable,” he added. “Of course, there's plenty of data to come before the next meeting in March so a lot could change in that time.”

While earnings season has been tough so far this quarter, Erlam noted that Meta managed to put a smile on investors' faces, announcing slightly better revenues than expected, a plan to reduce costs and make the company more efficient this year, and a $40 billion share buyback.

“That has seen the share price rise almost 20% in premarkets, and Nasdaq futures to rise more than 1%,” he said. “The question now is can Apple, Amazon, Alphabet and others deliver similar results today.”

12.50pm: Gilt yields fall after rate move

One area where there has been movement is gilts with the yield on the UK’s 10-year gilt falling to just over 3.1% touching its lowest level since mid-December.

 

Investors are hopeful the the pace of rate rises in the UK will slow and may even fall towards the end of the year.

The 5-year gilt yield fell as well, below 3%, down 0.2%.

12.38am: Markets little moved by rate decision

Markets have taken the rate rise in their stride so far. The FTSE 100 has come off its best levels but remains over 40 points to the good, just ahead of the 7,800 level, while the pound has fallen a touch more after the news, now down 0.49%.

Plenty of reaction to the rate decision as always. Here’s a flavour of the comments so far.

Neil Wilson at Markets.com said: “A hike that takes us close to the top? The main thing we can gather from the Bank of England and Federal Reserve rate hikes and commentary is that they are data-dependent now.

“ That means central banks like the BoE will be hiking more than they and the market think. The important thing is now not what central banks tell us – they have said they will react symmetrically now – but what the data tells us.

He noted the Bank “also lowered the estimates for medium-term wage growth, which hints that the Bank thinks it’s near the peak.”

BlackRock's chief investment strategist Vivek Paul said: “Today's 50 bps interest rate rise from the Bank of England gets us closer to the end of the monetary tightening cycle in the UK – but we're not yet done.”  

“As 2023 unfolds, attention will turn to the politics of growth & rates rather than the politics of inflation.

“The damage to the UK's real economy is only starting to be seen – the effects of the rate hikes are lagged, so the recent near-term growth resilience should not be extrapolated.“

Ed Hutchings, head of rates at Aviva Investors DDED: “With the minutes stating the BoE expects a shorter and shallower recession, and that inflation risks are ‘skewed significantly to the upside’, gilt yields should head higher but not to a large degree given the inflation forecast.

“After its recent bullish run of late, sterling may well begin to struggle in the near term, and with the sizeable amount of gilt issuance to come, plus on-going quantitative tightening, 2023 could also be somewhat more challenging for the UK gilt market.”

John Leiper, chief investment officer at Titan Asset Management said: "Looking forward, the bank faces a delicate balancing act between squeezing sky-high inflation out of the system and exacerbating what could prove to be a severe economic downturn.

But he suggested “the problems facing the UK economy are more than just cyclical.”

“Even before the Brexit referendum the UK had one of the lowest investment rates within the OECD, and this gap has only widened, exacerbated further by Brexit and the pandemic.

“Delivering policies to boost growth will help reverse that trend but we have concerns over the magnitude, time and money, required to reverse this trend," Leiper noted.

12.25am: Bank ups UK growth forecasts for 2023

The Bank of England has raised its GDP forecast for 2023 to -0.5% from -1.5% in November which is in line with the IMF’s prediction earlier in the week of -0.6%.

But it is much gloomier about 2024 forecasting a contraction of 0.25%.

The Bank said its forecasts were consistent with the technical definition of a recession but “this is a much shallower profile for the decline in output than in the November report”.

The chancellor, Jeremy Hunt, welcomed the news: "Inflation is a stealth tax that is the biggest threat to living standards in a generation, so we support the Bank’s action today so we succeed in halving inflation this year."

12.00pm: Bank of England ups rates by 50 basis points

The Bank of England has increased interest rates by 50 basis points to 4%.

The move, the 10th in a row, was in line with City predictions and takes rates to their highest level in 14 years.

The Bank's Monetary Policy Committee (MPC) voted by a majority of 7–2 to increase Bank Rate by 0.5 percentage points, to 4%.

Two members preferred to maintain Bank Rate at 3.5%.

Global consumer price inflation remains high, although it is likely to have peaked across many advanced economies, including in the United Kingdom, the Bank said in a statement.

But the MPC “continues to judge that the risks to inflation are skewed significantly to the upside.”

“The MPC will continue to monitor closely indications of persistent inflationary pressures, including the tightness of labour market conditions and the behaviour of wage growth and services inflation. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.”

11.47am: Shares firm, pound weak ahead of rate decision

Ahead of the Bank of England's interest rate decision at midday equiites remain firm while the pound has fallen.

The FTSE 100 is currently up 54 points at 7,815 while the FTSE 250 has soared 2.1%, or 416 points, to 20,315.

Sterling in contrast is trading 0.43% lower against the US dollar at US$1.232.

11.41am: Government disappointed by reports of British Steel job cuts

The government has put forward a "generous package of support" for British Steel, a minister said today, following reports yesterday that the company is considering axing 800 jobs.

Industry minister Nusrat Ghani said it was "a peculiar way to do business" to hold a meeting with unions on Wednesday, where it discussed job cuts, while negotiations are ongoing.

In response to an urgent question from Holly Mumby-Croft, the MP for Scunthorpe, where British Steel's main plant is based, Ghani told the House of Commons: "It is very disappointing that British Steel has chosen to take this step while negotiations with the government are ongoing."

"The business secretary and I have always been clear that the success of the British steel industry is a priority and we will work intensively with British Steel on support to help safeguard and unlock shareholder investment."

11.21am: JD Sports aims to become sports-fashion "powerhouse"

Shares in JD Sports Fashion PLC (LSE:JD.) soared 7.7% as the retailer outlined its strategic focus for the next five years including plans for 250 to 350 new stores every year.

The group is holding a Capital Markets event today and said in a statement that Régis Schultz, chief executive officer, will announce plans to focus on four main strategic pillars - JD brand first, Complementary concepts, Beyond physical retail and People, partners and communities.

Key objectives for the next five years include: double digit revenue growth, double digit market share in key regions and double digit operating margin.

Capex of £500mln to £600mln per year is targeted with 50% to 60% of the spend focused on store expansion in underpenetrated markets with 250 to 350 new JD stores per annum planned.

Cash generation from operating activities of £1 billion per annum is also on the company’s agenda.

Régis Schultz, CEO of JD, said: “Today marks a new, distinct chapter in the growth story of JD as we set our plans to become the leading global sports-fashion powerhouse.”

“We see significant growth opportunities ahead by expanding JD internationally, notably in North America and Europe.”

11.12am: Interest rate hike 'heartbreaking'

The Bank of England is expected to raise interest rates to 4% later today, something which will be “absolutely heartbreaking” for households.

Personal finance expert Tara Flynn of Choosewisely.co.uk said: ”Families are facing numerous challenges, and an interest rate hike is the last thing they need.”

“The Bank of England argues that increasing interest rates helps control inflation but appears indifferent to the impact this will have on millions of homeowners whose mortgages are due for renewal, credit card holders, and those seeking loans.”

10.47am: Copper prices advance

Copper futures are edging higher again, up to near US$4.2 and moving closer to the seven-month high of US$4.27 touched last week.

Today’s price movements have been boosted by further supply disruptions in Peru, as the Las Bambas copper mine starts a period of care and maintenance.

Las Bambas accounts for roughly 2% of the world's metal supply but has been operating at a reduced rate since 7 December due to political unrest in Peru.

The metal also benefitted from a weaker dollar after the US Federal Reserve delivered a small 25 basis points rate hike on Wednesday, with investors confident that the tightening cycle will soon end.

10.25am: Essentra plans special dividend and buy-back in £150mln package

Shares in Essentra PLC (LSE:ESNT), the global provider of essential components and solutions, rose after the company said it will return £150mln to shareholders via a special dividend and share buy-back.

The news follows the sale of its Filters and Packaging divisions, which were completed in quarter four last year.

Essentra will pay a special dividend of £90mln, around 29.8p per share on 27 April 2023 and also intends to start a £60mln share buyback programme following the release of the full year results on 22 March.

The update received a warm welcome with shares up 5.25% mid-morning.

Peel Hunt said "We see this as welcome news, rewarding existing holders plus creating more opportunity to further expand the shareholder base going forward."

10.00am: Water companies to tap customers for more money

Water bills in England and Wales will increase by the most in almost 20 years from April.

The 7.5% hike will see the average customer pay £31 more annually than last year - taking the typical bill to £448, according to industry body Water UK.

It said bills were lower in real terms than a decade ago and that the below-inflation increase reflected rising energy costs, as water firms use 2% of the country's electricity.

Water UK director of policy Stuart Colville said: “With an average increase of around 60p a week, most customers will again see a below-inflation increase in their water bill. However, we know that any increase is unwelcome, particularly at the moment."

9.42am: Bank of England expected to lift rates by 50 basis points

So what will the Bank of England do today. Well the firm consensus is for a 50 basis point rise and ING Economics agrees.

“Persistently high wage and service-sector price inflation points to another 50bp rate hike from the Bank of England” it said.

“If we're right, then we expect one final 25bp rate hike in March, marking the top of this tightening cycle” it added.

“While the minutes of the December meeting appeared to open the door to a potential downshift to a 25bp move in February – and this meeting looks like a closer call than markets are pricing – the reality is that the recent data has looked relatively hawkish” ING commented.

9.20am: Goldman downgrade hits Standard Chartered, prefers Lloyds and NatWest

Not that many fallers in the FTSE 100 today but one notable mover heading south was Standard Chartered PLC (LSE:STAN).

The lender is down 1.9% following a downgrade to ‘neutral’ by Goldman Sachs (NYSE:GS) which sees better opportunities in its UK domestic peers NatWest Group PLC (LSE:NWG) (‘buy’) and Lloyds Banking Group PLC (LSE:LLOY) (‘buy).

The US investment bank cited three main reasons behind the move: 1) the shares have outperformed the European Banks sector by 33% since August 2021 on the back of divergent rate hiking paths, “which we believe has now played out”; 2) consensus appears to increasingly reflect the benefit of higher rates with 2023 net interest income forecasts up 18% over the last year; and 3) “we see more limited benefit from higher policy rates in Hong Kong.”

Goldman has NatWest on its conviction buy list as well.

9.00am: In the green - Footsie makes strong start

London’s blue chips have enjoyed a strong start to the day as investors begin to think that better days are ahead after the US Federal Reserve slowed down the pace of its interest rate increases and said “the disinflationary process has started". 

The FTSE 100 is now around 40 points to the good with record profits from oil major Shell PLC (LSE:SHEL, NYSE:SHEL) also lifting the mood.

“Truth be told there were mixed signals from the Fed statement. It kept the "ongoing increases" language, added inflation "has eased somewhat", and changed "pace" of future increases with "extent", as it transitions from rate of hikes to duration” Neil Wilson at markets.com said.

“I think bulls were too keen to read what they wanted from the comments around disinflation and tighter financial conditions and chose to ignore the fact that the Fed signalled it’s keeping going for now.”

“What matters now is the data - I think we switch now to a more data-dependent Fed henceforth, which is why I think it will keep tightening. The Fed may have declared victory too early and will see wages and inflation accelerate again.” 

It’s the turn of the Bank of England and the ECB today and both are expected to hike rates by 50bps today.

In the UK, Wilson said: “Inflation is not coming down fast enough, and the Bank of England is likely to respond with a 50bps hike. Another split vote seems likely as we continue to see genuine disagreement between members of the Monetary Policy Committee. But the BoE looks likely to prefer to raise rates by 50bps and signal is not done yet.”

“My sense is that the Bank will be able to sound a little more optimistic on the economy given the decline in energy prices and the market pricing for rate hikes; whatever the IMF thinks,” Wilson added.

Shell PLC (LSE:SHEL, NYSE:SHEL) remained a firm feature, up 2% after reporting record profits and a US$4bn share buy-back.

Richard Hunter, head of markets at interactive investor, commented “Following the clues provided last week by US titans Exxon Mobil and Chevron, Shell has posted record annual profits which erase the financial pandemic pain.”

“A combination of higher prices, trading and refining margins all helped propel the overall result, while the sheer scale of cash generation also enabled some generous spring cleaning of the overall financial position,” he said.

Elsewhere, advertiser WPP PLC (LSE:WPP) surged 4%, after its French rival Publicis Groupe forecast more growth in 2023, banking on sustained investments in digital transformation.

Superdry PLC (LSE:SDRY) also rose as Julian Dunkerton, founder and chief executive officer of Superdry PLC (LSE:SDRY) ("Superdry"), said there were no “at the moment” to take the group private. He was responding to press speculation.

Cranswick PLC (LSE:CWK) was also in favour after an upbeat trading update.

Steve Clayton, head of equity funds at Hargreaves Lansdown commented: “Cranswick is a recent addition to our HL Select UK equity funds. We’ve invested precisely because the group can trade strongly like this, even under times of economic pressures.

“Demand for food rarely stays down for long and Cranswick have built strong positions in the pork and poultry markets that place them at the heart of millions of shopping trolleys every week.

“Today’s trading update gives confidence that can continue. We’re not surprised to see the market reacting positively to the statement, with the stock rising 2% in early trading.”

8.36am: Centrica boss apologises after Times report

Shares in British Gas owner, Centrica PLC (LSE:CNA), fell around 2% in early exchanges after it said it will temporarily stop using court orders that permit the forced installation of pre-payment meters in people's homes after a damning report in The Times said the practise was being used against vulnerable people.

The court warrants obtained by British Gas can be used by a contractor to break into the homes of customers who have fallen behind on their bills to install pre-payment meters, meaning they could have their heating cut off if they did not pay, the report said.

Some of the customers being affected were vulnerable people, the Times said, citing instances of a mother with a four week-old baby, a woman with mental health problems and a woman with a disabled daughter.

Centrica’s CEO Chris O’Shea told the BBC “This happened when people were acting on behalf of British Gas. There is nothing that can be said to excuse it."

O'Shea told BBC Radio 4's Today programme: "The contractor that we've employed, Arvato, has let us down but I am accountable for this.”

Business Secretary Grant Shapps said he was "horrified" by the findings.

"Switching customers - and particularly those who are vulnerable - to prepayment meters should only ever be a last resort and every other possible alternative should be exhausted," he told the BBC. "These findings suggest British Gas are doing anything but this."

8.17am: FTSE higher with rate calls taking centre stage

FTSE 100 pushed higher as investors took heart from a slower pace of rate rises in the US and awaited the latest monetary policy moves in the UK and Europe.

At 8.15am, London’s blue-chip index was up 17 points at 7,779 while the FTSE 250 jumped 188 points to 20,086.

The US Federal Reserve increased rates by 25 basis points, as expected, and Fed chair, Jerome Powell stated that "the disinflationary process has started” boosting hopes that rate cuts might be on the menu sooner than expected.

But Powell added the US central bank will need "substantially more evidence" to be confident that inflation is on a sustained downward path in the US, despite "encouraging" recent developments.

Derren Nathan, head of equity research, Hargreaves Lansdown noted: “It is rare to find ourselves in a position where rate rises are seen as good news, but this is a material slowdown following a sustained period of aggressive tightening, with rates now at levels not seen since 2007.”

“But we may not be at the end of this cycle yet” he cautioned.

In the UK and Europe, interest rates are expected to rise by 50bps but attention will focus, as always, on any signs that central bankers on this side of the pond may follow their US counterparts and signal a slower pace of increases.

Ahead of this, record profits from Shell PLC (LSE:SHEL, NYSE:SHEL) caught the eye.  Annual earnings doubled to US$39.87bn, a record, as the FTSE 100 listed oil major benefited from soaring energy prices inflamed by Russia's invasion of Ukraine.

The oil major also announced a new US$4bn share buy-back. Shares rose 1.2%.

Stuart Lamont, investment manager at RBC Brewin Dolphin, suggested the “record profit for the year will only intensify calls for more to be done to claw back profits from energy companies in the current environment.”

But BT Group PLC (LSE:BT.A) dipped 3.5% as it reported a fall in third quarter revenues although it is holding full-year guidance.

Charlie Huggins, head of equities at Wealth Club, pointed out “High inflation poses challenges to BT’s business model.”

“Telecoms is a mighty challenging sector. There’s little to differentiate providers and regulators and consumers are always demanding more for less. So while BT is pushing through price increases, it must be careful not to push too hard,” he noted.

“Overall, BT faces an uphill battle in the current inflationary environment, and will have to run very hard just to stand still,” Huggins said.

7.58am: Record breakers - profits gush at Shell

Shell PLC (LSE:SHEL, NYSE:SHEL) has reported record fourth-quarter profits of US$9.8bn driven by higher trading from its liquefied natural gas (LNG) operations and launched a new US$4bn buy-back programme.

Annual earnings doubled to US$39.87bn, which is also a record, as the FTSE 100 listed oil major benefited from soaring energy prices inflamed by Russia's invasion of Ukraine.

The record quarter four adjusted earnings, were 4% higher than quarter three and well above last year’s US$6.4bn, while Shell also reported adjusted EPS of US$1.39 compared to US$1.30 in quarter three.

Analysts had expected Shell’s chief executive, Wael Sawan, to report adjusted earnings of US$7.97bn for the fourth quarter and US$38.17bn for the year, in his City debut.

A 15% increase in the dividend was announced to US$0.2875 and Shell has embarked on a further US$4bn share buy-back programme which it expects to be completed by the time quarter one results are announced.

Shell said the growth in quarter four mainly reflected higher LNG trading and optimisation results, favourable deferred tax movements, which were partly offset by lower realised oil and gas prices, and higher operating expenses.

7.38am: BT holds guidance, connecting full fibre "like fury"

Some big names reporting today and telecoms giant BT Group PLC (LSE:BT.A) has stuck to its full-year guidance despite reporting a 3% fall in adjusted revenues in the third quarter.

In a trading update the FTSE 100-listed telco said adjusted revenues were £5.2bn in quarter three taking the figure for the nine months to 31 December to £15.6bn, down 1%.

Price increases and improved trading in Openreach and Consumer were offset by lower strategic equipment sales in Global, migration of a MVNO customer, the removal of BT Sport revenue, and legacy product declines, the company said.

For the nine months adjusted EBITDA reached £5.9bn, up 3% due to tight cost control and the removal of BT Sport costs, offset by revenue declines and inflationary cost pressures while reported pre-tax profits of £1.3bn were 15% lower as increased depreciation offset EBITDA growth.

BT also reported record quarterly growth in its FTTP base in the Consumer division, up 155,000 to 1.6mln while the 5G ready base is now 8.5mln with churn rates stable in what it called “a competitive market.”

Philip Jansen, chief executive said: "On full fibre, we're building - and now connecting - like fury.”

He noted 9.6mln premises had been reached to date, with 29% already connected, while the 5G mobile network now reaches 60% of the UK population.

7.00am: FTSE seen higher ahead of Bank's rate call

FTSE 100 is expected to make a strong start to the day as the Federal Reserve slowed the pace of interest rate increases and the Fed chairman, Jerome Powell, stated "the disinflationary process has started.”

But In a press conference following the decision, Powell added the US central bank will need "substantially more evidence" to be confident that inflation is on a sustained downward path in the US, despite "encouraging" recent developments.

Nonetheless, US markets took heart from the slower pace of rate rises and the Dow which had been down over 300 points closed in positive territory, up 7 points, the Nasdaq Composite added 232 points, 2%, to 11,816 and the S&P 500 improved 43 points, 1.1%, to 4,119. 

Ipek Ozkardeskaya, senior analyst at Swissquote Bank noted Powell’s comment: “‘Disinflation process is getting underway’.

She felt “that was the major - and the only take - of his speech yesterday, and sent the markets rallying.”

Back in London and spread betting companies are calling the lead index up by around 29 points as the interest rate baton is passed to the Bank of England and ECB with both expected to increase interest rates by 50 bps.

Ahead of that and trading updates are expected from two of the FTSE 100’s best-known names, Shell PLC (LSE:SHEL, NYSE:SHEL) and BT Group PLC (LSE:BT.A).

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