Stocks fall further after hawkish US Fed minutes

(Alliance News) - Stock prices in London opened in the red on Thursday, amid renewed concerns about further US interest rate increases.

The FTSE 100 index opened down 33.26 points, 0.4%, at 7,323.62. The FTSE 250 was down 84.97 points, 0.5%, at 18,495.81, and the AIM All-Share was down 2.68 points, 0.4%, at 745.16.

The Cboe UK 100 was down 0.5% at 730.05, the Cboe UK 250 was down 0.5% at 16,245.21, and the Cboe Small Companies was up 0.3% at 13,580.29.

"The February record highs for the FTSE 100 are now a distant memory, with the weight of money seeming to have moved onto pastures new. Indeed, after another weak opening taken from global cues elsewhere, the index is now in negative territory for the year to date," said interactive investor's Richard Hunter.

The large-cap index had broached the 8,000 mark back in February, but is now down 3.1% since the start of the year.

The FTSE 100 was also weighed down by stocks going ex-dividend. This included abrdn, down 4.0%, Berkeley Group down 1.9%, and GSK, down 2.0%.

BAE Systems fell 3.2% as it announced it has agreed to acquire Ball Aerospace from Ball Corp for around USD5.55 billion in cash. It will be funded from a combination of new external debt and existing cash resources. Ball Aerospace provides mission-critical space systems and defence technologies across air, land and sea, and will serve to strengthen BAE's multi-domain portfolio. The acquisition will add to an "attractive and strengthened" revenue outlook for BAE Systems.

"It's rare that a business of this quality, scale and complementary capabilities, with strong growth prospects and a close fit to our strategy, becomes available," said BAE Chief Executive Charles Woodburn.

Shore Capital's Jamie Murray commented: "We are not surprised that an acquisition like this is happening. It is a theme that we expect to continue, not just with BAE Systems, but across the defence industry as players look to scale up their operations so that they can capitalise on the long term uptick for defence products."

Meanwhile in the FTSE 250, Bank of Georgia was outperforming, up 7.3%.

The Tbilisi-based lender said profit in the first half of 2023 jumped 38% to GEL709.9 million, about GBP215.3 million, from GEL516.1 million a year before. Profit before income tax expense and one-off items improved 41% to GEL807.5 million from GEL573.7 million.

Operating income rose 38% to GEL1.23 billion from GEL890.6 million. Net interest income grew 39% to GEL767.8 million from GEL552.6 million.

The bank cited an improved sentiment which has supported the Georgian lari in the first half of 2023, healthy bank lending, continued fiscal consolidation, falling inflation and strong economic growth in Georgia.

Over in Europe, the CAC 40 in Paris was down 0.6%, while the DAX 40 in Frankfurt was down 0.5%.

Wednesday's minutes from July's Federal Open Market Committee meeting showed US Federal Reserve officials continue to see "significant" upside risks to inflation and suggested further interest rate increases may be necessary.

At that meeting, the US central bank lifted rates by a further 25 basis points to 5.25% to 5.50%, the highest level in more than two decades, a rise that many economists believe will be the last of this cycle. But, talks showed that most participants fear that the battle to tame inflation is far from over and could require additional tightening action.

"With inflation still well above the committee's longer-run goal and the labour market remaining tight, most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy," the meeting summary stated.

The news sent equities lower, while the dollar made gains against major currencies in early transactions in Europe.

In the US on Wednesday, Wall Street ended in the red, with the Dow Jones Industrial Average down 0.5%, the S&P 500 down 0.8% and the Nasdaq Composite down 1.2%.

Sterling was quoted at USD1.2736 early Thursday, lower than US1.2750 at the London equities close on Wednesday. The euro traded at USD1.0884, lower than USD1.906. Against the yen, the dollar was quoted at JPY146.35, up versus JPY145.77.

"With growth risks to the downside and inflation risks to the upside, the delicate balance between taming inflation and avoiding recession remain a live issue," said ii's Hunter.

"Other economic data has supported the resilience of the US economy, with strong hiring and retail sales numbers showing that the consumer is still alive and well, while the recent GDP number also pointed to a robust foundation. While the consensus continues to point to no change at the September meeting, the odds are rising for a further hike in November."

Gold was quoted at USD1,896.41 an ounce early Thursday, lower than USD1,902.61 on Wednesday. "Gold is getting smacked on multiple levels. Pick your poison, whether the strong dollar, rising real rates, or selling against equity and currency margin calls," said SPI Asset Management's Stephen Innes.

Brent oil was trading at USD83.65 a barrel, lower than USD84.83.

In Asia on Thursday, the Nikkei 225 index in Tokyo closed down 0.4%.

Japan reported a trade deficit of JPY78.73 billion, or around USD538 million, in July. This was narrower than the JPY1.422 trillion deficit seen in July 2022.

According to the Ministry of Finance, exports fell 0.3% year-on-year to JPY8.725 trillion from JPY8.753 trillion, led by falling exports of machinery, and electrical machinery. This was offset somewhat by growth in transport equipment exports. Imports dropped 14% annually to JPY8.804 trillion from JPY10.175 trillion, led by lower imports of mineral fuels.

Exports to China, one of Japan's top trading partners, dropped 13% in July from a year before.

In China, the Shanghai Composite closed up 0.4%, while the Hang Seng index in Hong Kong was up 0.1%, both recovering from losses earlier in the day. The S&P/ASX 200 in Sydney closed down 0.7%.

Still to come in Thursday's economic calendar, there's eurozone trade data at 1000 BST, before the latest US jobless claims reading at 1330 BST.

By Elizabeth Winter, Alliance News senior markets reporter

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