LONDON MARKET CLOSE: Stocks higher as US Fed meeting minutes reassure

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Stocks in London ended in the green on Thursday as investors felt reassured following a comforting set of US Federal Reserve meeting minutes which suggested that the central bank may adopt a less aggressive path later this year.

The minutes, released on Wednesday, showed Fed officials highlighted that interest rates need to rise quickly to rein in inflation and that hikes, similar to the 50-basis-point one agreed at the May meeting, may be necessary in the imminent future.

Policymakers reaffirmed their determination to restore price stability and agreed that the Federal Open Market Committee should ‘expeditiously’ move the stance of monetary policy toward a neutral posture.

This would be achieved through both increases in the target range for the federal funds rate and reductions in the size of the Federal Reserve's balance sheet.

Further, most participants were of the view that 50-basis-point increases in the target range ‘would likely be appropriate at the next couple of meetings’, the meeting minutes showed.

However, FOMC members also noted that a ‘restrictive stance of policy may well become appropriate depending on the evolving economic outlook and the risks to the outlook’.

Investor have grown fearful over the Fed's next monetary tightening moves to tame inflation and the potential consequences over-aggressive policy will have on growth and equity valuations.

The FTSE 100 index closed up 42.17 points, or 0.6%, at 7,564.92. The mid-cap FTSE 250 index closed up 314.70 points, or 1.6%, at 20,248.74. The AIM All-Share index closed up 5.07 points, or 0.5%, at 958.00.

The Cboe UK 100 index closed up 0.5% at 754.41. The Cboe 250 ended up 1.9% at 18,018.98 and the Cboe Small Companies finished 0.4% higher at 14,632.41.

In mainland Europe, the CAC 40 stock index in Paris closed up 1.8%, while the DAX 40 in Frankfurt ended up 1.6%.

‘The FTSE 100 reacted with a shrug to a £10 billion package from the UK Government to support households struggling with the cost of living,’ said AJ Bell investment director Russ Mould. ‘There were suggestions in some quarters this could add to inflationary pressures if the support is not sufficiently well targeted - it feels like governments and central banks are walking an increasingly narrow tightrope all the time.’

On the political front, millions of UK households will receive a £400 discount off their energy bills and a £5 billion tax will be levied on oil and gas producers as Chancellor of the Exchequer Rishi Sunak moved to counter the soaring cost of living.

Having previously resisted calls to place a windfall tax on earnings generated by oil majors, the chancellor was forced to unveil emergency measures as part of a £15 billion package to tackle rampant inflation, which has reached a 40-year high.

Shares in BP and Shell closed up 1.9% and 1.1% respectively.

The £400 in universal support from October replaces the initial plan for a £200 loan, with Sunak scrapping the requirement to repay the money.

Measures announced by the chancellor included a one-off £650 payment to more than eight million low-income households on benefits as well as a £300 payment to pensioner households.

The chancellor also set out a plan to hand £150 to individuals receiving disability benefits. The package would mean that almost all of the eight million most vulnerable households would receive at least £1,200 of support, including a £150 council tax rebate which has already been announced.

The chancellor stressed the need to keep the public finances under control and set out how a tax on oil and gas firms - which have handsomely profited from globally high prices driven by post-pandemic demand and the war in Ukraine - would raise around £5 billion to help meet the cost.

The idea of a windfall tax had faced resistance in government, with Sunak himself among ministers to warn about the stifling effect it could have on future investment.

A windfall tax is a one-off tax imposed on a company or group of companies and was introduced by Tony Blair's Labour government in 1997.

But the chancellor said his plan for a 25% energy profits levy would be coupled with a new incentive, almost doubling the tax relief available on investment.

Sunak stopped short of also slapping the new levy on electricity generators, although he said the Treasury was evaluating the scale of the profits being made in the industry and what steps could be taken.

The move came after the findings of Sue Gray's report into law-breaking during lockdown at the heart of UK government were released on Wednesday, sparking fresh calls for UK Prime Minister Boris Johnson to resign.

Johnson on Thursday defied calls to leave office saying he took ‘full responsibility’ for the scandal but sought to play down his personal involvement in the gatherings detailed in the report.

In the FTSE 100, retail stocks were among the best performers on the notion that consumers will have more disposable income available in the wake of the chancellor's cost-of-living support package.

Ocado closed up 12%, B&M European Value Retail up 7.3%, Next up 6.4%, JD Sports up 6.4% and Primark owner AB Foods up 4.4%.

Intermediate Capital Group closed up 7.1% after the London-based asset manager hailed a ‘defining year’. Net asset value per share climbed 23% to 696 pence at its March 31 year-end from 566p 12 months earlier.

Total assets under management surged 26% to $72.06 billion from $59.59 billion a year earlier. It posted $23.38 billion of additions, but also $8.69 billion in realisations and a $2.38 billion hit from foreign exchange and other moves.

ICG lifted its payout by 36% to 76.0 pence from 56.0p.

At the other end of the large-caps, United Utilities ended the worst performer, down 6.6%, after the water company said increased finance expenses have eaten into annual profit.

In the year ended March 31, the Warrington, England-based company said revenue edged up 3.0% to £1.86 billion from £1.81 billion a year prior. However, pretax profit dropped 20% to £439.9 million from £551.0 million.

Rival utilities SSE, Severn Trent and National Grid closed down 4.6%, 4.2% and 3.3% respectively in a negative read-across.

BT Group closed down 2.3% after the UK government said it would probe a recent investment in the former state monopoly on national security grounds.

In December, billionaire telecom tycoon Patrick Drahi's Altice lifted its stake in BT to 18% from 12% previously. The transaction has been referred to the UK's National Security & Investment Act 2021.

‘BT Group will fully cooperate with this review,’ the company said.

In the FTSE 250, Serco was the top gainer, up 9.8%, after the outsourcer lifted its financial guidance in an impromptu trading update.

In the first four months of 2022, Serco has seen ‘stronger than expected trading’ and favourable foreign exchange movements.

It now expects underlying trading profit at actual currency rates of £225 million, up about £30 million from prior guidance and with favourable currency movement contributing £10 million of that. This result would represent a 1.7% reduction from £229 million in 2021.

Languishing at the end of the mid-caps, IntegraFin shed 17%, after the investment platform issued a gloomy outlook for the rest of its financial year, despite posting revenue growth in the first half.

In its half-year ended March 31, the London-based investment platform reported revenue growth of 13% year-on-year to £67.0 million from £59.4 million.

Pretax profit dropped 52% to £23.5 million from £49.0 million, though pretax profit attributable to shareholders grew 2% to £31.7 million from £31.2 million.

‘The general economic outlook has deteriorated from that prevailing this time last year...We are faced with major global uncertainty arising from Russia's invasion of Ukraine and the significant, resultant effects. When added to the existing inflationary pressures, these are negative drivers for Transact revenue, and for all round expenses,’ Chief Executive Officer Alex Scott cautioned.

The pound was quoted at $1.2580 at the London equities close, up from $1.2547 at the close Wednesday.

The euro stood at $1.0725 at the European equities close, up from $1.0678. Against the yen, the dollar was trading at JP¥127.37, marginally higher from JP¥127.31.

Stocks in New York were higher at the London equities close, shrugging of weak US economic growth figures.

The DJIA was up 1.4%, the S&P 500 index up 1.6% and the Nasdaq Composite up 1.9%.

According to the Bureau of Economic Analysis, the US economy contracted an annualized 1.5% on quarter in the first three months of 2022, slightly worse than initial estimates for a 1.4% decline. It follows growth of 6.9% in the fourth quarter of 2021.

Brent oil was quoted at $117.05 a barrel at the equities close, up sharply from $113.93 at the close Wednesday.

Gold stood at $1,846.75 an ounce at the London equities close, slightly lower against $1,850.30 late Wednesday.

The economic events calendar on Friday has US personal income expenditure data at 1330 BST, the core index reading is the Fed's preferred gauge of inflation.

The UK corporate calendar on Friday has interim results from Premier Miton Group.

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