LONDON MARKET MIDDAY: Selling as companies and economists give warning

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More warnings about the precarious state of the global economy, combined with rapidly rising interest rates around the world, were pushing down share prices on Wednesday ahead of an ECB decision on Thursday and a key US inflation reading on Friday.

The Central Bank of India on Wednesday announced a fresh 50 basis points interest rate hike, a day after Australia unveiled an increase of the same magnitude, both were bigger moves than expected.

The European Central Bank on Thursday is expected to signal an end to its bond-buying programme, paving the way for a rate hike - widely expected in July.

Meanwhile, the OECD warned that the world economy will pay a ‘hefty price’ for Russia's invasion of Ukraine as it slashed its 2022 growth forecast and projected higher inflation.

In its latest economic outlook, the Organisation for Economic Co-operation & Development said global gross domestic product would grow by 3% in 2022 – down sharply from the 4.5% estimated in December.

The OECD also doubled its forecast for inflation among its members – which range from the US to Australia, Japan, and Latin American and European nations – to 8.5%, its highest level since 1988.

The organisation cut its growth forecast for the US from 3.7% to 2.5% and that of China, the world's second biggest economy, from 5.1% to 4.4%. The eurozone's GDP is now seen growing by 2.6% instead of 4.3% while the UK's outlook was lowered to 3.6% from 4.7%.

The FTSE 100 index was down 26.67 points, or 0.3%, at 7,572.26 midday Wednesday. The mid-cap FTSE 250 index was down 73.15 points, or 0.4%, at 20,326.28. The AIM All-Share index was up 1.99 points, or 0.2%, at 974.98.

The Cboe UK 100 index was down 0.4% at 754.15. The Cboe 250 was down 0.6% at 17,992.62, but the Cboe Small Companies was up 0.3% at 14,807.25.

In mainland Europe, the CAC 40 in Paris was down 0.6% and the DAX 40 in Frankfurt was down 0.5%.

New York was pointed to a lower open on Wednesday, as investors await a key US consumer price index reading, due on Friday.

The Dow Jones Industrial Average was called down 0.6%, S&P 500 down 0.5% and the Nasdaq Composite down 0.2%. The indices had closed up 0.8%, 1.0%, and 0.9% respectively on Tuesday.

‘Despite a strong showing on Wall Street yesterday, the FTSE 100 was heading nowhere fast on Wednesday,’ said AJ Bell investment director Russ Mould. ‘Investors are nervously eyeing US inflation figures due on Friday, with India's central bank having just raised rates by more than expected as it looks to curb the inflationary threat.’

In the FTSE 100, Melrose Industries was the best performer, up 7.1%, after the industrial turnaround specialist said it will launch a £500 million buyback scheme.

Melrose said the £500 million programme kicks off Thursday and will conclude no later than the end of October. Melrose said it has ‘sufficient certainty’ now to begin the repurchase programme.

The buyback announcement is slightly belated. In March, Melrose had said it would leave the timing of a capital return ‘under review’, following Russia's invasion of Ukraine. Melrose on Monday said it agreed a $650 million deal to sell its Ergotron business to funds managed by Sterling Group.

Aveva was up 5.5%. The stock reversed a morning decline, after the industrial software provider warned on revenue growth for the year ahead.

For the financial year that ended March 31, revenue surged 45% to £1.19 billion from £820.4 million the year before, but Aveva swung to a pretax loss of £18.6 million from a £34.2 million profit, amid one-offs. Annual adjusted earnings before interest and tax was £365.1 million, up from £354.7 million last year.

Aveva declared a final dividend of 24.5 pence per share, up 4.3% from 23.5p paid out in financial 2021. Its total payout for the year amounted to 37.5p per share, up 4.5% from 35.9p.

Looking ahead, Aveva said adjusted Ebit for financial 2023 will be hurt by some additional costs. Aveva said revenue growth is expected to be lower in financial 2023 than in 2022 on an organic constant currency basis, and its adjusted Ebit margin is expected to narrow, before resuming growth in 2024. Aveva is 59% owned by France's Schneider Electric.

‘We believe that a positive fundamental transition is taking place, and the benefits of this should start through in financial 2024 and beyond, with more positive signs to come through in second half of this year. The current share price may well prove to be a good entry point to a high quality business migrating to a higher quality recurring revenue model,’ Edison Group's Dan Ridsdale commented about Aveva.

In the FTSE 250, Wizz Air was the worst performer, down 7.6%, after the Hungarian airline withheld financial guidance in light of macroeconomic volatility.

For the financial year that ended on March 31, the Budapest-based budget carrier's revenue more than doubled to €1.66 billion, compared to €739.0 million a year ago. Pretax loss, however, widened to €641.5 million from €566.5 million.

Looking ahead, Wizz Air believes it can return to pre-Covid productivity during the next financial year but warned of an operating loss for the first quarter of the new financial year.

‘There is no way of glossing over the issue that a growing number of people are likely to be ditching plans to fly this summer as they don't want the hassle of flight delays, cancellations and long queues,’ commented AJ Bell's Mould. ‘Add in disruption with air traffic control and you've got a chaotic backdrop which means airlines could experience a third consecutive summer of misery. That explains why Wizz Air is not providing further financial guidance for its current year.’

Rival budget airline easyJet was down 2.0% in a negative read across. AIM-listed Jet2 was down 0.2%. In Dublin, Ryanair was down 2.1%.

National Express was down 6.5% after Peel Hunt downgraded the transport operator to 'hold' from 'buy'.

The pound was quoted at $1.2537 at midday Wednesday, down from $1.2576 at the London equities close Tuesday.

The UK construction sector saw its slowest expansion since January in May, figures on Wednesday showed, amid a weaker month for the housing sector as consumer confidence continues to suffer.

The latest S&P Global-CIPS UK construction purchasing managers' index fell to 56.4 points in May from April's tally of 58.2. While still above the 50.0 no change mark, the figure signals the weakest expansion of construction activity in four months.

UK PM Johnson is to face Parliament on Wednesday for the first time since the damaging revolt by Tory MPs in Monday's confidence vote.

Backers of the prime minister can be expected to stage a noisy show of support when he steps up for his weekly Commons questions. But behind the scenes, tensions are running high after 40% of Conservative MPs refused to support him in the vote of confidence.

The euro was priced at $1.0720, up from $1.0692. Against the yen, the dollar was trading at fresh 20-year highs, quoted at JP¥133.97 in London, sharply higher against JP¥132.57 late Tuesday.

Economic growth in the first quarter in the eurozone came in ahead of expectations, data from Eurostat showed.

In the first quarter of 2022, seasonally adjusted gross domestic product increased by 0.6% in the euro area and by 0.7% in the EU compared with the previous quarter, according to an estimate published by Eurostat, the statistical office of the EU.

In the fourth quarter of 2021, GDP had grown by 0.2% in the euro area and 0.5% in the EU. Market consensus, cited by FXStreet, had seen GDP growth of 0.3% in the euro area.

Annually, seasonally adjusted GDP increased by 5.4% in the euro area, again beating the consensus forecast of 5.1% growth, and by 5.6% in the EU in the first quarter of 2022.

Brent oil was quoted at $122.02 a barrel Wednesday at midday, up sharply from $120.11 late Tuesday. Gold stood at $1,847.45 an ounce, down from $1,850.60.

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