LONDON MARKET CLOSE: Oil majors buffer FTSE 100 from further losses

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(Alliance News) - Stocks in London closed down on Wednesday as gloomy economic growth forecasts from the OECD lowered the mood, however the FTSE 100 was saved from steeper losses thanks to oil giants BP and Shell as well as positive updates from Melrose Industries and Aveva.

The FTSE 100 index closed down 5.93 points, or 0.1%, at 7,593.00. The FTSE 250 ended down 88.44 points, or 0.4%, at 20,310.99, but the AIM All-Share closed up 3.64 points, or 0.4%, at 976.63.

The Cboe UK 100 ended down 0.2% at 755.88, the Cboe UK 250 closed down 0.5% at 18,015.24, and the Cboe Small Companies ended up 0.5% at 14,829.12.

In European equities on Wednesday, the CAC 40 in Paris and the DAX 40 in Frankfurt ended down 0.8%.

Extending the risk-off mood into Wednesday's session was a warning from the OECD 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.

The Paris-based organisation, which represents 38 mostly developed countries, is the latest institution to predict lower GDP growth due to the conflict, which has sent food and energy prices soaring.

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 OECD 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 Britain's outlook was lowered to 3.6% from 4.7%.

The prediction came as figures showed eurozone economic growth in the first quarter of 2022 came in ahead of expectations.

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. Market consensus, cited by FXStreet, had seen GDP growth of 0.3% in the euro area.

Against an uncertain backdrop, the European Central Bank meets on Thursday.

The ECB is expected to lay the ground for its first interest rate hike in over a decade, to be carried out at its July meeting.

‘The only real question heading into this week's meeting is not whether or not the Governing Council will raise interest rates in July, but by how much. Financial markets see at least a 25 basis point move as a certainty...Should the ECB indicate on Thursday that larger hikes are possible in H2, this would be seen as a clear bullish signal for the euro,’ said Matthew Ryan, senior market analyst at financial services firm Ebury.

The euro stood at $1.0737 at the European equities close Wednesday, up against $1.0692 at the same time on Tuesday.

The pound was quoted at $1.2545 at the London equities close, slipping from $1.2576 at the close on Tuesday.

Against the yen, the dollar was trading at JP¥133.94, up compared to JP¥132.57 late Tuesday. The Japanese yen was trading around fresh 20-year lows.

Gold was quoted at $1,858.48 an ounce at the London equities close Wednesday, up against $1,850.60 at the close on Tuesday.

Stocks in New York were mixed at the London equities close, with the DJIA down 0.2%, the S&P 500 index down 0.1%, and the Nasdaq Composite up 0.4%.

Brent oil was quoted at $122.00 a barrel at the London equities close Wednesday, up from $120.11 late Tuesday.

This helped to bolster the FTSE 100 on Wednesday, with shares in BP and Shell closing up 1.1% and 1.0% respectively. In the FTSE 250, Capricorn Energy and Tullow Oil added 7.7% and 5.0% respectively.

At the top of the blue-chip index was Melrose Industries, jumping 11% as it announced the launch of a £500 million buyback after earlier this week announcing the sale of the final asset belonging to 2016 acquisition Nortek.

The industrial turnaround specialist said the £500 million programme kicks off tomorrow and will conclude no later than the end of October. All repurchased shares will be cancelled. Melrose said it has ‘sufficient certainty’ now to begin the repurchase programme.

The buyback announcement is slightly belated, however. In March, it had said it would leave the timing of a capital return ‘under review’, following Russia's invasion of Ukraine.

Aveva rallied 11% also, despite swinging to an annual loss on one-off costs and cautioning on slower growth going forward as the industrial software provider is faced with pressure from wage inflation. However, adjusted earnings rose and the firm raised its dividend.

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. However, 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.

Amongst the mid-caps, Wizz Air slumped 9.5% after reporting a surge in annual revenue with high hopes for strong consumer demand in the summer, but the company withheld financial guidance in light of macroeconomic volatility.

For the financial year ended on March 31, the Budapest-based budget airline'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.

‘The airline industry remains exposed to externalities such as air traffic control disruption and continuing operational issues within the airports sector, adding to a volatile macro environment. As a result, at this point, we are not providing further financial guidance for the year,’ noted the company.

The UK corporate calendar on Thursday has a trading statement from cigarette maker British American Tobacco and full-year results from online trading firm CMC Markets, broker Peel Hunt and pub operator Fuller, Smith & Turner.

Thursday's economic calendar has Chinese trade data overnight and then Irish inflation at 1100 BST and an interest rate decision from the ECB at 1245 BST, followed by a press conference with President Christine Lagarde at 1330 BST.

At 1330 BST are US initial jobless claims.

By Lucy Heming; lucyheming@alliancenews.com

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