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LONDON MARKET MIDDAY: FTSE 100 succumbs to historic UK inflation data

Equities in Europe were on the back foot heading into Wednesday afternoon, with another eye-popping UK inflation figure compounding a cost-of-living crisis and heaping more pressure on the Bank of England.

The FTSE 100 was down 30.03 points, or 0.4%, at 7,506.03. The FTSE 250 index was down 124.84 points, or 0.6%, at 20,211.57. The AIM All-Share index was down 4.14 points, 0.4%, at 927.40.

The Cboe UK 100 was down 0.4% at 750.16, the Cboe UK 250 was down 0.6% at 17,531.01, and the Cboe Small Companies down 0.1% at 14,426.80.

The FTSE 100 in London initially nudged a touch higher in early dealings, before feeling the heat from a double-digit UK inflation reading as the morning dragged on.

UK inflation accelerated at the fastest pace in 40 years in July, numbers on Wednesday showed. The consumer price index surged 10.1% on an annual basis in July, topping FXStreet-cited market consensus of 9.8%. Inflation quickened from 9.4% in June.

A year earlier, the inflation rate was just 2.0% - matching the Bank of England's target. However, there has been an acceleration in annual inflation every month since last October.

The pound was quoted at $1.2103 midday Wednesday in London, up ever-so-slightly from $1.2099 late Tuesday.

Sterling traded at roughly $1.2120 shortly before the inflation reading, however, and very briefly hit $1.2140 after - but, with Wednesday's inflation data firming up expectations of another chunky interest rate hike from the Bank of England, concerns were once again swirling over the strength of the UK economy.

‘Undoubtedly the newest CPI reading means that we may see further GBP weakness in the medium-term, as it signals clear stagflation for the UK. This is despite a 0.5% interest rate hike now priced in by STIR markets, which illustrates the problem for the BoE. The central bank must hike rates to control surging inflation, but it does so at the expense of growth,’ said Giles Coghlan, chief analyst at HYCM.

In London, NatWest and Lloyds Banking got a boost, on the expectation of stronger rate hikes by the Bank of England. They were up 0.8% and 0.4%. and ProCook, stocks which the market has already lost a large amount of confidence in, struggled, however.

Furniture seller was down 6.8%, while pots and pans seller ProCook gave back 6.2% on consumer disposables income fears.

Mainland European equities were trading firmly in the red on Wednesday, with the CAC 40 in Paris down 0.3%, while the DAX 40 in Frankfurt was 0.5% lower.

The euro stood at $1.0172 midday Wednesday in London, down slightly from $1.0177 at the European equities close on Tuesday.

The eurozone economy grew at a slightly slower pace than expected in the second quarter. The eurozone's seasonally adjusted GDP increased by 0.6% during the second quarter of 2022, compared with the previous quarter. However, it undershot a July flash estimate of 0.7% growth.

Against the previous year, seasonally adjusted GDP increased by 3.9% in the euro area, in line with a flash estimate.

Against the yen, the dollar was trading at JP¥134.85, up from JP¥134.28.

Gold stood at $1,772.89 an ounce midday Wednesday, down slightly from $1,774.80 at the London equities close on Tuesday. Brent oil was quoted at $92.84, down from $93.04.

Still to come in the international economics calendar on Wednesday are US retail sales at 1330 BST, before the latest US Federal Reserve meeting minutes at 1900 BST.

Stocks in New York were called lower on Wednesday ahead of the Fed minutes. The Dow Jones Industrial Average was called down 0.4%, the S&P 500 down 0.6% and the Nasdaq Composite 0.8% lower.

In London, Cineworld shares were a massive 48% lower at midday. The one-time FTSE 250 constituent has now fallen 82% over the past 12 months.

The Picturehouse chain operator said the number of film goers has been ‘below expectations’ recently, which it put down to a weaker film slate.

‘Consequently, the group has been taking proactive steps to ensure it has the balance sheet strength and flexibility to adapt to market conditions. This includes significant previously disclosed operational and financial initiatives to manage costs and enhance liquidity,’ Cineworld warned.

Cineworld said it is in ‘active discussions with various stakeholders’ to mull ways to bolster its coffers and possibly restructure its balance sheet, though a ‘comprehensive deleveraging transaction’.

It cautioned that any deleveraging is likely to dilute the value of its shares.

Peer Everyman was 0.5% lower. Everyman's estate comprises of just under 40 cinemas, while Cineworld has about 750 across the globe.

By estate, Cineworld towers over Everyman. By market capitalisation, however, there is now not a lot to separate the two. Everyman has a market value of £111.1 million, while Cineworld's now stands at £150.5 million.

Also sliding was Ladbrokes and Coral owner Entain, down 2.9%. It has been fined for its failures in social responsibility and anti-money laundering, according to a UK regulator.

The UK Gambling Commission said the FTSE 100-listed firm will pay £17 million, for shortcomings at its online business and land-based businesses.

The Gambling Commission said one punter was able to deposit £742,000 in 14 months without an ‘appropriate’ source-of-funds check.

The UK gambling sector has fallen under tighter regulatory scrutiny in recent years. A £2 maximum stake for fixed-odds betting terminals has been implemented, a ban on customers depositing online using credit cards has also been introduced, and there is the possibility of stricter affordability checks on consumers also being implemented.

On AIM, Revolution Beauty surged 26%, while boohoo was down 2.8%.

Online-only retailer boohoo said it has made a ‘strategic investment’ in beauty products seller Revolution Beauty Group. It now has a 7.1% stake.

‘The investment builds upon the existing relationship between boohoo and Revolution Beauty, under which Revolution Beauty products are sold through several of the group's direct to consumer brand websites and its online digital department store, Debenhams. The investment reflects boohoo's belief in the growth potential of Revolution Beauty and it intends to be a supportive stakeholder and long-term partner,’ boohoo explained.

Revolution Beauty stock has been hit in recent weeks by a warning on cost inflation and a statement that its auditors found ‘certain accounting issues’ that could have a ‘material impact’ on results for the year ended February 28, 2022.

Balfour Beatty topped the FTSE 250s, surging 8.6% after upping its profit outlook.

For the half year ended July 1, the construction firm's revenue was largely unchanged year-on-year at £4.15 billion. Pretax profit more than doubled to £83 million from £35 million.

Balfour raised its dividend by 17% to 3.5 pence per share from 3.0p.

‘Driven by this performance and also the strength of the order book, the board expects underlying profit from operations to be ahead of its previous expectations,’ Balfour said.

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