Equity markets weaker ahead of BOE rate decision

Equity markets started the day in negative territory ahead of the Bank of England’s rate decision despite impressive numbers from Rio Tinto and Smith & Nephew.
Traders sold out of heavyweight mining and banking stocks on Thursday, forcing the FTSE 100 lower by as much as 35 points in early trading. We had a strong finish to US markets overnight, and so today’s early morning falls can be attributed more so to traders removing risk ahead of the Bank of England interest rate decision at noon GMT.

Rio Tinto, the world’s third largest mining company, confirmed that profits had tripled to $14 billion for 2010 and that it will initiate a $5 billion share buyback. It also stated that it will increase its dividend to 63 cents per share, from 45 cents last year, an increase of 40%. The positive update seems to have given investors a welcome opportunity to take some money off the table as Rio traded -50p (-1%) to 4612p at 9am GMT.

The FTSE was also dragged lower in early trading by Diageo, the world’s largest distiller, after it confirmed first half revenue and profits had not met estimates. Sales were £5.32 billion versus £5.21 billion, with operating profit at £1.72 billion versus £1.54 billion. Diageo confirmed that it will raise its dividend to 15.5p from 14.6p. Analysts and investors alike were expecting more from Diageo but it seemed that declines in Europe outweighed growth in developing markets. At 9am GMT Diageo was trading -52p (-4.15%) to 1200p.

The two biggest gainers on the day were Smith & Nephew and Autonomy.

Smith & Nephew, Europe’s largest maker of shoulder and knee implants, was trading +12p (+1.69%) after strong fourth-quarter results beats forecasts.
Autonomy, the software development company, was trading +43p (+2.74%) after being raised to ‘buy’ from ‘neutral’ by UBS, who also raised its price target to 1800p from 1700p.

At 10am GMT the FTSE was trading -47 points at 6005 (-0.47%), with the DAX -37 points at 7285 and the CAC40 at 4053, down 37 points.
UK Manufacturing Production unexpectedly fell in December, whilst Industrial ouput rose thanks to cold weather related energy production. The manufacturing number surprised the market, with many expecting gain of 0.4%, weaker than Novembers gain of 0.6%. The equity market reaction was however minimal.

All eyes now turn to the Bank of England’s rate decision at midday. With most assuming rates will remain unchanged at 0.5%, investors will look to the release of the minutes on February 23 with more interest. The minutes give investors the opportunity to examine the detail of the vote in the hope of finding a shift in sentiment from policy members. Pressure is mounting to raise rates sooner rather than later and with that in mind, future rate decisions may prove more exciting than the one today.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.