The FTSE 100 posted a new record high on Thursday but ended lower as investors weighed a barrage of earnings and interest rate holds on both sides of the Atlantic.
The blue-chip index closed down 11.14 points, or 0.1%, at 10,897.27, after earlier hitting a new intra-day high of 10,979.60. The FTSE 250 ended up 82.33 points, 0.3%, at 24,079.14, while the AIM All-Share closed up 3.05 points, 0.4%, at 764.90.
Bank of England holds rates in split vote
The Bank of England left interest rates unchanged in a split vote as it weighs the impact on inflation from the Middle East crisis. The Monetary Policy Committee voted 6-3 to leave bank rate at 3.75%, marking the fifth consecutive hold this year. Chief economist Huw Pill and Megan Greene again argued for a quarter-point increase, joined this time by Catherine Mann.
Governor Andrew Bailey played down the idea that the central bank is edging towards a hike: "Please do not leave this room thinking that the Bank of England is edging towards a hike. We took a decision today to leave bank rate unchanged, and that is the relevant conclusion."
The yield on 10-year gilts softened to 4.99% on Thursday from 5.04% on Wednesday, supporting Bailey's view. Analysts at RBC Capital Markets said the meeting minutes read relatively dovish in their discussion of the disinflationary process prior to the Iran conflict. Kathleen Brooks at XTB noted that despite the increased hawkish vote, financial markets trimmed expectations for a September hike to a 40% chance, down from over 50% before the meeting.
Currency and commodity markets
The pound soared against the dollar but was steady against the euro. Sterling traded at $1.3439, up from $1.3284 at Wednesday's close, and was slightly lower at €1.1671 from €1.1673. The euro stood higher at $1.1516 from $1.1380. Against the yen, the dollar fell to 159.44 from 163.85.
The dollar was also impacted by US economic growth slowing more than expected in the second quarter, although the headline figure masked underlying resilience. The personal consumption expenditures price index fell 0.1% in June from May, with annual PCE inflation slowing to 3.7% from 4.1%. Core PCE rose just 0.1% on the month, below expectations, and annual core inflation eased to 3.3% from 3.4%.
The yield on the US 10-year Treasury rose to 4.67% from 4.64%, and the 30-year yield widened to 5.21% from 5.12%. Brent oil for September delivery traded lower at $89.84 a barrel from $90.09. Gold was higher at $4,099.23 an ounce from $4,011.17.
European and US equities
In Europe, the CAC 40 in Paris closed up 0.9%, and the DAX 40 in Frankfurt ended up 0.6% despite a 16% fall in Adidas. US stocks were higher, with the Dow up 0.3%, the S&P 500 up 0.8%, and the Nasdaq Composite up 2.0%, recovering after Wednesday's falls following the Federal Reserve's unchanged rates. Analysts at Morgan Stanley said markets came out of the July FOMC meeting more confused than they went in. JPMorgan analyst Michael Feroli noted that Fed Chairman Kevin Warsh failed to specify how he intended to achieve his inflation resolve, raising questions about credibility.
London market movers
Rolls-Royce led the risers, up 6.0%, after raising guidance on a strong first half. Operating profit increased 17% to £2.42 billion, with underlying profit up 46% to £2.53 billion, beating consensus. Revenue rose 21% to £11.45 billion. RBC Capital Markets analyst Mark Fielding called it "another very strong quarter with blow-out margins across the board," and Chloe Lemarie at Jefferies described it as a "stellar performance."
Lloyds Banking Group climbed 3.9% as it set out financial targets to 2030 and reported better-than-expected results. NatWest gained 2.8% ahead of its own earnings on Friday. However, Rentokil Initial plunged 21% after it said it would invest more in its North American business and "retire" a margin target due to underperformance. Organic revenue growth in North America slowed to 2.4% in the second quarter from 2.8%, below the 2.6% to 3.4% guidance range.
The biggest FTSE 100 risers were Rolls-Royce, Halma, Antofagasta, Lion Finance, and Lloyds Banking Group. The biggest fallers were Rentokil Initial, Relx, London Stock Exchange Group, Experian, and Sage Group.
Friday's economic calendar includes a Japanese interest rate decision, eurozone inflation data, the Chicago PMI, and the Michigan consumer sentiment index. UK corporate results are due from International Consolidated Airlines, NatWest, and Rightmove.
