On Wall Street, stocks fell sharply a day after the Federal Reserve signaled its fight against inflation was far from over. The Dow Jones (^ DJI) was cut to 32,174. The S&P 500 (^GSPC) fell 0.4% to 3,743 points and the tech-heavy Nasdaq (^IXIC) fell 1% to 10,420.
The UK’s blue-chip index rallied after investors digested the BoE’s decision to hike interest rates 0.75 basis points to a 33-year high of 3%.
Rolls Royce (RR.L) also fell behind despite announcing that it expects to meet full-year guidance thanks to a resumption of long-haul flights and solid defense activity.
Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said: “Rolls Royce is doing everything it can under its control. Costs are managed through inflation-linked clauses in its customer contracts, debt is paid off, and critical engine flight hours increase slightly. The problem is, and has been since the pandemic hit, the band is dealing with a host of headwinds from outside forces.
“Engine flight hours, which are used to calculate Rolls Royce’s engine maintenance frequency, will never fully take off as long as restrictions remain in China. At the same time, as the debt pile shrinks and is at a fixed interest rate, it is still suffocating.The group is carrying £4bn ($4.5bn) of drawn credit, and that will limit growth for some time to come, as relief from this load takes precedence over whatever is more exciting.
The recent turmoil under the Truss government has eroded the UK’s reputation for financial stability, and that needs to be restored, said CBI chief economist Alpesh Paleja.
“The Bank rolled out an exceptional rate hike, underscoring the scale of the UK inflation challenge. energy, stubbornly high inflation expectations and persistent wage pressures.
“With inflation-fighting monetary policy, the Government’s immediate priority should be to bolster market confidence in the UK’s hard-won reputation for stability, but fiscal sustainability and growth should not be a choice.
“The autumn declaration must draw the lessons of the 2010s: fiscal sustainability and raising trend growth are two priorities. In addition to protecting the most vulnerable, the government should preserve capital spending and investment allocations to allow private sector investment to drive future growth.
The US Federal Reserve raised interest rates on Wednesday. The 75 basis point rise was expected, but US markets fell sharply after Fed Chairman Jerome Powell signaled that further hikes were on the way.
“We have a long way to go” before rate hikes can be halted, he said.
“The historical record strongly cautions against premature policy easing,” Powell warned. “We will stay the course, until the job is done.”
Investors now expect rates to top out at over 5%, down from 4% currently.
Michael Hewson, chief market analyst at CMC Markets, said: “While Powell acknowledged that a slowdown in the magnitude of rate hikes was likely, that did not change the fact that rates would likely still have need to go much higher to get inflation back to the 2% target over time.”
Victoria Scholar, chief investment officer at Interactive Investor, said: “The Fed’s latest interest rate hike sent global markets lower, with the Nasdaq closing more than 3% after the central bank suggested it was ready to go further to fight inflation.
“Fed Chairman Jay Powell warned that U.S. rates would peak above expectations, dashing hopes that the rate-hike cycle was starting to run out of steam and inflation was under control in the eyes of the US. the Fed.”
Meanwhile, crude Brent (BZ=F) fell to $95 a barrel, down 0.7%.