LONDON MARKET PRE-OPEN: Pound Buoyant Despite Slowing UK Inflation

(Alliance News) - Stock prices in London are set to open lower on Wednesday, pulling back from ...

Alliance News 16 September, 2020 | 7:43AM
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(Alliance News) - Stock prices in London are set to open lower on Wednesday, pulling back from solid gains in the previous session as caution sets in ahead of the US Federal Reserve's interest rate decision due after the European close.

Meanwhile, the pound remained higher against the dollar despite figures showed UK inflation slowed sharply in August.

The annual inflation rate decelerated to 0.2% in August from 1.0% in July. Month-on-month, prices fell by 0.4% in August after 0.4% growth in July.

The Office for National Statistics noted that the UK government's Eat Out to Help Out scheme - which ran in August and discounted meals out up to a maximum of GBP10 per person - pushed down prices in restaurants and cafes, while other downwards contributions came from air fares and clothing prices.

"UK's annualized inflation came ahead of the forecast but the impact of this on sterling has been minimum. The inflation numbers have largely moved because of the government Eat Out scheme and this is the reason that we have not seen much of the movement in the sterling price. Moreover, today is all about the FOMC, and therefore, traders are unlikely to bet big ahead of this key event," said Naeem Aslam, chief market analyst at AvaTrade.

Sterling was quoted at USD1.2896 early Wednesday, higher than USD1.2858 at the London equities close on Tuesday.

IG says futures indicate the FTSE 100 index of large-caps to open 19.34 points lower at 6,086.20 on Wednesday. The FTSE 100 closed up 70.29 points, or 1.3%, at 6,105.54 on Tuesday.

Michael Hewson, chief market analyst at CMC Markets, said: "European markets had a much better session yesterday driven by a dose of retail therapy, helping to push the FTSE 100 to its best levels this month, and while US markets also finished the day higher, a late selloff into the close tempered gains there.

"This late sell-off from the intraday peaks in the US could well mean that European markets may well open a little mixed this morning, with a slight downward bias, as we look ahead to today's long-awaited Federal Reserve rate meeting," he added.

In the US on Tuesday, the Dow Jones Industrial Average ended marginally higher, the S&P 500 up 0.5% and Nasdaq Composite up 1.2%.

The US Federal Open Market Committee will conclude its two-day policy meeting on Wednesday and announce its decision at 1900 BST. This will be followed by a press conference with Fed Chair Jerome Powell at 1930 BST.

No change is expected on interest rates.

Jeffrey Halley, senior market analyst for Asia Pacific at Oanda, said: "We expect the Fed to reiterate its lower-for-longer call on rates, and to do whatever it takes on the liquidity front to support growth and unemployment. We may get some insight into the nuances of their new fuzzy inflation targeting process."

At the end of August, Powell presented the results of the US central bank's strategy review, revealing that the Fed has shifted to a "flexible form of average inflation targeting".

The change means inflation can stay above the 2.0% target "for some time" before the Fed will need to act by raising interest rates, Powell said in a speech to the annual Jackson Hole central bank symposium.

The euro traded at USD1.1849 early Wednesday, flat against USD1.1847 late Tuesday. Against the yen, the dollar fell to JPY105.34 from JPY105.48.

In Asia on Wednesday, the Japanese Nikkei 225 index ended up 0.1%. In China, the Shanghai Composite is down 0.6%, while the Hang Seng index in Hong Kong is down 0.2%.  

In early UK company news, Plus500 said it is confident in its outlook after an "outstanding performance" so far this year.

The operational momentum achieved during the first half has continued into the second half to date, the contracts for difference technology platform said. Revenue, in particular Customer Income, has remained strong in the second half thus far, while a "high level of new customers" have been onboarded.

"While market conditions remain uncertain, macroeconomic and sector-specific newsflow continue to provide significant trading opportunities for customers. Therefore, the board remains very confident about the outlook for Plus500, particularly given the company's outstanding performance so far this year," said Plus500.

Housebuilder Redrow reported a fall in annual profit but said it has got off to a good start to the new financial year, eyeing the resumption of dividend payments in 2021.

Revenue for the year to June 28 fell 37% to GBP1.34 billion from GBP2.11 billion, with completions also down 37% due to Covid-19, the firm said.

Pretax profit slumped to GBP140 million from GBP406 million, which Redrow also said was due to the pandemic as well as costs and impairments in connection with the scaling back of the London business.

The homebuilder said it has seen encouraging trading since the start of the new financial year, with reservations 12% ahead.

"The group is well-placed to deliver a robust performance. We have completed substantially more homes in the first few weeks of the new financial year than during the same comparable period last year whilst maintaining a record order book," said Executive Chair John Tutte.

Tutte added: "This, combined with reduced investment in London, will deliver strong operating cash flow over the coming months to support our regional growth plans and, subject to market conditions, allow dividend payments to resume in 2021".

No final dividend was recommended for the recently-ended year, and back in March Redrow had decided to cancel its interim dividend.

Gold was quoted at USD1,959.00 an ounce early Wednesday, higher than USD1,951.10 on Tuesday. Brent oil rose to USD41.24 a barrel from USD40.16 late Tuesday.

Outside of the Fed in the international events calendar on Wednesday, there is the eurozone trade balance at 1000 BST, with US retail sales in the afternoon at 1330 BST.

By Lucy Heming;

Copyright 2020 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Redrow PLC 414.60 GBX -3.58 -
Plus500 Ltd 1,523.50 GBX 2.15 -

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