LONDON MARKET OPEN: Lacklustre Start As US Fed Rate Decision Looms

(Alliance News) - London stocks opened in a muted fashion on Wednesday, with markets in ...

Alliance News 16 September, 2020 | 8:41AM
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(Alliance News) - London stocks opened in a muted fashion on Wednesday, with markets in wait-and-see mode ahead of the US Federal Reserve's latest interest rate decision.

The FTSE 100 index was down just 1.01 points at 6,104.53 early Wednesday. The mid-cap FTSE 250 index was down 62.34 points, or 0.4%, at 17,753.04. The AIM All-Share index was up 0.2% at 970.96.

The Cboe UK 100 index was down 0.3% at 607.44. The Cboe 250 was down 0.4% at 15,122.73, and the Cboe Small Companies flat at 9,526.21.

In mainland Europe, the CAC 40 in Paris and the DAX 30 in Frankfurt were both up 0.1% early Wednesday.

"With the FOMC about to take centre stage, there is a good reason for pause. Many goodies look attractive but are not yet sponsored by flows as investors are not taking last week's warning shot on concentration too lightly. Still, a good dose of FOMC dovish medicine could provide the most effective cure for the September blues," said Stephen Innes, chief global markets strategist at AxiCorp.

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.

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.

Lloyds Bank commented: "The US central bank seems unlikely to make any policy changes today. There has been speculation prior to the last few meetings that the Fed may 'harden' its policy guidance by formally linking future moves to changes in inflation or unemployment. This is a possibility for today but a number of Fed policymakers have commented that they see no great urgency to make this change."

Ahead of the Fed, the dollar was lower.

The euro traded at USD1.1851 early Wednesday, firm against USD1.1847 late Tuesday. Against the yen, the dollar fell to JPY105.35 from JPY105.48.

Sterling was quoted at USD1.2884 early Wednesday, higher than USD1.2858 at the London equities close on Tuesday.

The UK's 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.

In London, Wm Morrison Supermarkets was 1.5% lower after JPMorgan cut the supermarket chain to Underweight from Neutral.

Meanwhile, Weir in the mid-caps benefited from a ratings upgrade, up 3.6% after Credit Suisse raised the engineer to Outperform from Neutral.

Redrow dipped 2.6% after the housebuilder 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 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.

TUI fell 2.3% after the UK Competition & Markets Authority said it has been investigating TUI UK after receiving "thousands of complaints" from people that they were not receiving refunds for their cancelled holidays within 14 days.

TUI UK has committed that customers waiting for refunds for holidays that were cancelled due to coronavirus will receive them by the end of the month.

In Asia on Wednesday, the Japanese Nikkei 225 index ended up 0.1%. In China, the Shanghai Composite ended down 0.4%, while the Hang Seng index in Hong Kong is flat in late trade.

Gold was quoted at USD1,963.30 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; lucyheming@alliancenews.com

Copyright 2020 Alliance News Limited. All Rights Reserved.

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