LONDON MARKET OPEN: Stocks Tumble In US Fed's Wake And Ahead Of BoE

(Alliance News) - London stocks opened well in the red on Thursday after the US Federal Reserve's ...

Alliance News 17 September, 2020 | 8:35AM
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(Alliance News) - London stocks opened well in the red on Thursday after the US Federal Reserve's policy decision.

"Stocks sold off and the US dollar rose following the Fed's announcement in a risk-off move as the market portrayed its frustration at the Fed's reluctance to offer any more stimulus," said Fiona Cincotta at City Index.

She added: "The sour mood in the market carried over into Asia, shrugging off the Bank of Japan's cautious optimism."

Attention now turns to the Bank of England, with an interest rate decision due at midday.

The FTSE 100 index was down 57.59 points, or 1.0%, at 6,020.89 early Thursday. The mid-cap FTSE 250 index was down 121.87, or 0.7%, at 17,673.39. The AIM All-Share index was down 0.1% at 972.55.

The Cboe UK 100 index was down 0.9% at 599.71. The Cboe 250 was down 0.6% at 15,103.55, and the Cboe Small Companies down 0.2% at 9,449.74.

In mainland Europe, the CAC 40 in Paris was down 1.3%, while the DAX 30 in Frankfurt was down 1.4% early Thursday.

The policy-setting Federal Open Market Committee on Wednesday left its benchmark rate unchanged in the range of 0% to 0.25%, as widely expected, and intends to keep the benchmark lending rate low until maximum employment is achieved even if inflation rises above 2%.

"We expect to maintain an accommodative stance of monetary policy until these outcomes, including maximum employment, are achieved," Fed Chair Jerome Powell said.

In its forward guidance, which Powell said was "strong and powerful" and will support economic growth, the Fed does not expect core personal consumption expenditure inflation to hit 2.0% until 2023. The Fed is expects unemployment to be at 4.0% in 2023, falling from 7.6% in 2020, 5.5% in 2021 and 4.6% in 2022.

The Fed also noted that, over coming months, it will continue to increase its holdings of Treasury securities and agency mortgage-backed securities at least at its current pace.

Wall Street ended largely lower in the wake of the Fed announcement, with Asia following lower overnight.

In Asia on Thursday, the Japanese Nikkei 225 index closed down 0.7%. In China, the Shanghai Composite closed down 0.4%, while the Hang Seng index in Hong Kong is down 1.6% in late trade.

Following the Fed decision, the Bank of Japan said on Thursday it expects a moderate pace of economic improvement following the global pandemic but warned that there are "extremely high uncertainties" going forward.

The BoJ decided to keep its short-term policy interest rate unchanged at negative 0.1%.

The central bank noted that both Japan's and overseas economies have started picking up again, although the economies remain in a severe situation due to the impact of the coronavirus pandemic at home and abroad.

Against the yen, the dollar was a touch lower at JPY104.82 versus JPY104.85.

Finishing off a bumper week for central bank decisions is the BoE at midday. No change to policy is expected this week, but analysts think the UK central bank will set the stage for further easing in November.

"There are a number of potential headwinds ahead for the UK, including the end of the furlough scheme, coronavirus and uncertainties surrounding the future UK-EU relationship. The Bank is expected to reiterate that it is ready to provide more stimulus before the end of the year, which could come at the November policy meeting," said Lloyds Bank.

Sterling was quoted at USD1.2950 early Thursday ahead of the BoE announcement, lower than USD1.2996 at the London equities close on Wednesday.

The euro traded at USD1.1772, lower than USD1.1843 late Wednesday.

Gold was quoted at USD1,944.10 an ounce early Thursday, down from USD1,969.00 on Wednesday, amid a stronger dollar. Brent oil was trading at USD41.84 a barrel, soft against USD41.90 late Wednesday.

Clothing and homewares retailer Next rose straight to the top of London's FTSE 100, up 2.1% in early dealings after raising its profit outlook.

Revenue for the half-year to July 25 was GBP1.29 billion, a sharp drop from GBP2.01 billion a year ago. The firm swung to a pretax loss of GBP16.5 million from a profit of GBP327.4 million.

Pre-IFRS 16, an accounting rule related to leases, Next posted a pretax profit of GBP9.0 million, dropping from GBP319.6 million a year prior.

Full price sales in the period were down a third on last year, though Next noted that sales in the last seven weeks have been up 4% on a year ago. In the last thirteen weeks, since stores reopened, brand full price sales have "been much better" than anticipated, down 2% on last year.

"Unfortunately, we believe that recent sales are very unlikely to be indicative of our sales performance for the rest of the year," said Next, noting a boost from fewer people taking overseas holidays and recent cool weather.

For the rest of the year, full price sales are expected to be down 12%. Pretax profit is seen at GBP300 million, up from the central scenario of GBP195 million given in July's trading statement.

Informa fell 2.8% after JPMorgan cut the events and publishing company to Neutral from Overweight.

In the FTSE 250, IG Group rose 3.5% as the contracts-for-difference trading platform performed "very strongly" in the first quarter.

Net trading revenue of GBP209 million in the three months to August 31 was up 62% on a year ago, driven by continued high levels of trading activity from existing clients and a 50% rise in total active clients.

"I am excited by the outstanding performance we delivered in the first quarter as we enter the second year of our three-year growth strategy. This was a great start to the year, and although there was some moderation from the exceptional performance in Q4, our first quarter results demonstrate IG's continued strength across the Core Markets, while also highlighting the growth potential in the Significant Opportunities," said Chief Executive June Felix.

The second best mid-cap performer was Oxford Biomedica, up 3.5% as well. The gene and cell therapy group reported a narrowed interim loss amid a busy first half.

Revenue was up 6% to GBP34.0 million in the six months to June 30, while its pretax loss halved to GBP6.1 million from GBP12.1 million.

Oxford Biomedica said it expects a stronger second half to the year and, in addition, its partnership with AstraZeneca on the pharmaceutical firm's potential Covid-19 vaccine is likely to boost revenue in the year in excess of GBP10 million subject to successful scale up and regulatory approval of the fourth bioprocessing suite within Oxbox.

Operating Ebitda for the group is expected to be "in the low to mid-single digit million range" for the year on this basis.

"The first six months of the year, continuing into the second half of 2020, have probably been the busiest I have known in my time at Oxford Biomedica, set against the backdrop of one of the most unusual times in our working history," said Chief Executive John Dawson.

Outside of the BoE, there is a eurozone consumer price index print at 1000 BST and weekly US initial jobless claims at 1330 BST.

By Lucy Heming; lucyheming@alliancenews.com

Copyright 2020 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Rating
Oxford BioMedica PLC 819.00 GBX 3.67 -
IG Group Holdings PLC 777.00 GBX 0.52 -
Next PLC 6,328.00 GBX 1.80 -
Informa PLC 449.00 GBX 2.91 -

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