LONDON MARKET EARLY CALL: Higher call as Evergrande to pay lenders

(Alliance News) - Stock prices in London are seen opening higher on Wednesday ahead of the US ...

Alliance News 22 September, 2021 | 6:01AM
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(Alliance News) - Stock prices in London are seen opening higher on Wednesday ahead of the US Federal Reserve's interest rate decision, with investors awaiting a signal on when the central bank will begin pulling back on its stimulus policies.

IG futures indicate the FTSE 100 index is to open 27.22 points higher at 7,008.20. The blue-chip index closed up 77.07 points, or 1.1%, at 6,980.98 Tuesday.

The 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.

The Fed has said its benchmark borrowing rate will remain at record lows for some time, so the first step for the central bank will be to start to slow its massive monthly bond-buying programme, which is expected before the end of the year.

Investors will be watching to see if Powell provides details on the taper plan. Monthly asset purchases currently total at least USD80 billion in Treasury securities and USD40 billion in agency mortgage‑backed securities.

Meanwhile, embattled Chinese property firm Evergrande said Wednesday it had agreed a deal with domestic bondholders that should allow the conglomerate to avoid default on one of its interest payments.

Financial markets have tumbled over fears that the Chinese group could collapse, with the potential to derail the world's second-biggest economy.

In a statement to the Shenzhen stock exchange, Evergrande's property unit Hengda said it had negotiated a plan to pay interest due on its 2025 bond, which Bloomberg News calculated was worth USD35.9 million.

CMC Markets analyst Michael Hewson said: "Today's European open looks set to be a positive one after yesterday's rebound, with the main focus now shifting towards the Federal Reserve monetary policy decision, although concern over Evergrande remains.

"More importantly, with Chair Powell due to speak later, investors will be looking to determine whether recent events around surging energy prices, and Evergrande, have altered the prevailing narrative, that until a week ago, had been very much that this meeting was a waypoint on the way to the September payrolls number, which is due on October 8. A decent number in October would more or less set in motion a timeline to the start of a tapering of asset purchases in either December or January."

In the US on Tuesday, Wall Street mostly lower, with the Dow Jones Industrial Average down 0.2% and S&P 500 down 0.1%, but the Nasdaq Composite closed up 0.2%.

The Japanese Nikkei 225 index was down 0.5%. In China, the Shanghai Composite was up 0.2%, reopening after being closed for the Mid-Autumn festival, while markets in Hong Kong were closed for a holiday. The S&P/ASX 200 in Sydney was up 0.7%.

The Bank of Japan on Wednesday decided by an 8-1 majority vote to keep a negative interest rate of 0.1%.

BoJ also kept its loose monetary policy unchanged. The bank said it will continue expanding the monetary base until the year-on-year rate of increase in the consumer price index exceeds 2% and stays above the target in a "stable manner".

Japan's central bank noted that local economy has picked up as a trend, although it has remained in a "severe situation" due to coronavirus, both at home and abroad. Exports and industrial production have continued to increase despite supply-side constraints.

However, the bank noted that the level of Japan's economic activity in the face-to-face services sector is expected to be lower than that prior to the pandemic for the time being.

The pound was quoted at USD1.3660 early Wednesday, up from USD1.3643 at the London equities close on Tuesday.

The euro was priced at USD1.1725, up from USD1.1714. Against the Japanese yen, the dollar was trading at JPY109.52, higher against JPY109.26.

Brent was quoted at USD75.25 a barrel Wednesday morning, up sharply from USD73.84 late Tuesday. Gold stood at USD1,777.85 an ounce, down from USD1,781.03.

Wednesday's economic calendar has the latest Ifo economic forecast for Germany at 0900 BST.

The UK corporate calendar has a trading statement from safety equipment firm Halma, full-year results from personal and home care products maker PZ Cussons and interim earnings from over-50s' travel and insurance provider Saga.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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