18th Sep 2024 16:57
(Alliance News) - London's FTSE 100 retreated on Wednesday, as an interest rate decision by the US Federal Reserve closed in, with the magnitude of the expected rate cut in doubt.
"This is one of the most uncertain Fed outcomes in recent memory; Chair Powell’s post-decision press conference could generate plenty of fireworks," said analysts at Brown Brothers Harriman.
The FTSE 100 index fell 56.18 points, or 0.7%, at 8,253.68. The FTSE 250 ended down 109.29 points, 0.5%, at 20,835.31, and the AIM All-Share eased 2.18 points, or 0.3%, at 742.56.
The Cboe UK 100 fell 0.7% to 826.21, the Cboe UK 250 dipped 0.5% to 18,380.57, and the Cboe Small Companies ended down 0.7% at 16,675.01.
In European equities on Wednesday, the CAC 40 in Paris ended down 0.6%, while the DAX 40 in Frankfurt closed slightly lower.
On Wall Street at the time of London's close, the Dow Jones Industrial Average was 0.1% lower, as was the S&P 500, while the Nasdaq Composite eased 0.2%.
The US central bank announces its rate decision at 1900 BST. The federal funds rate currently stands at 5.25%-5.50%.
According to CME FedWatch, there is a 59% chance it cuts by 50 basis points. The likelihood of a 25bp cut stands at 41%. On Tuesday, the odds of a larger cut were put at 64%.
"Indeterminate data, unclear Fed guidance and different interpretations of articles in the [Wall Street Journal] and [Financial Times] have left us and markets uncertain regarding the size of the cut today," analysts at Citi said.
"No matter the cut size, we expect a dovish meeting with [Fed Chair] Powell guiding toward - and markets pricing - larger sized cuts at future meetings."
Citi's base case is that the Fed cuts 25bp but signals 100bp of cuts this year.
"In this way the Fed is likely to deliver a dovish message whether or not the cut is supersized," Citi explained.
Ahead of the announcement, sterling climbed. The pound was quoted at USD1.3198 late on Wednesday afternoon in London, up compared to USD1.3164 at the equities close on Tuesday. The euro stood at USD1.1113 down from USD1.1119 on Tuesday.
Against the yen, the dollar was trading at JPY141.97, up compared to JPY141.76.
Back in London, and UK annual consumer price inflation remained at 2.2% last month, though services price growth picked up, reinforcing expectations that the Bank of England will leave rates unmoved on Thursday.
Numbers from the Office for National Statistics on Wednesday showed the annual rate of consumer price inflation landed in line with the FXStreet cited consensus of 2.2%. In July, the pace of consumer price growth picked up to 2.2% from 2.0% in June and May. The Bank of England has a 2.0% inflation target.
On-month, consumer prices rose 0.3%, following a 0.2% fall in July from June.
On-year, core consumer prices rose 3.6% in August, picking up speed from 3.3% in July and beating consensus of 3.5%.
Meanwhile, services prices rose 5.6% on-year in August, accelerating from 5.2% in July. Stubborn services price growth has been in focus in recent months.
Barclays said the print should keep the MPC cautious, and lead it to hold bank rate in September, at tomorrow's meeting.
Kallum Pickering at Peel Hunt agrees, noting financial markets expect the Bank of England to hold at its meeting tomorrow. "After the bank cut rates for the first time last month in a close 5-4 split vote, it is hard to see what could motivate a second rate cut this month already from the BoE. This week’s meeting is probably one for the hawks."
In London's FTSE 100, Reckitt Benckiser rose 1.2%. It has started early discussions with some of the potential suitors for its homecare assets, which could fetch more than GBP6 billion, Bloomberg reported, citing people familiar with the matter.
The Slough-based consumer goods firm is working with Morgan Stanley for the brands including air freshener Airwick and Cillit Bang cleaners, the report said.
Mostly financial investors as well as some consumer companies have shown interest in the assets, Bloomberg said, with a formal sale process likely to kick off within months and be completed in 2025.
Meanwhile, Goldman Sachs is helping Reckitt on evaluating options for its infant formula brand Mead Johnson, including a potential sale, according to the report. Deliberations are ongoing, and no final decision has been made.
Elsewhere, Kingfisher climbed a further 1.2% after results Tuesday, and InterContinental Hotels rose 0.6% as Goldman Sachs lifted the hotel company to 'buy' from 'neutral'.
But Legal & General fell 2.9% as analysts queried whether receipts from the GBP1.35 billion sale of its Cala housebuilding business would be used for near-term share buybacks.
Analysts at KBW Europe said the headline price tag is at the top end of a range discussed in the press that has been gradually rising since the second quarter, which is "good".
But it said the timing of the payment is probably more complicated than expected, with only GBP500 million being received on completion.
The broker noted proceeds are forming part of the general capital framework of L&G's business plan "and so there is no follow-on share buy-back which KBW has not expected but may disappoint some bulls".
Spectris fell 4.4%. HSBC cut the firm to 'hold', putting more pressure on the shares. The provider of instruments, test equipment, and software for industrial applications has fallen some 20% over the past 12 months.
In the FTSE 250, Hammerson rose 1.9% as Citi upgraded to 'buy' from 'neutral', while Lancashire Holdings firmed 1.6% as Goldman Sachs moved to 'buy' from 'neutral'.
Elsewhere, Smiths News climbed 1.8% as it said that it has successfully secured a new long-term contract with the Financial Times.
Alongside other new contract awards, Smiths News has now renewed agreements representing 75% of its current newspaper and magazine revenues on long-term agreements.
"We are delighted to confirm this new agreement with the Financial Times, which builds on our previously announced contract wins, successfully securing contracted revenues with publishers through to 2029," said Chief Executive Officer Jon Bunting.
The price of gold climbed to USD2,569.38 an ounce on Wednesday, up from USD2,564.83 at the time of the London close on Tuesday.
Brent oil was quoted at USD73.03 a barrel at the time of the London equities close on Wednesday, down from USD73.60 late Tuesday.
Thursday's local corporate calendar sees half-year results from retailer Next and merchant bank Close Brothers.
The economic calendar for Thursday sees the UK interest rate decision at 1200 BST.
By Jeremy Cutler, Alliance News reporter
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