19th Sep 2024 06:36
(Alliance News) - Stocks in London are called to open higher on Thursday, after the Federal Reserve's half-point US interest rate cut, and ahead of the Bank of England taking centre-stage.
The BoE is not expected to follow in the Fed's footsteps, and is tipped to leave bank rate unmoved. It is a view that was reinforced by Wednesday's UK inflation data.
IG says futures indicate the FTSE 100 to open 76.2 points higher, 0.9%, at 8,329.88 on Thursday. The index of London large-caps fell 56.18 points, or 0.7%, at 8,253.68 on Wednesday.
The pound traded at USD1.3213 early Thursday in London, rising from USD1.3198 at the time of the London equities close. The euro climbed to USD1.1125 from USD1.1113. The yen traded at JPY142.99, climbing from JPY141.97.
The US central bank reduced the federal funds rate to 4.75%-5.00% from 5.25%-5.50%, where it has been since July 2023.
Outside the emergency rate cuts during Covid, the last time the Federal Open Market Committee cut by half a point was in 2008 during the global financial crisis.
The FOMC indicated through its "dot plot" the equivalent of 50 more basis points of cuts by the end of the year.
The graph of individual officials' expectations pointed to another full percentage point in cuts by the end of 2025 and a half-point in 2026.
"The Fed eased by 50bp, exceeding the 25bp expected by the overwhelming majority of economists. Markets saw a 60% chance of a 50bp easing just before the decision," Pantheon Macroeconomics analyst Samuel Tombs commented.
"We continue to think that the committee will ease more rapidly over the next nine months than it envisages today. It currently has too much faith in the ability of its easing measures to address the deteriorating trend in the labour market swiftly. In reality, the rising unemployment rate is due to excessively tight policy several quarters ago, and any easing measures today will take at least a year to support the economy."
Equities in New York, which initially climbed in the wake of the decision, ended lower on Wednesday. The Dow Jones Industrial Average, the S&P 500 and Nasdaq Composite all lost 0.3%.
But stocks in Asia surged. The Nikkei 225 jumped 2.6% in Tokyo. In China, the Shanghai Composite was up 0.7%, while the Hang Seng in Hong Kong rallied 1.9%. The S&P/ASX 200 in Sydney was up 0.6%, as it hit another record high above 8,200 points.
The BoE announces an interest rate decision at midday on Thursday.
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.
Commerzbank analyst Ulrich Leuchtmann commented: "Yesterday's UK inflation figures did not come as any major surprise.
"Nevertheless, the initial market reaction shows very clearly that the pound is currently benefiting particularly from the fact that the Bank of England appears to be lagging behind. While the ECB has already cut its key rate twice and the Fed started with a big move, the market expects the BoE to make rather more leisurely interest rate cuts. That is what makes the pound so attractive."
The analyst continued: "Of course, this would quickly come to an end if inflation in the United Kingdom were to fall very rapidly (as is expected for the euro area and the US). Therefore, UK inflation figures are always a cause for nervousness for those who hold long GBP positions.
"But the flip side of this previous nervousness is that if the figures do not give cause to question the BoE's positive outlook on GBP, relief will prevail. Relief does not mean massive GBP strength, but it does mean visible price movements."
The price of gold fell to USD2,566.81 an ounce early Thursday, from USD2,569.38 at the time of the London equities close Wednesday. Brent oil was quoted at USD73.71 a barrel, rising from USD73.03.
Thursday's local corporate calendar sees half-year results from retailer Next and merchant bank Close Brothers.
The economic calendar has the latest US initial jobless claims reading at 1330 BST.
By Eric Cunha, Alliance News news editor
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