19th Aug 2015 11:19
LONDON (Alliance News) - London stocks are trading lower midday Wednesday, with sentiment hit by volatility in the Chinese stock market, ahead of a US inflation report and minutes from the latest US Federal Reserve policy meeting.
The US consumer price index for July is due at 1330 BST and is expected to show modest growth. Economists expect CPI to grow 0.2% year-on-year in July, versus the 0.1% growth seen in June. The month-on-month figure also is expected to show growth of 0.2%, slowing slightly from 0.3% in June.
Core CPI, which excludes volatile products such as food and energy, is expected to show 1.8% growth year-on-year in July, matching the growth seen in August.
While headline inflation numbers are forecast to remain weak, much of this is due to the fall in oil prices, and analysts believe it will not hamper expectations for the Fed to raise US interest rates at its September meeting.
"Monetary policymakers are expected to view upcoming weak headline consumer inflation readings as the products of renewed swoons in petroleum-based energy costs, however. As a result, we continue to expect the lift-off in administered rates to occur at the upcoming [Federal Open Market Committee] meeting," says Brian Jones, analyst at Societe Generale.
The inflation report comes ahead of the FOMC minutes from its latest policy meeting, which is due at 1900 BST. Fed Chair Janet Yellen has repeatedly said that the US central bank will raise US interest rates later this year, and investors will be keen to find any clues to how soon that will be.
However, analysts believe the minutes will not give any clear signals of the central bank's intentions for a rate hike.
"The FOMC has said that its interest rate decisions will be made on a meeting-by-meeting basis and that it will not signal decisions in advance. In recent weeks, only one FOMC participant – President Lockhart – has publicly discussed his views on the upcoming interest rate decision. We do not expect the FOMC to use the minutes to send a clear signal about its near-term intentions," comment economists at Nomura.
Federal Reserve Bank of Atlanta President Dennis Lockhart said last week that the US central bank is close to raising short-term interest rates, as he said the economy is "approaching an acceptable normal", The Wall Street Journal reported.
Lockhart, during a speech at the Atlanta Press Club, said the "point of lift-off is close". He added that "September remains a live possibility" for a first rate rise in the US for nine years.
"I remain predisposed to September being a possible date for liftoff," Lockhart said. "At the same time, in the greater scheme of things, I don't think [waiting] a meeting or two is going to be decisive for the US economy."
The minutes also will not give any opinion on the recent currency intervention by China, thought by some to count against a September US rate hike, as this started to happen on August 11, well after the July 28 and 29 FOMC meeting.
The FTSE 100 trades down 0.8% at 6,471.97, the FTSE 250 is down 0.6% at 17,505.10, and the AIM All-Share is down 0.2% at 749.41.
European stocks are down as well, with the French CAC 40 off 0.6% and the German DAX 30 down 1.0%.
Futures indicate Wall Street to a lower open, with the DJIA, S&P 500 and the Nasdaq 100 all pointed down 0.3%.
Investors also are reacting to more volatility in the Chinese stock market. China's Shanghai Composite index fell as much as 5% to touch its lowest level since August earlier Wednesday on renewed worries about the economic outlook and continuing uncertainty related to the direction of yuan, following last week's unexpected devaluation.
However, the index staged a comeback near the close of trade to end up 1.2%. The Hang Seng in Hong Kong, however, ended down 1.3%.
"The Chinese equity markets may have ended on a positive note, but the erratic swings should be viewed with caution, and such a wide trading range tells us that China will not be stable for some time," says IG market analyst David Madden.
Meanwhile, the German parliament voted overwhelming to back Greece's third bailout in five years after Chancellor Angela Merkel managed to contain a rebellion in the ranks of her conservative bloc. A total of 454 members of the Bundestag voted in favour of the EUR86 billion bailout, while just 113 opposed it. That tally was fewer than the 191 who voted in July against opening bailout talks with cash-strapped Greece. A further 18 abstained Wednesday.
On the London Stock Exchange, Glencore is the biggest FTSE 100 faller, down 8.5%, having reached another record low. The multi-commodity miner reported a substantial fall in earnings, as expected, in the first half of the year, due to weaker commodities and oil prices and following the company's mixed production results earlier this month.
Glencore, like its peers, is suffering from steep declines in commodity prices such as iron ore and copper, whilst also battling the decline in oil prices, compounded by a slowdown in economic growth in China, the world's largest importer of metals.
Admiral Group is the best blue-chip performer, up 5.3%. The motor insurer beat analyst forecasts to declare an 'up' first half and lifted its interim dividend by more than expected after reserve releases for prior year claims in its UK car insurance business helped drive its overall profit performance.
Admiral increased its interim dividend per share to 51.0 pence from 49.4p, while earnings per shares increased by 4% to 54.8 pence. Thirteen analysts polled by the company had expected a dividend of 45.6p and earnings per share of 47.0p.
Hikma Pharmaceuticals is another of the few FTSE 100 gainers, trading up 4.8%. The company reiterated its revenue guidance for 2015, although it reported a fall in pretax profit for its first half as revenue was hit by the strength of the dollar and a good performance in Hikma's Branded and Injectibles segments was offset by a decline in its Generics segment.
Additionally, Hikma said it has inked a licensing and distribution deal with UK nutraceutical and vitamin company Vitabiotics, giving it the exclusive rights to register, market, distribute and sell five of Vitabiotics' products in 15 of its Middle East and North Africa markets. It also has the rights to market, distribute and sell the full Vitabiotics product range in five of these markets.
In the AIM All-Share index, Sunrise Resources is up 44% after the miner said it has signed a contract with Boart Longyear for a drilling programme at the Bay State silver project in Nevada.
Sunrise said the drill and associated crew will mobilise to the site on August 24 for an immediate drill start. The first phase will comprise of around 500 metres of diamond drilling and is expected to last around two weeks, with analytical results to be made available in around eight weeks.
Jelf Group is up 14%. The insurance broker said it is in talks over a potential takeover by Marsh Ltd. "Discussions, which are ongoing, are at an early stage and there can be no certainty that any offer will ultimately be made for Jelf or as to the terms of any such offer," Jelf said in a statement. Marsh is a subsidiary of Marsh & McLennan Cos, the US professional services company.
Other than US inflation and the FOMC minutes, there are EIA crude oil stocks at 1530 BST.
By Neil Thakrar; [email protected]; @NeilThakrar1
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