30th Oct 2019 08:38
(Alliance News) - London stocks opened Wednesday's session on a cautious note as investors await an interest rate cut from the US Federal Reserve and look for any signs that there could be further easing to come.
In the FTSE 100, clothing retailer Next was the worst performer after observing a tough September and improved October, while Standard Chartered and Smurfit Kappa topped the index.
The FTSE 100 index was just 0.72 of a point lower at 7,305.54 early Wednesday. The FTSE 250 was down 2.97 points at 20,165.36, and the AIM All-Share was up 0.1% at 891.14.
The Cboe UK 100 index was flat at 12,384.14. The Cboe UK 250 was up 0.1% at 18,104.52 and the Cboe UK Small Companies was down 0.2% at 11,213.00.
In European equities, the CAC 40 index in Paris was up 0.2% and the DAX 30 in Frankfurt flat in early trade.
Focus on Wednesday lies squarely on the US Federal Reserve.
"The question on everyone's mind is if this is going to be a hawkish rate cut or dovish rate cut because this is all that matters," said Naeem Aslam at ThinkMarkets.
A US rate cut later on Wednesday is overwhelmingly priced in by markets, which, if delivered, will mean the US central bank has lowered rates three times this year.
"What will be interesting to see is if the Fed is going to cut the interest one more time this year and if the policy statement shows that there is a strong possibility of that happening then it means that the Fed is really on the easy monetary policy path. This would be perceived by the markets as a dovish rate cut," said Aslam.
He continued: "On the flip side, if the Fed says that they are not going to cut the interest rate anytime soon unless it is absolute necessary - that means a major change in the economic health, it would be a hawkish rate cut."
The Fed will announce its latest monetary policy decision at 1800 GMT, followed by a press conference with Chair Powell at 1830 GMT.
Elsewhere in the economic calendar on Wednesday, there is eurozone consumer confidence at 1000 GMT and German inflation at 1300 GMT, with a US third-quarter gross domestic product reading at 1230 GMT.
Consensus, according to FXStreet, is for annual GDP growth of 1.7% in the third quarter, slowing from 2% in the second quarter. In the first quarter of 2019, the US economy grew 3.1%.
Meanwhile, the pound was quoted at USD1.2890, flat versus USD1.2887 late Tuesday.
UK Prime Minister Boris Johnson has said he is prepared for a "tough" general election battle after members of Parliament cleared the way for the first December poll in almost a century.
This followed Johnson's Commons victory on Tuesday, his fourth time of asking for an election. The one-page Bill enabling the election to be held on December 12 now goes to the House of Lords, but it is unlikely to be held up in the unelected upper chamber.
It was the Labour leader's decision finally to back an election which enabled Johnson to get it through the Commons. Jeremy Corbyn had been under intense pressure to relent after the Liberal Democrats and the SNP said at the weekend that they would be prepared to support a December poll.
"Even if the risk of a no deal Brexit is off the agenda short term, there are sufficient remaining risks in the medium term. And as a result sufficient stumbling blocks for sterling," commented Antje Praefcke at Commerzbank.
In London in early trade, Next was at the bottom of the FTSE 100, down 2.8%.
Total full price sales were up 2.0% in the quarter to October 26, being last Saturday, which Next said was "slightly ahead" of guidance given in September. Retail sales were down 6.3%, online sales up 9.7% and finance interest income up 7.0%.
The UK retail bellwether said it thinks strong sales in July pulled forward sales from August, while sales in September were "adversely affected by unusually warm weather". This was followed by a "significant improvement" in October when temperatures fell and the heavens opened with rain.
We believe the improved sales growth in October recouped some of the lost sales in September and we do not expect sales growth for the rest of the year to be as strong as October," said Next.
As a result, the retailer maintained its guidance for the financial year ended in January, with total full price sales to grow 3.6% and pretax profit to edge up 0.3% year-on-year to GBP725 million.
"Next has bucked the dreary retail outlook with another resilient update...Although Next has been relatively cool on its expectations for the remainder of the year after a particularly strong October, the business appears to be in a very good place," said Arlene Ewing, investment manager at Brewin Dolphin.
Standard Chartered and Smurfit Kappa were in first and second place in the blue-chip index, gaining 2.2% and 1.3% respectively.
StanChart achieved solid third-quarter growth, though the lender did warn of "growing headwinds".
For the three months to September, StanChart's pretax profit rose by 4% year-on-year to USD1.11 billion, with the underlying figure up 16% to USD1.24 billion. The emerging market bank's income climbed by 7% to USD3.98 billion, and StanChart said there was "broad-based growth" across all business segments and regions.
However, StanChart warned there are "growing headwinds", in the form of continued geopolitical tensions as well as an expected slowdown in global economic growth and lower interest rates.
Packaging firm Smurfit Kappa said it delivered a strong performance in the first nine months of the year.
For the nine months to September 30, revenue was up 3% to EUR6.85 billion and earnings before interest, tax, depreciation and amortisation 11% higher at EUR1.26 billion. The firm's Ebitda margin increased 140 basis points to 18.3%.
"While there have been, and continue to be, obvious macro-economic and political challenges, SKG's very strong performance against this backdrop shows, once again, the quality of our business and the benefits of our geographic diversity," said Chief Executive Tony Smurfit.
Shares in FTSE 250-listed ConvaTec posted solid gains, up 6.8%, as it reported a robust third quarter.
Revenue for the three months to September 30 was USD462.7 million, up 2.4% on last year, or 4.6% higher on an organic basis.
In Advanced Wound Care, organic growth of 3.6% was driven by its silver portfolio, with growth of 3.0% was achieved in Ostomy Care, reflecting a "solid underlying performance against a weak 2018 performance". Continence & Critical Care reported growth of 8.0%, "flattered" by a weaker prior year comparison, while Infusion Devices saw growth of 4.3%.
By Lucy Heming; [email protected]
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