19th Dec 2024 09:09
(Alliance News) - Stock prices in London opened in the red on Thursday morning, as investors prepare for the Bank of England's rate call and digest the US Federal Reserve's, with Chair Jerome Powell's "hawkish shift" proving a bitter pill to swallow.
The Fed announced another 25bp cut as expected, but hinted that that it will be slowing down next year in contrast with its "jumbo" 50bp cut in September.
"The market reaction was very aggressive, of course," said Swissquote's Ipek Ozkardeskaya, while interactive investor's Richard Hunter said participants were "blindsided".
He said: "The new number of rate cuts expected next year is now just two, from the previously guided four, with the central bank pointing to a new phase whereby cuts are less necessary given the strength of the underlying economy...As such, a reduction in January now appears to be off the table."
On the Bank of England, Ozkardeskaya commented: "The British policymakers are expected to maintain rates unchanged...A cautious stance from the BoE may slow down but not reverse the negative trend provided that the UK's economy – which performed surprisingly well this year – could feel the pinch of higher taxes before it enjoys the benefits of improved growth.
"The 'pain before gain' scenario could keep the sterling bulls on the sidelines."
Hunter said: "Despite any need for stimulus to the [UK] economy, inflationary pressures - such as strong wage growth which is likely to be exacerbated by the measures announced in the Budget - are likely to win the day, leading to a widely expected no-change decision as the bank errs on the side of caution for the time being.
"Ahead of the decision, UK markets followed the global lead and sagged helplessly at the open."
The FTSE 100 index opened down 78.46 points, 1.0%, at 8,120.65. The FTSE 250 was down 206.33 points, 1.0%, at 20,395.66, and the AIM All-Share was down 6.06 points, 0.8%, at 713.36.
The Cboe UK 100 was down 0.9% at 814.84, the Cboe UK 250 was down 0.9% at 17,937.30, and the Cboe Small Companies was down 0.1% at 15,950.37.
On the FTSE 100, United Utilities gained 1.6%.
Water regulator Ofwat announced that household water bills in England and Wales will increase by an average GBP31 a year over the next five years, significantly higher than the expected average rise of around GBP20.
However, PA reported, households will actually face a heavy average hike of GBP86 or 20% in the next year with smaller percentage increases in each of the next four years. The average bill will rise by a total of GBP157 or 36% over the next five years.
Serco jumped 5.1%.
The outsourcing firm expects to post full-year revenue of around GBP4.8 billion, down 3% on-year but in line with guidance, with underlying operating profit of around GBP270 million, up 9%.
Looking further ahead, Serco expects 2025 underlying operating profit of around GBP260 million, and for revenue to be in line with 2024 at around GBP4.8 billion despite a revenue cut of around 7% from losing immigration contracts in the UK and Australia.
In smaller caps, Intelligent Ultrasound surged 12%.
It has accepted a 13 pence per share cash takeover offer from Surgical Science Sweden AB, in a deal valuing the company at around GBP45.2 million.
Surgical Science said it "has closely monitored the developments at Intelligent Ultrasound for some time" and that IU selling its Clinical AI Business to GE HealthCare "presents a unique opportunity for both companies to join forces in a way that can significantly benefit both companies' long-term goals".
In European equities on Thursday, the CAC 40 in Paris was down 0.9%, while the DAX 40 in Frankfurt was down 0.8%.
The pound was quoted lower at USD1.2645 early on Thursday in London, compared to USD1.2692 at the equities close on Wednesday. The euro stood lower at USD1.0408, against USD1.0473. Against the yen, the dollar was trading higher at JPY156.88 compared to JPY154.03.
In Asia on Thursday, the Nikkei 225 index in Tokyo was down 0.7%. In China, the Shanghai Composite was down 0.4%, while the Hang Seng index in Hong Kong was down 0.5%. The S&P/ASX 200 in Sydney closed down 1.7%.
Hunter said the Bank of Japan's decision to keep its key interest rate unchanged "pointed to the 'high uncertainties' of the business outlook, especially with regard to commodity prices and indeed inflation generally".
In the US on Wednesday, Wall Street ended lower, with the Dow Jones Industrial Average down 2.6%, the S&P 500 down 3.0% and the Nasdaq Composite down 3.6%.
"Note that the Dow Jones has been diverging negatively from its tech-heavy peers since the beginning of the month - signalling a renewed concentration on tech stocks," Ozkardeskaya said. "But this time, even the rising stars of the tech couldn't swim against the tide...Altogether, the Magnificent 7 stocks gave back a hefty 4.40% after the Fed announcement.
"The Fed may have spoiled this year's Santa rally, as its hawkish shift could trigger a deeper correction across US equity markets - which have enjoyed two stellar years largely thanks to Big Tech...Non-tech sectors have been waiting for Fed rate cuts to claim their share of the pie. Unfortunately, the latest equity rally may fade before it extends to these overlooked corners of the market."
Brent oil was quoted lower at USD72.96 a barrel early in London on Thursday from USD74.01 late Wednesday.
"In energy, the Fed's hawkish shift dampened an early rebound in oil prices yesterday," Ozkardeskaya commented. "The Fed's cautious stance, coupled with a weak demand outlook and ample supply, lent further strength to the bears. We anticipate rangebound trading within the USD67–USD70 per barrel range."
Gold was quoted lower at USD2,618.20 an ounce against USD2,637.13.
Still to come on Thursday's economic calendar, there are several data releases from the US including initial jobless claims, GDP and quarterly personal consumption expenditures.
By Emma Curzon, Alliance News reporter
Comments and questions to [email protected]
Copyright 2024 Alliance News Ltd. All Rights Reserved.