20th Aug 2015 06:38
LONDON (Alliance News) - UK stocks are set to open lower Thursday as oil prices continue to fall to new six-and-a-half year lows, while minutes from the US Federal Reserve on Wednesday failed to provide much new information on the immediacy of an interest rate hike.
The minutes of the July 28-29 meeting revealed most members of the Federal Open Market Committee believed conditions for raising interest rates were approaching but not yet achieved. While meeting participants said the US labour market had improved notably since early this year, many saw scope for some further improvement. Some members also expressed concerns about the outlook for inflation and whether it would support an interest rate hike.
Notes from the meeting said that one member of the committee "indicated a readiness to take that step at this meeting but was willing to wait for additional data to confirm a judgement to raise the target range." Overall, the panel "concluded that, although it had seen further progress, the economic conditions warranting an increase in the target range for the federal funds rate had not yet been met."
Craig Erlam, senior market analyst at Oanda says: "Last night?s release of the FOMC minutes was very important for the markets as investors continue to seek clues on the timing of the first rate hike in almost a decade. As it turned out though, there was little to be learned from the minutes themselves and as is often the case, people seemed to simply take from them what they wanted to."
"We?re going to have to wait and see what policy makers have to say in the coming weeks as we near the September meeting. There is clearly a desire to raise rates at the Fed, I?m just not sure at this stage whether everyone is quite on board yet for a September hike to occur. If anyone at the last meeting was still on the fence, the yuan devaluation may have just tipped them over the edge into the dove camp," Erlam adds.
The Fed minutes were released after a report from the Labor Department showed the US consumer price index edged up by 0.1% in July from the month before, after climbing by 0.3% month-on-month in June. Economists had expected prices to rise by 0.2%. Excluding food and energy prices, the core consumer price index also ticked up by 0.1% in July from June following a 0.2% increase in June from May. Core prices also were expected to rise by 0.2%.
On a year-on-year basis, US consumer prices rose by 0.2% in July, reflecting a slight acceleration from the 0.1% growth seen in June. Meanwhile, the annual rate of growth in core consumer prices came in at 1.8%, unchanged from the previous month. Both annual inflation readings matched estimates. Many analysts still believe that these inflation numbers still leave a September US rate hike on the table, with the Fed seemingly willing to look past the effects of the fall in oil price on inflation.
"One thing is clear: the decision to hike or not to hike will come down to members? confidence that inflation will reach 2% in the medium term. At the July meeting, many participants felt confident that this would be supported by sustained growth and further improvements in the labour market," says Societe Generale analyst Aneta Markowska.
Wall Street closed firmly lower but off its lows after the release of the minutes, with the DJIA closing down 0.9%, while the S&P 500 and the Nasdaq Composite both fell 0.8%.
IG says futures indicate the FTSE 100 lower at 6,358.0. The index closed down 1.9% at 6,403.45 points on Wednesday, its lowest level since mid-January. The blue-chip index has now failed to post a daily gain in seven sessions.
Oil prices continue to remain under pressure, with West Texas Intermediate falling to a new six and a half year low on Wednesday at USD40.39 a barrel. Ahead of the London equities open, it trades at USD40.90 a barrel. Brent oil is also under pressure, hitting its lowest level since mid-January at USD46.74 a barrel, and currently trades at USD46.78 a barrel.
Greece will also be in focus as it prepares to make a loan payment to the European Central Bank due Thursday. Eurozone finance ministers on Wednesday approved the first tranche of Greece's new EUR86 billion bailout, EU diplomats said. Earlier Wednesday, the final hurdles were cleared as the German and Dutch Parliaments approved Greece's third bailout programme in five years. It spells out strict conditions, agreed last week by Athens and its creditors, which Greece must meet in return for new aid.
The finance ministers later held a conference call, rubber-stamping the deal and clearing the way for a first bailout tranche of EUR26 billion, which will be split into several payments according to earlier information. Greece is expected to receive EUR13 billion in time to meet Thursday's deadline for repaying a loan to the ECB worth about EUR3.4 billion.
In Asia, the Nikkei in Tokyo closed down 0.9%, the Hang Seng trades down 1.8% and the Shanghai Composite is down 1.2%. Uncertainty over the implications of China's yuan devaluation lingers despite the country's central bank setting the yuan midpoint once again marginally higher than the prior setting.
Meanwhile, the International Monetary Fund signalled that it won't add the yuan to its basket of reserve currencies for at least a year, giving markets more time to adjust to the possible addition of China's yuan as part of a review of global reserve currencies.
In London, Meggitt said it has won a sole-source contract from the US Defense Logistics Agency to replace fuel cells in Hornet jets in a deal worth up to USD39.8 million. The FTSE 100-listed aerospace and engineering company said the three-year deal, which will end in late 2018, will see it make deliveries from its polymers and composites facility in Rockmart in Georgia in the last quarter of the year.
WH Smith said that it expects its full-year results to be slightly ahead of analyst expectations after both its Travel and High Street business performed well in the second half of the year.
The books and stationery retailer said that its Travel business continued to deliver a strong performance with good sales across all of its core channels in the second half of the year. It said this was due to investments in its "key business initiatives" and growth in passenger numbers, adding that the new store opening programme both in the UK and overseas is on track.
In the economic, there are UK retail sales at 0930 BST and UK the Confederation of British Industry Industrial Trends survey at 1100 BST. From the US there is initial and continuing jobless claims at 1330 BST, before Conference Board leading indicators, Philadelphia Fed manufacturing survey and existing home sales all at 1500 BST.
By Neil Thakrar; [email protected]; @NeilThakrar1
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