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(Alliance News) - Trading was tense ahead of Wednesday's Federal Reserve decision, with stocks in London sinking even though a hefty 50 basis point US interest rate hike is overwhelmingly priced in.
"The Fed's rate hike move might be broadly priced in, but markets are clearly nervous that an even more hawkish FOMC might prompt a surge in volatility that could push indices back below last week's lows," said Chris Beauchamp, chief market analyst at online trading platform IG.
"Even a dovish press conference might not help," he added, "since last week's GDP contraction in the US has raised recession and stagflation concerns."
The FTSE 100 index closed down 67.88 points, or 0.9%, at 7,493.45. The FTSE 250 ended down 301.28 points, or 1.5%, at 20,219.48, and the AIM All-Share closed down 14.96 points, or 1.5%, at 998.56.
The Cboe UK 100 ended down 0.7% at 746.48, the Cboe UK 250 closed down 1.5% at 17,880.72, and the Cboe Small Companies ended down 0.4% at 15,068.03.
In European equities on Wednesday, the CAC 40 in Paris ended down 1.2%, while the DAX 40 in Frankfurt fell a more modest 0.5%.
European markets slipped and Wall Street was trading on the back foot in anticipation of the Fed decision, due at 1900 BST. This will be followed by a press conference with Fed Chair Jerome Powell at 1930 BST.
The outcome of the meeting is unlikely to surprise, with markets pricing in a 99% chance of a 50 basis point hike.
Such a move was all but confirmed by Powell in remarks last month when he said a half-point hike would be "on the table" for May.
"It is appropriate, in my view, to be moving a little more quickly. And I also think there's something in the idea of front-end loading whatever accommodation one thinks is appropriate," Powell said during a debate on the global economy hosted by the International Monetary Fund on the sidelines of its spring meetings.
Stocks in New York were lower at the London equities close, with the DJIA down 0.2%, the S&P 500 index down 0.5%, and the Nasdaq Composite down 1.4%.
The dollar pulled back ahead of the Fed. The euro stood at USD1.0560 at the European equities close Wednesday, up against USD1.0535 at the same time on Tuesday. Against the yen, the dollar was trading at JPY129.93, down compared to JPY129.97 late Tuesday.
Weighing on the greenback was data showing US private sector employment growth slowed in April. Ahead of Friday's key nonfarm payrolls figure, ADP data showed 247,000 jobs were added to the US private sector in April, down from March's upwardly revised 479,000 and below a market forecast of 395,000 jobs.
This was followed by surveys highlighting inflationary pressure amongst US service sector firms in April.
The Institute for Supply Management's services purchasing managers' index registered 57.1 in April, down from 58.3 in March. Any reading over 50.0 indicates expansion.
The S&P Global services PMI registered 55.6 in April, significantly above the flash estimate of 54.7. However, this remained below the 58.0 registered in March.
The pound slipped to be quoted at USD1.2501 at the London equities close Wednesday from USD1.2511 at the close on Tuesday.
Hot on the heels of the Fed comes the Bank of England, announcing its latest interest rate decision at midday on Thursday.
After slashing interest rates to a record low of 0.10% in March 2020 as the Covid-19 pandemic began to engulf Europe, the BoE was among the first central banks to begin lifting interest rates with a 15 basis point hike in December 2021.
This was followed up by successive hikes in February and March, to bring Bank Rate to where it currently stands at 0.75%.
Markets overwhelmingly expect the BoE to hike rates for the fourth meeting in a row, which would bring Bank Rate to 1.00% - a level it has not stood at since 2009.
"Even a vote or two in favour of a 50 basis point hike tomorrow would be bullish for the pound, whereas two or more votes in favour of no change would be perceived as dovish and could trigger another bout of sterling weakness," commented Matthew Ryan, senior market analyst at Ebury.
In London, shares in Flutter Entertainment rose 5.1% after saying it grew revenue in the first quarter, led by a strong performance in the US market which offset a decline in the UK & Ireland.
The Dublin-based sports betting and gaming company said in the first quarter, total revenue was 5% higher year-on-year at GBP1.57 billion from GBP1.49 billion. This was a 6% increase on a constant-currency basis.
"With our enlarged recreational customer base, winning position in the US and ongoing focus on sustainable growth, our business remains well placed for the future," said Chief Executive Peter Jackson.
Retailers were bunched at the bottom of the FTSE 100, with DIY retailer Kingfisher falling 5.0% and athleisurewear firm JD Sports down 4.7%, after the latest British Retail Consortium-NielsenIQ tracker showed UK shop price growth accelerated in April.
Shop prices rose 2.7% annually in April. Growth quickened from 2.1% in March. April's climb was also above the six-month average rise of 1.5%, the BRC noted.
Sports Direct owner Frasers fell 5.3%.
Elsewhere in the FTSE 250, Aston Martin raced ahead by 6.7% after reporting a first-quarter performance in line with expectations, with growth in revenue on strong pricing but a widened loss through higher expenses.
In addition, the luxury carmaker confirmed the appointment of Amedeo Felisa as chief executive officer, with immediate effect. He will be replacing Tobias Moers, who is stepping down after two years in the role since 2020.
Felisa was CEO of Ferrari from 2008 and 2016. He joined the Aston Martin board as a non-executive director last summer.
Chair Lawrence Stroll said "there is a need for the business to enter a new phase of growth with a new leadership team and structure".
Direct Line fell 6.3% after the insurer said total gross written premium & service fees fell 2.4% in the first quarter to GBP734.3 million from GBP752.3 million the year before.
On AIM, boohoo shares dropped 12% after the online retailer posted a sharp annual profit plunge driven by high item return rates, subdued consumer confidence and international woes.
Pretax profit in the year ended February 28 dropped 94% to GBP7.8 million from GBP124.7 million a year prior. Revenue increased 14% to GBP1.98 billion from GBP1.75 billion.
Boohoo blamed higher returns rates, subdued consumer demand and extended delivery times for the performance.
Joules tumbled 25% after it reported profit in the Easter trading period slumped, and said its chief executive officer is set to exit the company.
The Leicestershire, England-based country lifestyle retailer said in the 13 weeks to May 1, challenging market conditions have caused profit to fall below management expectations in some areas of its business, despite a 20% revenue increase.
CEO Nick Jones will step down from his role during the first half of the group's next financial year, with the current year ending in May. The search for his successor will begin shortly.
Joules anticipates the trading challenges will continue into the first half of financial 2023, and is "cautious" about its near-term outlook.
In commodities, Brent oil was quoted at USD108.55 a barrel at the London equities close Wednesday, up from USD106.12 late Tuesday.
Brent prices saw support after the European Commission proposed new sanctions on Russian oil exports over the invasion of Ukraine, officials from the EU executive branch confirmed to dpa on Tuesday.
The sixth sanctions package prohibits businesses in the EU from purchasing oil from Russia and aims to phase out imports from the bloc.
Gold was quoted at USD1,866.98 an ounce at the London equities close, down against USD1,873.30 at the close on Tuesday.
Thursday's economic calendar as a Chinese services PMI overnight, German factory orders at 0700 BST, and a UK services PMI at 0930 BST. US jobless claims are at 1300 BST.
Dominating the day is the UK interest rate decision from the Bank of England at midday. Focus will also lie on the latest OPEC meeting of major oil producing nations.
The UK corporate calendar on Thursday has updates from oil major Shell, industrial turnaround firm Melrose Industries, packaging firm Mondi, clothing retailer Next and defence firm BAE Systems.
By Lucy Heming; lucyheming@alliancenews.com
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