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(Alliance News) - European markets were cautiously higher on Wednesday as investors took to the sidelines ahead of the US Federal Reserve's meeting.
"What little activity there has been in markets has dropped to a barely noticeable level ahead of the Fed meeting, which even the legend Paul Tudor Jones has described as the 'most crucial in Powell's career'. Markets, which always prefer change to stasis, seemed to have pinned their hopes on some changes in the statement that will point towards a recognition of inflation pressures and will bring forward the tapering of asset purchases," IG Chief Market Analyst Chris Beauchamp said.
The key event in Wednesday's calendar is the US Federal Reserve's monetary policy decision at 1900 BST. This will be followed by a press conference with Fed Chair Jerome Powell at 1930 BST.
Beauchamp continued: "It is true that the FOMC will have a tough time of it tonight defending the transitory line on inflation, but it's their line and we can expect it to be reiterated. Markets have been in deep freeze the last few days waiting for tonight's decision, but those hoping for a mis-step from the chairman will probably be disappointed - he knows where the questions will focus and will be determined not to be caught on the hop."
The FTSE 100 index closed up 12.47 points, or 0.2%, at 7,184.95 on Wednesday. The mid-cap FTSE 250 index ended down 14.06 points at 22,617.66. The AIM All-Share index gained 0.31 of a point to 1,244.49.
The Cboe UK 100 index closed up 0.3% at 716.41. The Cboe 250 ended down 0.1% at 20,359.49, and the Cboe Small Companies up 0.1% at 15,314.09.
In mainland Europe, the CAC 40 in Paris was up 0.2%, while the DAX 30 in Frankfurt was treading water, ending slightly lower.
CMC Markets Chief Market Analyst Michael Hewson said: "It's been another slow day for European stocks; with the DAX underperforming, however, the tone has still been broadly positive despite the basic resource sector underperforming after the latest industrial production and retail sales data out of China, missed expectations. Weaker commodity prices also aren't helping with Anglo American and Glencore near the bottom of the index."
China's industrial output rose 8.8% annually in May, a hair below forecasts of 9% growth. Industrial production was 9.8% higher yearly in April.
Gold was quoted at USD1,857.40 an ounce Wednesday evening, soft compared to USD1,860.80 on Tuesday.
Glencore and Anglo American lost 1.2% while Antofagasta gave back 1.0% after figures showed China's industrial production growth slowed in May.
In the US, Wall Street was steady ahead of the interest rate decision. The Dow Jones Industrial Average was down 0.6%, the S&P 500 down 0.2% but the Nasdaq Composite was up 0.3%.
"It's highly unlikely the Fed will say anything that might upset the apple cart risk wise, though we could well see the early signs of some discussion of a timetable to tapering in its monthly bond purchase program, which is currently running at USD120 billion a month. In light of recent data, it would be more surprising if they didn't start a discussion of this nature," Hewson added.
Sterling was changing hands at USD1.4103 Wednesday evening, rising from USD1.4088 at the London equities close on Tuesday, after UK inflation topped the Bank of England's 2% target for the first time in nearly two years.
The Office for National Statistics said the UK consumer price index jumped 2.1% on an annual basis in May, accelerating from 1.5% growth in April.
May's annual inflation print was the highest reading since the same 2.1% growth rate was registered in July 2019. Consumer price growth has remained below 2% ever since then.
"Even though the majority of market participants appear to be comfortable in the view that much of the inflation experienced this year in the UK and overseas will have a transient nature, there is significant uncertainty around the length of time current supply bottlenecks will take to dissipate," analysts at Rabobank said.
They continued: "This uncertainty has given way to the debate as to whether inflation expectations will be impacted and whether price pressures in the forthcoming economic cycle could be higher than in recent history. In the UK, the inflationary argument is made all the more interesting by reports that Labour supply could be diminished as a consequence of the confluence of Brexit and the pandemic. Clearly this has sparked interest as to whether it could have the potential to impact wage inflation in the UK."
The rising inflation gives the Bank of England something to think about next week, CMC's Hewson noted, when the central bank meets.
"While we don't expect the MPC to be alarmed at what's happening to CPI, far from it, they will welcome it, we may see them pare back their weekly bond buying program even further. At the last meeting they reduced it for 'operational reasons'," Hewson added.
The euro traded at USD1.2117 on Wednesday, lower than USD1.2127 late Tuesday in London. Against the yen, however, the greenback fell to JPY109.94 versus JPY110.08.
In London, midcap telecommunications infrastructure company Helios Towers gave back 3.6% as it set out to raise USD160 million via a placing, retail offer and convertible bond offering.
Helios will issue 46.8 million placing shares and 1.3 million retail offer shares to raise around USD110 million. Shares will go for 163 pence each in both the placing and retail offer, giving buyers a 5.3% discount on Helios's closing share price of 172.2 pence per share on Tuesday. It is looking to raise around USD50 million from a convertible bond issue as well.
Best of the Best slumped 26% in AIM despite a surge in pretax profit for financial year ended April 30, to GBP14.1 million from GBP4.2 million, though notes it has seen "somewhat of a reduction in customer engagement" since easing of lockdown restrictions on April 12.
"We are closely monitoring this, but with our flexible model, growth strategy and plans for the year ahead, we expect customer engagement to return to normal levels before too long," the London-based car and lifestyle competition company said.
Oil prices were higher on Wednesday with North Sea benchmark Brent trading at USD74.88 a barrel, higher than USD73.70 late Tuesday.
In the international economics calendar on Thursday, there is Chinese house price data overnight, followed by eurozone consumer price index at 1000 BST and US initial jobless claims at 1330 BST.
In the local corporate calendar, Whitbread will issue a first quarter update, while Dr Martens, Halfords and Syncona will publish full-year results.
By Paul McGowan; paulmcgowan@alliancenews.com
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