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LONDON (Alliance News) - London share prices are set to open higher Thursday, as analysts think the Federal Reserve will not raise US interest rates until September, even though the central bank didn't rule out Wednesday tightening interest rates earlier.
IG says futures indicate the FTSE 100 to open 17 points higher at 6,963.2, after closing lower Wednesday, down 1.2% at 6,946.28.
The Fed's decision came Wednesday after a report that US economic growth screeched to a halt in the first quarter of 2015. The US central bank said it expects the US economy to grow at "a moderate pace" despite the first-quarter slowdown, which it attributed partly to "transitory factors."
"Last night's Fed statement not surprisingly offered few surprises as to the Federal Open Market Committee?s thinking, with the committee removing all calendar references to what the Fed might do next," says Michael Hewson, chief markets analyst at CMC Markets UK.
"We do know that the Fed still thinks that the slowdown in Q1 is transitory, and while we saw US markets also decline yesterday, the move lower was much more sedate given that it is likely that we probably won?t see a move on rates before September, at the earliest," writes Hewson.
Oanda analyst Craig Erlam also believes a rates hike is more likely in September as a rebound in the economy in the second quarter should give the Fed comfort to do so. "If the slowdown in the first quarter proves not to be transitory or disinflation pressures grow, then we may have a problem, but until then I see no reason for the Fed not to raise rates this year," says Erlam.
Wednesday, US GDP inched up by just 0.2% in the first quarter following the 2.2% growth seen in the fourth quarter. The modest uptick compared to economist estimates for an increase of about 1.0%. The report showed a significant slowdown in the pace of consumer spending growth, as the rough weather kept consumers away from stores despite the recent drop in energy prices.
Wall Street ended lower Wednesday, with the DJIA and the S&P 500 down 0.4%, while the Nasdaq Composite ended down 0.6%.
In Asia on Thursday, the Japanese Nikkei 225 closed down 2.7%. Meanwhile, the Hang Seng trades down 0.7% and the Shanghai Composite is flat.
Overnight, the Bank of Japan kept its massive stimulus unchanged, as expected by economists. The BoJ announced that the policy board headed by Governor Haruhiko Kuroda decided by an 8-1 majority vote to maintain the size of quantitative and qualitative easing. Accordingly, the bank will continue to increase the monetary base at an annual pace of about JPY 80 trillion.
The BoJ last expanded the stimulus in October after it noted downward pressure from a substantial decline in crude prices hindering its ability to reach 2% inflation target.
In Europe, Germany's retail sales unexpectedly declined for a second straight month in March, preliminary figures from the statistical office Destatis showed Thursday.
Retail sales fell a calendar-and-seasonally adjusted 2.3% from February, when they dropped 0.1%. Economists had expected a 0.5% gain for March. The latest decrease was the biggest in more than a year. Sales, however, grew 3.5% year-on-year following 3.3% rise in the previous month. The increase was better than the 3.1% gain predicted by economists. Annual growth pace in retail sales recovered after slowing in the previous month.
Royal Bank of Scotland Group said it swung to a first-quarter net loss as revenue fell and operating expenses increased due to the costs of restructuring, litigation and conduct. In a statement, the bank said it made a GBP446 million net loss in the three months ended March 31, compared with a net profit of GBP1.20 billion in the corresponding quarter of the prior year.
In a full UK corporate calendar Thursday, Royal Dutch Shell, Smith & Nephew and International Consolidated Airlines Group also released first-quarter results. Schroders and Tullow Oil issued first-quarter interim management statements. James Fisher & Sons, STV Group and Howden Joinery Group issued interim management statements, while Globo released its full-year results.
Shire is expected to publish its first quarter results at 1200 BST.
In the economic calendar, German unemployment is due at 0855 BST, while Italian and eurozone's CPI are at 1000 BST. In the US, jobless claims are due at 1330 BST, while Chicago Purchasing Managers Index is at 1445 BST.
By Daniel Ruiz; danielruiz@alliancenews.com
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