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(Alliance News) - Stocks in London are set for a cautious open on Wednesday ahead of an expected US interest rate cut from the Federal Reserve.
In early UK company news, DIY retailer Kingfisher reported a fall in interim like-for-like sales. The UK government has decided to intervene in the GBP4 billion takeover of defence firm Cobham on national security grounds. Car dealer Pendragon skipped its dividend and issued a warning after a challenging first half.
IG says futures indicate the FTSE 100 index of large-caps to open 14.90 points lower at 7,305.50 on Wednesday. The FTSE 100 index closed down 1.01 points at 7,320.40 on Tuesday.
In the US on Tuesday, Wall Street ended in positive territory, with the Dow Jones Industrial Average ending up 0.1%, the S&P 500 up 0.3% and the Nasdaq Composite up 0.4%.
The day's key event is after the London market close. An interest rate decision from the US Federal Reserve is due at 1900 BST, followed by an press conference with Fed Chair Jerome Powell at 1930 BST.
"Today's Fed decision is once again likely to be a contentious one, given the two dissents we saw to the last cut in rates, which saw the US central bank cut by 25bp at its July meeting," said Michael Hewson at CMC Markets.
"It seems indisputable that the Fed [will] cut by another 25bp today; however the bigger story will be in how it manages its message without appearing even more divided than it was in July, against a backdrop of an oil price spike, which if sustained could see inflation move higher," he continued. "Signalling further cuts in the teeth of a possible oil price shock would not be a wise move."
The latest update from the Fed will come after the New York Federal Reserve Bank on Tuesday pumped billions of dollars into financial markets for the first time in more than a decade to keep short-term US interest rates in line with the Fed's target range.
The emergency interventions on money markets – one early Tuesday and another scheduled for Wednesday morning – came as a sudden cash shortage drove up interest rates. The shortage threatened the Fed's control over a crucial tool it uses to transmit monetary policy to the wider economy as the target range helps set borrowing costs across the financial system.
The New York Fed authorized repurchase agreements – known as "repos" – to provide liquidity in an effort to keep the Fed's benchmark lending rate "within the target range of 2 to 2-1/4%." It was the first such operation since September 2008.
Elsewhere in the economic calendar on Wednesday, UK inflation is at 0930 BST and eurozone inflation at 1000 BST.
"A softer [UK] inflation could revive the BoE doves, as other major central banks shift toward increasingly unorthodox monetary policies, but the BoE is broadly expected to stay pat at this week's monetary policy meeting and the upcoming ones, given that the Brexit uncertainties threaten the price stability in Britain and refrain British policymakers from taking any action," said Ipek Ozkardeskaya at London Capital Group.
The Bank of England announces its latest interest rate decision at midday on Thursday.
Sterling was quoted at USD1.2486 early Wednesday, firm compared to USD1.2478 at the London equities close on Tuesday.
"Hence, the impact of a potentially slower inflation on sterling should remain limited," Ozkardeskaya added.
Already released, the value of outbound shipments from Japan plunged at the fastest rate in seven months in August amid a Chinese economic slowdown that is hurting the country's export-oriented economy.
Japan's exports fell 8.2% year-on-year to JPY6.14 trillion, about USD56.8 billion, for the ninth straight month of decline, the Finance Ministry said in a preliminary report. Exports to China, Japan's largest trading partner, plummeted 12% from a year earlier to JPY1.2 trillion, while imports were down 8.5% to JPY1.4 trillion, the ministry said.
Japan's overall imports dropped 12% to JPY6.28 trillion, which resulted in a trade deficit of JPY136.3 billion, the report showed.
In Asia on Wednesday, the Japanese Nikkei 225 index closed down 0.2%. In China, the Shanghai Composite is up 0.4%, while the Hang Seng index in Hong Kong is down 0.1%.
In early UK company news, B&Q owner Kingfisher reported a fall in both interim revenue and profit.
Total sales were down 1.4% to GBP6.00 billion in the six months to July 31, and 1.8% lower on a like-for-like basis. Retail profit declined 4.8% to GBP466 million, while pretax profit was down 13% at GBP245 million.
Kingfisher said the overall like-for-like sales fall was driven by B&Q and France, offsetting growth in Screwfix, Poland and Romania.
"Our transformation activity continued in the first half of this year, including new range launches across the group and the rollout of further capabilities within our unified IT platform. These activities resulted in some ongoing disruption that impacted sales at B&Q and Castorama France. This was partly offset by positive sales performances in Screwfix, which continues to grow its market share, and Poland," said outgoing Chief Executive Veronique Laury.
Her replacement, Thierry Garnier, takes up the CEO role next week.
More positively, Kingfisher's gross margin rose by 60 basis points to 37.0%, and the firm held its interim dividend at 3.33p per share.
Looking at the rest of the year, Kingfisher said its outlook by geography "remains mixed" with continued uncertainty around UK consumer demand. The gross margin for the full-year after clearance is expected to be flat.
British Land Co said it outperformed operational benchmarks for the June quarter.
Like-for-like retail sales among the landlord's shop tenants were up 1.1% in the quarter ended June, outperforming the benchmark by 520 basis points, with footfall down 0.2%, marking an outperformance of 420 basis points.
Retail leasing activity for the five months to August totalled 500,000 square feet, generating headline rent of GBP7.2 million, and maintaining "high occupancy" of 97%. On average, deals were 3% ahead of estimated rental value and reflected a 2% premium to previous passing rents.
The UK government said it is intervening in the proposed sale of Cobham on national security grounds.
Secretary of State for Business, Energy & Industrial Strategy Andrea Leadsom has issued a European intervention notice to intervene in the deal, and has written to the UK competition regulator instructing it to investigate.
The UK Competition & Markets Authority will now prepare a report on the national security aspects of the proposed transaction, and has until October 29 to do so.
Andrea Leadsom said the decision came following "careful consideration", adding that the government's goals are "to support private sector innovation whilst safeguarding the public interest".
This news comes after Nadine Cobham, who owns a 1.5% stake in the business, wrote to Defence Secretary Ben Wallace and Leadsom calling on them to intervene in the GBP4 billion buyout by US-based Advent International. Cobham shareholders on Monday approved the takeover.
Car dealer Pendragon said it had a "challenging" first half, and its underlying loss before tax for the financial year as a whole is now expected to be "at the bottom" of board expectations.
Revenue for the first half of 2019 fell 0.8% to GBP2.46 billion from GBP2.48 billion a year ago, with the company swinging to a loss of GBP32.2 million from a GBP28.4 million profit. Driving the swing to loss were impairments amounting to GBP102.5 million.
On a like-for-like basis, sales were up 2.9%, with used car sales up 3.9% and new cars up 1.7%.
"The first half of FY19 has been challenging for the group, with financial performance impacted by a combination of issues. The principal driver of the group's performance was the reduction in the level of used car stock to more appropriate levels," Pendragon explained.
The firm decided to skip its interim dividend, last year having paid out 0.8p.
Economic and market conditions are "very challenging", the firm continued, with customer confidence not expected to pick up over the remainder of 2019. As a result, the firm's underlying pretax loss for 2019 is now expected "at the bottom" of board expectations.
In addition, Pendragon Chair Chris Chambers will step down from the board at the beginning of October. Non-Executive Director Bill Berman has agreed to assume, on an interim basis, the newly created role of executive chair.
"Bill will provide leadership and strategic direction of the company while the process for recruitment of a new chief executive officer continues and the process for the recruitment of a new non-executive chairman commences," Pendragon said.
