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(Alliance News) - London's FTSE 100 is called to open higher on Thursday, with markets responding positively to a 50 basis point rate cut by the Federal Reserve, as the spotlight now shifts to the Bank of England.
Threadneedle Street announces a rate decision at midday, though unlike its US counterpart, it is not expected to cut.
UK annual consumer price inflation remained at 2.2% last month, though services price growth picked up, reinforcing expectations that the Bank of England will leave rates unmoved on Thursday.
The US central bank, however, reduced the federal funds rate to 4.75%-5.00% from 5.25%-5.50%, where it has been since July 2023.
Outside the emergency rate cuts during Covid, the last time the Federal Open Market Committee cut by half a point was in 2008 during the global financial crisis.
The FOMC indicated through its "dot plot" the equivalent of 50 more basis points of cuts by the end of the year.
SPI Asset Management analyst Stephen Innes commented: "Beyond the rate cut itself, the real message emerged through the statement, dot plot, economic projections, and Chair [Jerome] Powell's presser. The focus has now decisively shifted to the labour market, and there's a sense that the Fed is trying to strike a better balance between jobs and inflation."
In early UK corporate news, Next reported improved half-year earnings and lifed its profit outlook. Ocado said its retail joint-venture performed strongly, and the revenue outlook there has improved.
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: called up 0.9% at 8,327.58
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Hang Seng: up 2.2% at 18,041.82
Nikkei 225: up 2.1% at 37,155.33
S&P/ASX 200: up 0.6% at 8,191.90
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DJIA: closed down 103.08 points, 0.3% at 41,503.10
S&P 500: closed down 0.3% at 5,618.26
Nasdaq Composite: closed down 0.3% at 17,573.30
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EUR: up at USD1.1133 (USD1.1113)
GBP: up at USD1.3240 (USD1.3198)
USD: up at JPY142.64 (JPY141.97)
GOLD: up at USD2,575.77 per ounce (USD2,569.38)
OIL (Brent): up at USD74.10 a barrel (USD73.03)
(changes since previous London equities close)
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ECONOMICS
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Thursday's key economic events still to come:
12:30 BST Germany Deutsche Bundesbank President Joachim Nagel speaks
12:00 BST UK interest rate decision
13:30 BST US initial jobless claims
13:30 BST US Philadelphia Fed manufacturing index
15:00 BST US existing home sales
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The UK's housing market has a lack of affordable and suitable homes and strong action is needed to support first-time buyers, renters and people looking to downsize, a body representing members of the banking and finance industry has urged. UK Finance said the scale of the challenges means strong action is needed from the public and private sectors. Its report said: "The UK housing market is grappling with a shortage of affordable, secure and suitable homes for people at different life stages."
UK Finance added: "We believe that well‑considered policies, backed by evidence whilst acting on lessons learned from the past, could address the challenges the housing sector faces." Its report said: "In England, the long‑term failure to meet the previous government's goal of building 300,000 new homes a year is often cited as the key policy issue. "As a result of repeatedly missing targets, the UK has an estimated shortfall of 4.3 million homes, a number that is growing every year." The body, which represents over 300 firms including 120 mortgage lenders, said the new government had acted quickly to encourage more housebuilding and ensure affordable housing is a key part of its new targets.
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Benjamin Netanyahu has accused the UK government of sending "mixed messages" over its support for Israel and "undermining" the country's right to self-defence. Israel's prime minister criticised the new Labour administration for suspending around 30 arms exports to Israel amid concerns they could be used in violations of international humanitarian law in the Gaza conflict. UK Prime Minister Keir Starmer has also dropped the previous Conservative government's plan to challenge the International Criminal Court's application for an arrest warrant against Netanyahu. Both decisions have caused diplomatic tensions with Israel, which launched a counter-attack in Gaza after Hamas-led militants broke into Israel and killed around 1,200 people and abducted around 250 others. More than 41,000 Palestinians have been killed in Gaza in the counter-attack, according to the territory's Health Ministry, which does not distinguish between combatants and civilians in its count. Tensions in the Middle East have been heightened in recent days by detonations of electronic devices in Lebanon, including those used by Hezbollah. The militant group has blamed Israel for what appeared to be a remote attack.
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BROKER RATING CHANGES
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Berenberg starts Ashtead Group with 'buy' - price target 7,000 pence
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HSBC cuts Asos to 'reduce' - price target 320 pence
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COMPANIES - FTSE 100
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Clothing and homewares retailer Next raised profit guidance on the back of strong sales over the past six weeks. In the half-year ended July 27, revenue rose 14% to GBP2.86 billion from GBP2.52 billion a year earlier. Next's pretax profit improved 3.9% to GBP432.1 million from GBP415.7 million. Full price sales rose 4.4% during the period, and growth has picked up in the first six weeks of the second half. Full prices sales during the six-week period have "materially exceeded our expectations", rising 6.9% on-year. Next now expects full-year full price sales growth of 4.0%, its outlook improved from 3.4%. It now predicts pretax profit of GBP995 million, which would be a year-on-year rise of 8.4%. The outlook was improved from GBP980 million. Next declared a 75 pence per share ordinary dividend, up from the 66p payout it declared a year prior. It expects to make buybacks for the full-year totalling GBP306 million. "If we achieve our profit guidance of GBP995 million, these buybacks represent an estimated rate of return of 8.7%; ahead of our buyback hurdle of 8%."
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COMPANIES - FTSE 250
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Ocado said revenue at its retail joint-venture surged in its third-quarter, and the outlook for the full-year has been lifted. Ocado Retail's revenue rose 16% to GBP658.0 million in the 13 weeks to September 1, from GBP569.6 million a year prior. Ocado Retail is a joint-venture between grocer and warehouse technology firm Ocado and retailer Marks & Spencer. Volume and average orders each grew 15%, while active customers climbed 10%. Looking ahead, Ocado Retail is now expected to deliver low double digit revenue growth for the full-year, the outlook raised from mid-high single digits growth.
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Close Brothers reported growth in annual profit and said it has struck a deal to sell its wealth management business for up to GBP200 million. The merchant bank said Close Brothers Asset Management will be sold to funds managed by Oaktree Capital Management. Close Brothers said: "Close Brothers intends to retain all upfront cash proceeds from the transaction of approximately GBP172 million. The transaction will strengthen the group's capital base and improve its position to navigate the current uncertain environment." The deal includes GBP146 million to be paid upfront in cash by Oaktree, and a GBP26 million dividend from CBAM to be paid to Close Brothers. The deal also has a GBP28 million contingent deferred consideration in the form of preference shares. Close Brothers reported operating income for the year to July 31 edged up 1.2% to GBP944.2 million from GBP932.6 million the year prior. Pretax profit climbed 27% to GBP142.0 million from GBP112.0 million. Boosting its bottom-line was "higher profitability in the banking division" and the non-repeat of impairment charges incurred at Novitas the year prior. "This was partly offset by costs associated with the handling of complaints and other operational costs associated with the FCA's review of historical motor finance commission arrangements," Close Brothers added.
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OTHER COMPANIES
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Advertising agency S4 Capital reported a fall in half-year revenue as "challenging global macroeconomic conditions and high interest rates" kept a lid on tech client spend. It kept its profit outlook unmoved but lowered guidance for revenue. Revenue in the six months to June 30 fell 18% to GBP422.5 million from GBP517.1 million a year prior. Excluding direct costs, net revenue was 16% lower on-year at GBP376.1 million from GBP445.5 million. Its pretax loss, however, narrowed to GBP17.2 million from GBP23.2 million. Operating expenses were 16% lower at GBP379.8 million from GBP451.9 million. Executive Chair Martin Sorrell said: "Trading in the first half reflects the continuing impact of both challenging global macroeconomic conditions and high interest rates. This particularly impacted marketing spend by some technology clients and our Technology Services practice was affected by a reduction in one of our larger relationships." He added: "We maintain our profit target for the full year and, as in prior years, financial performance will be significantly second half weighted. We remain confident in our strategy, business model and talent, which together with scaled client relationships position us well for growth in the longer term, with an emphasis on deploying free cash flow to improve shareowner returns, now all significant combination payments have been made. In addition to a very significant new account, we continue to capitalise on our prominent AI positioning and we continue to see multiple initial AI related assignments." It still expects its Content arm to "show improved profitability reflecting the benefit of cost reductions made in 2023 and in 2024". At group level, it still expects the like-for-like operating earnings before interest, tax, depreciation and amortisation to be at a "broadly similar overall level" to 2023. However, it believes like-for-like net revenue to be down on the prior year "to a greater extent than assumed in May".
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NewRiver REIT said it has raised GBP50.2 million from a placing and retail offer. The announcement on Thursday came after the real estate investment trust said it is considering a potential cash-and-share offer of about GBP147 million for peer Capital & Regional. The two companies had announced the possible M&A move after the London equities close on Wednesday. Under the terms of the possible offer, the two said in a joint statement Capital & Regional shareholders will receive 31.25 pence in cash per share and 0.41946 new NewRiver shares. Late in May, NewRiver first made a proposal to Growthpoint Properties about a potential takeover of Capital & Regional. Growthpoint owns 68% of Capital & Regional. On the basis of the closing price per NewRiver share of 74.5 pence each on May 22, being the last business day before the offer period started, the possible offer implies a value of 62.5 pence per Capital & Regional share and about GBP147 million for the entire issued share capital of Capital & Regional. NewRiver said its board believes that there is a strong strategic, operational and financial rationale for the combination with Capital & Regional.
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By Eric Cunha, Alliance News news editor
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