LONDON (Alliance News) - UK stocks are set to open slightly lower Thursday as oil prices continue to fall to new six-and-a-half year lows, while minutes from the US Federal Reserve on Wednesday failed to provide much new information on the immediacy of an interest rate hike.
The minutes revealed most members of the Federal Open Market Committee believed conditions for raising interest rates were approaching but not yet achieved. While meeting participants said the US labour market had improved notably since early this year, many saw scope for some further improvement. Some members also expressed concerns about the outlook for inflation and whether it would support an interest rate hike.
"Last night?s release of the FOMC minutes was very important for the markets as investors continue to seek clues on the timing of the first rate hike in almost a decade. As it turned out though, there was little to be learned from the minutes themselves and as is often the case, people seemed to simply take from them what they wanted to," says Craig Erlam, senior market analyst at Oanda.
"We?re going to have to wait and see what policy makers have to say in the coming weeks as we near the September meeting. There is clearly a desire to raise rates at the Fed, I?m just not sure at this stage whether everyone is quite on board yet for a September hike to occur. If anyone at the last meeting was still on the fence, the yuan devaluation may have just tipped them over the edge into the dove camp," Erlam adds.
The Fed minutes were released after a report from the Labor Department showed the US consumer price index edged up by 0.1% in July from the month before, after climbing by 0.3% month-on-month in June. Economists had expected prices to rise by 0.2%. Excluding food and energy prices, the core consumer price index also ticked up by 0.1% in July from June following a 0.2% increase in June from May. Core prices also were expected to rise by 0.2%.
On a year-on-year basis, US consumer prices rose by 0.2% in July, reflecting a slight acceleration from the 0.1% growth seen in June. Meanwhile, the annual rate of growth in core consumer prices came in at 1.8%, unchanged from the previous month. Both annual inflation readings matched estimates. Many analysts still believe that these inflation numbers still leave a September US rate hike on the table, with the Fed seemingly willing to look past the effects of the fall in oil price on inflation.
"One thing is clear: the decision to hike or not to hike will come down to members? confidence that inflation will reach 2% in the medium term. At the July meeting, many participants felt confident that this would be supported by sustained growth and further improvements in the labour market," says Societe Generale analyst Aneta Markowska.
Wall Street closed firmly lower but off lows after the release of the minutes, with the DJIA closing down 0.9%, while the S&P 500 and the Nasdaq Composite both fell 0.8%.
IG says futures indicate the FTSE 100 lower at 6,390.1. The index closed down 1.9% at 6,403.45 points on Wednesday, its lowest level since mid-January. The blue-chip index has now failed to post a daily gain in seven sessions.
Oil prices continue to remain under pressure, with West Texas Intermediate falling to a new six and a half year low on Wednesday at USD40.39 a barrel. Ahead of the open it trades at USD41.00 a barrel.
In Asia, the Nikkei in Tokyo is down 0.8%, the Hang Seng trades down 1.5% and the Shanghai Composite is down 1.3%.
In the UK corporate calendar, there are half-year results from FTSE 250-listed companies Premier Oil, Rank Group, UK Commercial Property Trust, KAZ Minerals, Phoenix Group Holdings, and Bank of Georgia. Also reporting interim results are Stock Spirits Group, Polypipe Group and others.
In the economic, there are UK retail sales at 0930 BST and UK the Confederation of British Industry Industrial Trends survey at 1100 BST. From the US there is initial and continuing jobless claims at 1330 BST, before Conference Board leading indicators, Philadelphia Fed manufacturing survey and existing home sales all at 1500 BST.
By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1
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