LONDON (Alliance News) - UK stocks are set to open higher Thursday after the US Federal Reserve refused to commit to a September rate hike and on another busy day in the corporate calendar.
The Federal Reserve noted the strengthening US economy while leaving its benchmark interest rate unchanged Wednesday, setting the stage for a possible tightening of monetary policy in late 2015.
"The labour market continued to improve with solid job gains and declining unemployment," the US central bank said after a two-day meeting of its monetary policy committee.
Fed Chair Janet Yellen and other board members in recent months have publicly stated their expectations for a rate hike before the end of the year if the economy continues to show improvements and currently low inflation rises to a more normal level approaching 2%. Most Wall Street economists expect the Fed to begin tightening monetary policy at one of its next meetings - on September 17 or October 28.
The Fed said it "anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labour market and is reasonably confident that inflation will move back to its 2% objective over the medium term," repeating its past statements nearly word-for-word.
The central bank's emphasis on continuing job improvement will make the next nonfarm payrolls number, which is due next week, even more important that usual as expectations for a rate hike grow closer.
"The fact that the Fed now needs to see 'some further improvement in the labour market' makes little difference given that it was already very healthy. I don't think two months of 250,000 job creation necessarily guarantees a September hike any more than 180,000 would," says Craig Erlam, senior market analyst at Oanda.
"Overall, the statement was mildly hawkish and leaves a September rate hike on the table but everything depends on the data in the next couple of months. There is clearly a willingness to raise rates this year at the Fed, but if the data over the next couple of months softens, I don?t think they will have any issue with waiting until December or just testing the water with a 0.1% hike," he adds.
Societe Generale strategist Kit Juckes says the Fed is closer to tightening monetary policy and believes the rate hike will come in September.
"If any major US economic forecasting group changes its mind about the timing of the first hike on this I'll be amazed. We think September," Juckes says. "I'm still a dollar bull, but that was predictable. There's nothing here to challenge that stance even if there's only very measly support for it."
The dollar rose against the pound at the release of the statement, when the pound went from trading at USD1.5618 to USD1.5601. The dollar went on to steadily gain more ground overnight and ahead of the London open, the pound trades at USD1.5600.
Wall Street closed higher Wednesday after the Fed statement. The DJIA and the S&P 500 both ended up 0.7% and the Nasdaq Composite closed up 0.4%.
IG says futures indicate the FTSE 100 higher at 6,650.8. The index closed up 1.2% at 6,631.00 on Wednesday amid a flurry of corporate updates.
In Asia Thursday, the Japanese Nikkei closed up 1.1%, the Hang Seng trades up 0.1% and the Shanghai Composite is up 0.5%.
Industrial production in Japan climbed a seasonally adjusted 0.8% in June, the Ministry of Economy, Trade and Industry said. That beat expectations for an increase of 0.3% following the 2.1% contraction in May.
Royal Dutch Shell reported a USD1.7 billion drop in earnings in the second quarter of 2015, as its upstream division continued to be hampered by lower oil prices, compounded by a fall in production. The FTSE 100-listed oil and gas company also reaffirmed its commitment to its dividend alongside a share buyback as its merger with BG Group continues as planned.
Shell reported current cost of supply earnings of USD3.4 billion in the second quarter of 2015, down from USD5.1 billion a year before, as revenue fell to USD73.95 billion from USD115.27 billion after being hit by lower oil prices.
In an earlier statement Thursday, Shell said its plans to pay a full-year dividend of USD1.88 per share in 2015 and at least that for 2016 remains unchanged and also said it will carry out a USD25.0 billion share buyback between 2017 and 2020 as planned.
Diageo reported a rise in profit in its recently-ended financial year as sales grew and it increased its dividend for the year saying it believes it will continue to deliver a strong and sustained performance.
The FTSE 100-listed drinks giant reported a pretax profit in the year ended June 30 of GBP2.93 billion, up from the GBP2.71 billion it reported the year before, as revenue grew to GBP16 billion from GBP14 billion. Diageo will pay a total dividend of 56.4 pence for the year, an increase of 9% on the 51.7p it paid the year before.
Royal Bank of Scotland Group reported an 27% increase in second-quarter net profit and said it is on track to meet its cost savings target for the year. RBS said it made a GBP293 million net profit in the three months to the end of June, compared with GBP230 million in the corresponding quarter the prior year.
AstraZeneca improved its revenue guidance for its full year at constant currency, as it posted a lower pretax profit for its first half due to higher research and development costs.
The pharmaceutical giant has improved its revenue guidance for its full year at constant currency, now expecting revenue to decline by low single-digit percentage - it had previously guided at the mid single-digit. Its expectations for core earnings per share is unchanged, it continues to expect it to increase by low single-digit percent in the full year.
In the economic calendar, there are German unemployment data at 0855 BST. The European Central Bank will publish its economic bulletin at 0900 BST, before European business sentiment survey results at 1000 BST. In the afternoon are German inflation data at 1300 BST followed by US second quarter GDP at 1330 BST.
By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1
Copyright 2015 Alliance News Limited. All Rights Reserved.
