LONDON (Alliance News) - London stocks closed higher Wednesday as traders prepared for what could be the first US interest rate hike in almost a decade.
Markets have been anticipating the first Federal Reserve rate hike since the financial crisis for a number of months, and after a series of supportive economic data, particularly in the labour market, Wednesday's decision is considered likely to finally deliver.
The decision itself will be announced at 1900 GMT alongside the Fed's monetary policy statement and economic projections. Fed Chair Janet Yellen will hold a press conference at 1930 GMT where she will likely give more detail on the policy tightening cycle.
The market expects Yellen to emphasise a slow pace for rate increases, after a modest quarter point hike in the federal funds rate, and say that subsequent rate hikes next year will be data dependent.
"The overall impression that Yellen will likely give is that while the Fed is treading lightly, it has thought through various issues and scenarios and does not expect this to be a one-off hike, like some of the critics are charging," said strategists at US private bank Brown Brothers Harriman.
Although the markets have largely priced in a 25 basis point hike to the Fed Funds rate, there is still scope for volatility if the Federal Open Market Committee's statement or Yellen's press conference provide any surprises.
"Whatever the decision, I expect to see plenty of volatility in the markets, especially as investors attempt to correctly interpret Chair Janet Yellen's comments in the press conference which follows. Of course, the most volatility would likely come if the Fed gets cold feet like its European counterparts and pulls the plug altogether," said Oanda's senior market analyst Craig Erlam. "This would cause huge credibility issues for the Fed given its clear intention to guide the markets to where they are today."
This fear was not reflected in the FTSE 100 on Wednesday, with blue-chip stocks continuing their positive momentum from Tuesday. The index had previously been on a run of eight successive sessions in the red before Tuesday's gain, and closed up 0.7% at 6,061.19 on Wednesday. The FTSE 250 ended up 0.5% at 17,075.94, while the AIM All-Share closed down 0.1% at 718.64.
Wall Street also appeared confident at the London close, with the Dow Industrials up 0.1%. The S&P 500 index was up 0.2%, as was the Nasdaq Composite.
The price of gold made gains ahead of the Fed's decision and at the London close was quoted at USD1,075.20 an ounce, up from USD1,060.48 a day before.
European equities also ended higher. The CAC 40 in Paris added 0.2% as did the DAX 30 in Frankfurt. Earlier in the day, data from Eurostat showed eurozone consumer prices increased by more than previously estimated in November.
Inflation rose to 0.2% year-on-year in November, coming ahead of the 0.1% initial estimate and higher than the 0.1% growth seen in October. However, headline inflation has been below the European Central Bank's target of 'below, but close to 2%' since early 2013.
At the London close, the euro traded at USD1.0942, firm from USD1.0926 at Tuesday's equities close.
In the UK, the Office for National Statistics said the UK unemployment rate declined in three months to October and the employment rate hit a record high.
The ILO jobless rate came in at 5.2% in August to October period, which was below 5.3% seen in three months to September. It has not been lower since three months to January 2006, the ONS said. Economists had forecast the rate to remain unchanged at 5.3%.
The UK employment rate rose to 73.9%, the highest since comparable records began in 1971.
However, support for the pound was limited as UK earnings including bonuses increased by 2.4% in the three months to October from the same period of last year, slightly slower than a 2.5% rise forecast by economists. Excluding bonuses, earnings advanced 2.0%.
The pound initially declined versus the dollar on the data but was then swayed by repositioning ahead of the Fed's rate decision during the rest of the trading session. At the London close the pound traded the dollar at USD1.5002, down from USD1.5136 a day before.
Oil prices again experienced heavy falls, as the US Energy Information Administration's crude oil stock unexpectedly rose last week. The EIA said its crude oil stock rose by 4.8 million barrels, compared to the expected 1.9 million barrel decline. The excess supply of oil hurt prices and at the London close Brent oil traded at USD37.46 a barrel, down USD38.50 at the equities close Tuesday, while West Texas Intermediate was at USD35.77 a barrel.
On the London Stock Exchange, Standard Chartered closed as the best performer in the FTSE 100, up 6.4% after analysts at JP Morgan Cazenove said they see long-term value and potential in a turnaround effort led by new Chief Executive Bill Winters.
Pearson ended up 5.2% after the education publisher was upgraded to Outperform from Neutral by Exane BNP Paribas. The upgrade came after the shares had declined amid reports that Pearson had backed down from planned increases to the selling price of its e-books in the face of a rebellion by academic institutions.
Rolls-Royce Holdings closed up 4.9%, also one of the best blue-chip performers. The engineer said it will ditch its two-division structure in the new year and move to a model of five market-facing businesses, part of the wider restructuring programme the group is enacting.
The jet engine and power systems manufacturer, which has been hit by a slew of profit warnings caused by pressures on all of its business units, said from January 1, it will end its current divisional structure, by which it operates under the Aerospace and Land & Sea units.
Instead, it will operate as five market-facing units, covering Civil Aerospace, Defence Aerospace, Marine, Nuclear and Power Systems. The presidents of those five units will then report directly to Warren East, Rolls-Royce's chief executive.
Fashion retailer SuperGroup led gainers in the FTSE 250, up 12%. The company, which owns the Superdry clothing range, said its pretax profit dipped in the first half due to the group booking exceptional costs which offset robust revenue growth.
SuperGroup said its pretax profit for the 26 weeks to October 24 was GBP11.5 million, down from GBP17.2 million, as it booked costs on the restructuring of its business in North America. Stripping out the exceptionals, the company said its pretax profit for the half rose to GBP19.3 million from GBP12.5 million.
SuperGroup has proposed paying a 6.2 pence interim dividend, having not paid an interim nor final dividend in the previous financial year.
N Brown was the worst performer in the midcap index, down 6.0% as N+1 Singer cut its pretax profit estimate for the online, catalogue and stores retailer's full-year due to concerns about mild weather in December.
Outside the FTSE 350, fellow clothing retailer Bonmarche closed down 27%. Bonmarche on Wednesday said it expects to report a fall in pretax profit for its current financial year and said its chief executive is departing to lead fashion chain Karen Millen.
Bonmarche said trading conditions have been "very challenging" in December, particularly since the Black Friday sales on November 27.
In the economic calendar, the Japanese trade balance is at 2350 GMT. On Thursday, German IFO business climate survey results are at 0900 GMT, the European Central Bank's monthly economic bulletin is also released at 0900 GMT. At 0930 GMT are UK retail sales before eurozone construction output at 1000 GMT.
In the afternoon, US initial and continuing jobless claims are at 1330 GMT, alongside the US current account, and Philadelphia Fed manufacturing survey is at 1430 GMT.
In the UK corporate calendar, electronic products distribution and servicing company Premier Farnell issues a trading statement, real estate investment trust Local Shopping REIT reports full-year results, and investment trust Miton UK MicroCap Trust releases half-year results.
By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1
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12 May 2016 07:36
